Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Sen. Durbin: Bankers 'Own' CongressFrom Glenn Greenwald's blog at Salon.com; hat-tip to LF:Thursday April 30, 2009 05:35 EDT Top Senate Democrat: bankers "own" the U.S. Congress Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is. The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials. Here is just one random item this week announcing a couple of standard personnel moves: Former Barney Frank staffer now top Goldman Sachs lobbyist So: Paese went from Chairman Frank's office to be the top lobbyist at Goldman, and shortly before that, Goldman dispatched Paese's predecessor, close Tom Daschle associate Mark Patterson, to be Chief of Staff to Treasury Secretary Tim Geithner, himself a protege of former Goldman CEO Robert Rubin and a virtually wholly owned subsidiary of the banking industry. That's all part of what Desmond Lachman -- American Enterprise Institute fellow, former chief emerging market strategist at Salomon Smith Barney and top IMF official (no socialist he) -- recently described as "Goldman Sachs's seeming lock on high-level U.S. Treasury jobs." Meanwhile, the above-linked Huffington Post article which reported on Durbin's comments also notes Sen. Evan Bayh's previously-reported central role on behalf of the bankers in blocking legislation, hated by the banking industry, to allow bankruptcy judges to alter the terms of mortgages so that families can stay in their homes. Bayh is up for re-election in 2010, and here -- according to the indispensable Open Secrets site -- is Bayh's top donor: Goldman is also the top donor to Bayh over the course of his Congressional career, during which Bayh has received more than $4 million from the finance, insurance and real estate sectors. In a totally unrelated coincidence -- after the Government, as Matt Taibbi put it, enacted "a bailout program that has now figured three ways to funnel money to Goldman, Sachs"-- this is what happened earlier this month: Goldman reports $1.8 billion profit Nobody even tries to hide this any longer. The only way they could make it more blatant is if they hung a huge Goldman Sachs logo on the Capitol dome and then branded it onto the foreheads of leading members of Congress and executive branch officials. Of course, ownership of the government is not confined to Goldman or even to bankers generally; legislation in virtually every area is written by the lobbyists dispatched by the corporations that demand it, and its passage then ensured by "representatives" whose pockets are stuffed with money from those same corporations. Just as one example, as Jane Hamsher reported about Bayh: Bayh's little "lobbyist problem" is considered by many to be what tanked his Vice Presidential aspirations. His wife Susan earns about $837,000 a year serving on seven corporate boards, among them Wellpoint, a health insurance company for which Bayh helped secure a $24.7 million dollar grant. She's on the board of ETrade, even as Bayh is on the Senate Finance Committee. Meanwhile, the only citizen protests relating to this mass robbery are driven by anger at the government for treating bankers too harshly and unfairly -- one of the most classic manifestations of what Taibbi, in a separate piece, so aptly calls the "peasant mentality": After all, the reason the winger crowd can't find a way to be coherently angry right now is because this country has no healthy avenues for genuine populist outrage. It never has. The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That's why even people like [Glenn] Beck's audience, who I'd wager are mostly lower-income people, can't imagine themselves protesting against the Wall Street barons who in actuality are the ones who fucked them over. . . . One might think it would be a big news story for the second most-powerful member of the U.S. Senate to baldly state that the Congress is "owned" by the bankers who spawned the financial crisis and continue to dictate the government's actions. But it won't be. The leading members of the media work for the very corporations that benefit most from this process. Establishment journalists are integral and well-rewarded members of the same system and thus cannot and will not see it as inherently corrupt (instead, as Newsweek's Evan Thomas said, their role, as "members of the ruling class," is to "prop up the existing order," "protect traditional institutions" and "safeguard the status quo"). That Congress is fully owned and controlled by a tiny sliver of narrow, oligarchical, deeply corrupted interests is simultaneously so obvious yet so demonized (only Unserious Shrill Fringe radicals, such as the IMF's former chief economist, use that sort of language) that even Durbin's explicit admission will be largely ignored. Even that extreme of a confession (Durbin elaborated on it with Ed Schultz last night) hardly causes a ripple. Read the full post (I may have missed some his links, too). Labels: banking system, barney frank, Glenn Greenwald, Richard Durbin, U.S. Congress, U.S. Senate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chrysler to File for BankruptcyThe big banks went for the deal, but the hedge funds wouldn't budge. Now it's headed for bankruptcy court.From the BBC: US carmaker Chrysler will file for Chapter 11 bankruptcy protection immediately and has formed an alliance with Fiat, President Obama has said. Labels: auto industry, bankruptcy, Chrysler Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). NAFTA Flu?From an interview with Robert Wallace, a geographer who has studied avian flu, on Democracy Now!. Hat-tip to LF.The "NAFTA Flu": Critics Say Swine Flu Has Roots in Forcing Poor Countries to Accept Western Agribusiness So, starting in the 1970s, the livestock revolution was brought to East Asia. You have the CP Group, which is now the fourth—world's fourth-largest poultry company, in Thailand. That company subsequently brought the livestock revolution into China once China opened up its doors in 1980. So we have cities of poultry and pork developing around the world. And this phenomenon goes hand in hand with the very structural adjustment programs that the IMF and the World Bank helped institute during this time. So if you're a poor country, you're having financial difficulties, in order to get some money to bail you out, you had to go to the International Monetary Fund for a loan. And in return, the IMF would make demands on you to change your economy in such a way that would allow you—will force you to open up your economy to outside corporations, including agricultural companies. And, of course, that would have a detrimental effect on domestic agriculture. So, small companies within poor countries could not out-compete large agribusinesses from the North that are subsidized by the industrial governments. So they're not able to compete with them, so there's—they either must contract their labor and land to the companies, foreign companies that are coming into their country, or they basically retire out of the business and sell their land to the large companies that are coming in. So, in other words, the spread of the cities of pork and poultry go hand in hand with this structural adjustment program. And, of course, NAFTA is our local version of that. The North American Free Trade Agreement was signed in 1993, instituted in 1994, and has had a subsequent effect on how poultry and pigs are raised in Mexico. So, from that time, the pattern I just described, the small farmers had to either bulk up, in terms of acquiring the farms around them, acquiring the pigs around them, or had to sell out to agribusinesses that were coming in. So the Smithfield subsidiary that is now being accused of being the possible plant of origin for this H1N1 is a subsidiary of an outside corporation. Read the transcript or watch the video of the full interview. Labels: agribusiness, avian flu, Democracy Now, Mexico, NAFTA, Swine Flu Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yes, Things Are Really BadAnother fabulously depressing economic snapshot from the Economic Policy Institute (EPI): Unusually bad and getting worse Labels: economic meltdown, Economic Policy Institute, EPI, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Is Factory Pig Farming To Blame For Swine Flu?In the face of what may soon become a global pandemic, the pork industry has begun lobbying to have officials stop using the words "Swine Flu" for fear that people will stop eating their product.The industry is probably as concerned about a drop-off in pork sales as it is about a growing concern about industrial pig farms, which some suspect may be at the root of the current outbreak. Industrial pig farms, already a foul staple of the Southern U.S. landscape, have been on the rise in Mexico. From the Guardian: "According to state agents of the Mexican social security institute, the vector of this outbreak are the clouds of flies that come out of the hog barns, and the waste lagoons into which the Mexican-US company spews tons of excrement," reported Mexico City newspaper La Jornada. Caroline Lucas, a Green Party MEP in England wrote in an editorial in the Guardian: This is not the first time intensive, industrialised agriculture has been accused of spreading disease. Recent avian flu outbreaks, for example, have shown the extent to which the export-oriented corporate model of poultry production may have spread strains such as H5N1. In my report Avian flu: time to shut the intensive poultry flu factories? of 2006, I outlined how bird flu has been endemic in wild birds in much of the world without leaping the species barrier and causing people any harm. Labels: factory farming, pig farming, pork industry, Swine Flu Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Citibank and Bank of America Fail Stress TestsSix of the nation's 19 largest banks have failed the Federal Reserve's "Stress Tests," including Citibank and Bank of America, according to Bloomberg.The Fed is pushing the banks to raise capital by converting preferred shares (including those held by the Treasury) into common shares, rather than seeking more federal funds. Labels: Bank of America, bank stress testing, Citibank, Federal Reserve, stress tests Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). American Casino (GritTV)Interview about a new documentary, on GritTV (also new? I hadn't heard of it) with Laura Flanders (whom I remember fondly from Fairness and Accuracy in Reporting's radio program, CounterSpin). Flanders also has an interesting post at the Nation's website. Hat-tip to LF for both of these items.While directing a documentary film on Wall Street and the housing bubble, Leslie Cockburn realized that the very subject of her film had become the greatest story of out time. In American Casino Leslie and Andrew Cockburn followed their characters through Wall Street's collapse, the foreclosure crisis, bankruptcy, and homelessness. According to Cockburn, "We watched whole neighborhoods ravaged by the subprime meltdown. I have spent much of my career filming in war zones and post apocalyptic societies—Somalia, Iraq, Afghanistan. But I never expected such a disaster at home." Leslie and Andrew Cockburn discuss their new film, American Casino and explain how we all lost. Watch the interview here. Labels: Americans for Fairness in Lending, casino capitalism, Counterspin, Laura Flanders, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Contours of Crisis: Fiction and RealityWe have posted the second article in a series by Shimshon Bichler and Jonathan Nitzan. Here are the first few paragraphs:This is the second in our Contours of Crisis paper series. The first article set the stage for the series. It began by outlining the conventional view that this is a finance-led crisis, that this turmoil was triggered and amplified by "financial excesses"; it then described the domino sequence of collapsing markets—a process that started with the meltdown of the U.S. housing and FIRE sectors (finance, insurance and real estate), expanded to the entire financial market, and eventually pulled down the so-called "real economy"; and, finally, it situated the pattern and magnitude of the current decline in historical context. The current market collapse is very significant. Even after their last month's rise, U.S. equity prices, measured in constant dollars, remain 50% below their 1999 peak—a decline comparable to the previous major bear markets of 1905-1920, 1928-1948 and 1968-1981. For many observers, though, the depth of the financial crash also implies that much of it may be over, and that the boom bulls will soon oust the doom bears. Predicting boom out of doom isn't far fetched. Equity markets are highly cyclical, and their gyrations are remarkably stylized. As our first article showed, over the past century the United States has experienced several major bear markets with very similar patterns: they all had more or less the same duration, they all shared a similar magnitude, and they all ended in a major bull run. In other words, there seems to be a certain automaticity here, and automaticity gives pundits the confidence to extrapolate the future from the past. But this automaticity is more apparent than real. Finance, we pointed out, is not an independent mechanism that goes up and down on its own. In this sense, the long-term movements of the equity market are not "technical" swings, but rather reflections and manifestations of deep social transformations that alter the entire structure of power. During the past century, every transition from a major bear market to a bull run was accompanied by a systemic reordering of the political economy: the 1920–1928 upswing marked the transition from robber-baron capitalism to big business and synchronized finance; the 1948–1968 uptrend came with the move from "laissez faire" capitalism to big government and the welfare-warfare state; and the 1981–1999 boom coincided with a return to liberal regulation on the one hand and the explosive growth of capital flows and transnational ownership on the other. Read the rest of the article. Labels: Contours of Crisis, financial crisis, Jonathan Nitzan, Shimshon Bichler Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Workers To Control ChryslerThe Financial Times is reporting that under a restructuring deal for Chrysler, the United Auto Workers (UAW) will own 55% of the auto company's stock, Italy's Fiat will get 35%, and the remainder will be divvied up between the company's secured lenders and the federal government.As part of the deal, the reformulated company will cut its contribution to the employee health care fund by half, and Fiat will contribute its "know how" and technology, but no cash. The worker revolution seems to have come not with a bang but with a whimper. Labels: auto industry, auto industry loans, Chrysler, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Corporate America: The Serial Job KillerSam Pizzigati writes that the biggest job killers in America are corporate CEOs. Will Obama stand up to them, and for workers?
Read the full post here. Labels: closures and layoffs, Employee Free Choice Act, Larry Ellison, Oracle, Sam Pizzigati, Sun Microsystems Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Lose Money Get RaiseThe New York Times has a nice chart showing how CEOs from public companies are making out like bandits with massive pay raises even while their bottom lines plummet.Some tidbits: ArcherDanielsMidland CEO Patricia A. Woertz saw her compensation jump 397% to $15 million from 2007 to 2008 while profits fell 17%. Data giant EMC's CEO Joseph M. Tucci a 148% raise in 2008 to $11.7 million while the company lost money. On a similar note, Paul Krugman laments that compensation for investment bankers is zooming back up to levels from pre-meltdown days. As he notes: there's no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous paychecks. --d.f. Labels: ceo pay, compensation, Corporate Swindles, Daniel Fireside, executive pay, Paul Krugman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Dumps Pontiac and WorkersIn a last ditch to stave off bankruptcy, GM announced that it will ditch the Pontiac brand by the end of next year (Hummers, Saabs, and Saturns will be done by the end of 2009 but other companies may buy the brand names), cut 23,000 of its 61,000 factory jobs by 2011, and slash the number of dealers by 42% to 3,600, and offering creditors stock for debt. The US Treasury would end up with at least a 50% stake in the company, bondholders up to 10%, the UAW 39%, and existing stockholders 1%.Bondholders, who currently own $27 billion in company debt, are the key to the deal going forward. In a letter to bondholders, the company warned:
The company will close 16 of its 47 US manufacturing plants by 2012, including six this year and seven next year. The automaker has already received over $15 billion in taxpayer funding and must present a restructuring plan by June 1 in order to receive additional funding and avoid bankruptcy. --d.f. Labels: auto industry, bankruptcy, Daniel Fireside, General Motors, GM Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Econ board has yet to meet publiclyFrom Politico. Hat-tip to Bob F.By JOSH GERSTEIN | 3/23/09 4:21 AM EDT Updated: 3/23/09 2:04 PM EDT Six weeks after President Barack Obama appointed a blue-ribbon panel to help him dig America out of its economic crisis, the board has yet to hold an official public meeting. The White House initially said that the 16-member Presidential Economic Recovery Advisory Board, headed by former Federal Reserve Chairman Paul Volcker, would meet "every few weeks." Last month, a spokesperson told POLITICO the group would meet monthly. More recently, the White House said the high-powered board, set up to address what Obama has called the worst economic emergency since the Great Depression, would gather only about four times a year, with the next session due in "late spring." But comments from board members and Obama himself indicate that some members of the panel are meeting, in smaller gatherings that have not been announced or opened to the public. And that raises the question of whether an administration that prides itself on openness and transparency is in fact finding it more convenient to conduct public business in private. Now, the administration finds itself in a Catch-22: It does not want to say that the president's economic panel, announced amid much fanfare, is not meeting during the worst economic crisis in generations. But if it is meeting, where's the announcement, the agenda, the minutes? In short, where's the sunshine? "If the president wants to talk to his advisory committee, it seems to me he ought to do that in the open," said Sidney Shapiro, a law professor at Wake Forest University. "There ought to be accountability for private people who address the government. It seems to me it becomes even more important, not less important, when you have a presidential advisory committee." Asked about Obama's right to solicit candid suggestions, Shapiro said, "If he wants private advice, he should pick up the telephone. He can call anybody he wants. If he wants to form a presidential advisory committee, they ought to meet in public." Read the rest of the article. Labels: Barack Obama, Economic Recovery Advisory Board, financial crisis, Paul Volcker Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 29 Failed Banks In 2009 -- So FarThe FDIC took over 4 more banks on Friday, bringing the total for 2009 to 29, compared to 25 for all of 2008. The banks were located in Idaho, Michigan, and Georgia, in addition to the now officially down and out First Bank of Beverly Hills.The massive number of bank failures has brought the FDIC insurance fund to its lowest point in nearly a quarter century. As of the end of 2008, it had $18.9 billion, compared to $52.4 billion a year earlier. The FDIC had 252 banks on its troubled bank watch list at the start of the year, up from 171 in September 2008. --d.f. Labels: bank failures, Daniel Fireside, FDIC Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Pensions Plans in PerilIf the auto industry is allowed to dump their pension plans through bankruptcy, it could put the pensions of millions of other retired workers at risk. The Pension Benefit Guarantee Corporation, the government insurer that backs pension plans, would quickly run out of funds and be overwhelmed with claims. It would be forced to slash promised benefits to retirees. It would also open the door to other companies looking to dump their pension obligations through bankruptcy court.The dire state of the Pension Benefit Guarantee Corporation's decision to gamble its money in the stock market certainly hasn't helped things, as we noted here earlier this month. The holes in the pension fund and related dire circumstances of 401(k) programs have been apparent for some time. James Ridgeway reported on corporate America's plans to ditch their obligations to retired workers back in this article from 1999. We can only hope that the current situation will put an end to any more calls to privatize Social Security, which is becoming the default retirement plan for more and more Americans. From the NYT: Pension experts predict that a government takeover of the two giant plans would spur other auto companies and all types of manufacturers to abandon such benefits for competitive reasons. --d.f. Labels: auto industry, Daniel Fireside, Pension Benefit Guarantee Corporation, pensions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). New! Blog PodcastWe just added podcast capability to our blog, courtesy of Odigo. The voice that reads it is kind of computery, but it's remarkably clear. (Ok, I wrote that sentence just so that I can hear the voice read it later and I can find out how it pronounces "computery".) Someone at lbo-talk tipped us off about Odigo; apparently this is how naked capitalism does its podcast.To listen and/or subscribe to the feed, click here. While I'm posting something that is content-free, I might as well take this opportunity to ask our loyal fans, and anyone else who likes our work, to please consider subscribing to the magazine, at the low introductory rates of $18.95 for a year, or $29.95 for two years. We are now offering e-subscriptions—we'll send you a full-color pdf of each issue. This is a great option for our non-U.S. readers, who may order e-subscriptions at the U.S. rate. Please also consider making an online donation. See links for both subscriptions and donations below. —cs Labels: donations, Odiogo, podcast, subscriptions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 14 million homes are vacantFrom USA Today:Census numbers show: Banks are on a tear to evict people rather than renegotiate loans to market rates. As we wrote earlier, this has hit renters as well as homeowners. The Obama plan barely addresses this problem by providing just $2 billion for buying up and renovating abandoned properties -- hardly enough to make the slightest dent in the growing glut of vacant properties. The bank policy of forcing eviction instead of renegotiating the loans to market rates is insane. The glut of foreclosed properties is driving down the value of homes everywhere. Vacant properties quickly attract vandals and criminals, often leaving disaster zones in their wake. The banks are left with a property worth a fraction of what they could have gotten by renegotiating the loans. This is why some Democrats have been pushing to give bankruptcy judges the authority to "cram down" mortgages. The impact has been devastating for communities. Owners who keep up on their mortgages have seen their home values fall even further, vacant properties are a blight on neighborhoods, and homelessness is rising. The banks seem determined to drive themselves into the ground and take the rest of the country with them. --d.f. Labels: Daniel Fireside, eviction, housing bubble, housing market, mortgage meltdown, Mortgage plan Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Silver Lining? Possible Leverage for DebtorsVery interesting blog post by Doug Henwood of Left Business Observer; what he's pointing out could be the basis for organizing leverage for ordinary folks. We were sorry to miss Doug's talk at Left Forum; he was on a panel on bank nationalization that also included Fred Moseley, author of our March/April cover story. We didn't even get to chat with him at our exhibit table, so we weren't able to have our yearly conversation about whether D&S and LBO are rival publications (they are not—everyone should subscribe to both). —csIn the course of a pretty wonky piece on CDOs, Felix Salmon points out that the modern financial environment weakens the political position of creditors. Back in 1975, when New York City was on the verge of default, its bonds were uninsured, and held mostly by the city's rich and its biggest banks. Both sets of bondholders were relatively few in number and invested in the city's long-term survival. The creditors were able to come together and speak with one voice to force wage cuts and layoffs on the unions and service cuts on city residents. Today, bondholdings are dispersed around the world, so it's hard to imagine a similar workout in 2009. There's an interesting parallel with Argentina's deliberate default early this decade (a default which followed the script laid out in this LBO article: How to default). Because Argentina's debts were held mostly by bondholders all over the place, many with rather small holdings, the creditors were in a very weak bargaining position. The contrast with the debt crisis of the early 1980s was stark. Then, a dozen bankers, backed by the IMF, could face down a finance minister in a conference room and demand the concessions for which neoliberalism became famous. But that was no longer possible in a world dominated by bond finance. And in today's securitized, derivatized world, mortgage holders often don't know who their creditors are. In fact, it could even be easier for debtors in a single neighborhood to organize than their creditors, who could be anywhere from Frankfurt to Abu Dhabi. (This is the full post.) Labels: CDOs, creditors, debtors, Doug Henwood, Felix Salmon Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). California Housing Defaults SkyrocketAfter a brief lull, California's housing market has resumed its downward spiral. According to the Silicon Valley Mercury News, the number of default notices sent by lenders to property owners jumped 80% in the first three months of 2009 versus the last three months of 2008. Default is the first step in the foreclosure process.There were nearly 80,000 foreclosures in the third quarter of 2008 before dropping to 46,183 and 43,620 for the following two quarters, respectively, due to temporary changes in foreclosure policies that have now come to an end. Foreclosed properties now account for 58.1% of all resales in California this year. --d.f. Labels: California, Daniel Fireside, foreclosures, housing bubble, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dean Baker at JP Forum on April 30thCo-sponsored by D&S:Economist Dean Baker to Discuss the Root of the Economic Meltdown WHAT: On Thursday, April 30th, economist Dean Baker will discuss his latest book, Plunder and Blunder: The Rise and Fall of the Bubble Economy, which chronicles the growth and collapse of the stock and housing bubbles. Baker, co-director of the Center of Economic and Policy Research, was one of the economists who saw it coming as early as 2005 when he warned about the housing bubble, lack of regulation and corruption at the root of the economic meltdown. Dean Baker was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. Baker's other books include The United States Since 1980, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, Social Security: The Phony Crisis (co-authored with Mark Weisbrot), and The Benefits of Full Employment (co-authored with Jared Bernstein). Baker appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his Ph.D. in economics from the University of Michigan. WHEN: Thursday, April 30th, 2009, 7:00 p.m. WHERE: The Jamaica Plain Forum, 6 Eliot Street, Jamaica Plain, MA 02130 Presented by The Jamaica Plain Forum and Cosponsored by: Institute for Policy Studies Dollars & Sense United for a Fair Economy Labels: Dean Baker, financial crisis, Jamaica Plain Forum Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Thievery Under TARPFrom Truthdig:By Robert Scheer We are being robbed big-time, but you can't say we haven't been warned. Not after the release Tuesday of a scathing report by the Treasury Department's special inspector general, who charged that the aptly named Troubled Asset Relief Program is rife with mismanagement and potential for fraud. The IG's office already has opened 20 criminal fraud investigations into the $700 billion program, which is now well on its way to a $3 trillion obligation, and the IG predicts many more are coming. Special Inspector General Neil M. Barofsky charged that the TARP program from its inception was designed to trust the Wall Street recipients of the bailout funds to act responsibly on their own, without accountability to the government that gave them the money. He pointed to the example of AIG, which has acted as a conduit of funds to the banks it had insured without being required to tell the government what it is doing: "Failure to impose this requirement with respect to the injection of yet another $30 billion into AIG would not only be a failure of oversight, but could call into question the credibility of the government's efforts." AIG is just one example in a bailout that has left the financial conglomerates unsupervised as they spend taxpayer money in what the report termed a government program of "unprecedented scope, scale and complexity," putting the public and the Treasury Department in the dark as to how the money is being used by the very tycoons who got us into this mess. "The American people have a right to know how their tax dollars are being used," Barofsky wrote in the report, which sharply criticized the government for failing to hold financial institutions accountable. For all of its criticism of the original program, designed by the Bush administration, the report was equally severe in denouncing the Obama administration's plan to partner with hedge funds and other private capital groups to buy up the "toxic" holdings of the banks. Charging that the plan carries "significant fraud risks," the inspector general's report pointed out that almost all of the risk in this new trillion-dollar plan is being borne by the taxpayers. The so-called private investors would be able to put up money they borrowed from the Fed through "nonrecourse" loans, meaning if the toxic assets purchased prove too toxic and the scheme failed, the private investors could just walk away without repaying the Fed for those loans. The reason those loans may prove even more toxic than expected and the price paid by this government-underwritten partnership far too high is that the government is purchasing the most suspect of the banks' mortgage packages. In addition, the plan is to accept at face value the evaluation of those packages by the very same credit-rating firms whose absurdly wrong estimates of the dollar worth of these securities helped create the problem that now haunts the world's economy. "Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis," the report found. As with the entire banking bailout, the new plan of Obama's treasury secretary, Timothy Geithner, is likely to enrich the very folks who impoverished the rest of us, as the report notes: "The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit." At the heart of this potentially massive fraud was the original decision of Henry Paulson, President Bush's treasury secretary and a former Goldman Sachs chairman, to not require the recipients of the bailout, such as his old firm, to account for how the money was spent. Unfortunately, President Obama's administration continued that practice. The only difference is that the amount of public money being put at risk is now far greater, and the hedge funds, which are totally unregulated, have been brought in as the central players. One of the largest of those hedge funds, D.E. Shaw, carried Obama's top economic adviser, Lawrence Summers, on its payroll to the tune of $5.2 million last year. He may have reason to trust these secretive enterprises that operate beyond the law, but the public does not. Labels: Corporate Fraud, Robert Scheer, TARP program, Truthdig Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chrysler Headed For Bankruptcy?The NYTimes is reporting that the government is preparing a Chapter 11 bankruptcy (reorganization) filing for Chrysler. The filing itself could come as soon as next week.Union health care and pension benefits would remain protected and a potential deal with Fiat could still be worked out under the filing. A major sticking point, however, will be how to deal with the company's creditors, who hold nearly $7 billion in debt. The government has offered the creditors 22 cents on the dollar and a 5% equity stake. The lenders had earlier proposed receiving 65 cents on the dollar and a 40% equity stake. If no agreement is reached, the matter will likely head to the courts. From the Times: The U.A.W., Chrysler and Treasury have reached agreements in principle that would protect workers' benefits, people with knowledge of the negotiations said, and a similar agreement is expected to be reached as soon as this weekend with the Canadian Auto Workers union. Labels: auto industry, auto industry loans, bankruptcy, Chrysler, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Wall Street Digs InGood online piece from Newsweek from a while ago (April 10th). The subtitle is confusing, though: clearly Obama is getting the message (from Wall St.)!Wall Street Digs In The old system refuses to change. Is Obama getting the message? Michael Hirsh | Newsweek Web Exclusive Not long ago, a group of skeptical Democratic senators met at the White House with President Obama, his chief economic adviser, Larry Summers, and Treasury Secretary Tim Geithner. The six senators—most of them centrists, joined by one left-leaning independent, Vermont's Bernie Sanders—said that while they supported Obama, they were worried. The financial reform policies the president was pursuing were not going far enough, they told him, and the people Obama was choosing as his regulators were not going to change things fundamentally enough. His appointed officials and nominees were products of the very system that brought us all this economic grief; they would tinker with the system but in the end leave Wall Street, and its practices, mostly intact, the senators suggested politely. In addition to Sanders, the senators at the meeting were Maria Cantwell, Byron Dorgan, Dianne Feinstein, Carl Levin and Jim Webb. That March 23 gathering, the details of which have gone largely unreported until now, was just a minor flare-up in a larger battle for the future—one that may already be lost. With the financial markets seeming to stabilize in recent weeks, major Wall Street players are digging in against fundamental changes. And while it clearly wants to install serious supervision, the Obama administration—along with other key authorities like the New York Fed—appears willing to stand back while Wall Street resurrects much of the ultracomplex global trading system that helped lead to the worst financial collapse since the Depression. At issue is whether trading in credit default swaps and other derivatives—and the giant, too-big-to-fail firms that traded them—will be allowed to dominate the financial landscape again once the crisis passes. As things look now, that is likely to happen. And the firms may soon be recapitalized and have a lot more sway in Washington—all of it courtesy of their supporters in the Obama administration. With its Public-Private Investment Program set to bid up and buy toxic assets, the administration is handing these companies another giant federal subsidy. But this time the money will come through the back door, bypassing Congress, mainly via FDIC loans. No one is quite sure how the program will work yet, but it's very likely going to make a lot of the same Wall Street houses much richer at taxpayer expense. Meanwhile, the big banks that still need help will almost certainly get another large infusion once the stress tests are completed by the end of the month. The financial industry isn't leaving anything to chance, however. One sign of a newly assertive Wall Street emerged recently when a bevy of bailed-out firms, including Citigroup, JPMorgan and Goldman Sachs, formed a new lobby calling itself the Coalition for Business Finance Reform. Its goal: to stand against heavy regulation of "over-the-counter" derivatives, in other words customized contracts that are traded off an exchange. Companies like these kinds of contracts, which are agreed to privately between firms, because they allow them to tailor a hedge perfectly against a firm-specific risk for a certain time period. But in order to preserve its right to negotiate these cheaper private contracts, Wall Street is apparently willing to argue for the same lack of public transparency and to permit the systemic risk that led to the crash. Geithner's financial regulation plan, announced April 2, does address some of these concerns. The Treasury chief wants all standardized over-the-counter trading of derivatives to go through an industry clearinghouse, which will give the government more oversight. Geithner said he wants to require "systemically important" firms to reserve more capital. He also wants to rein in "customized" derivatives contracts—those agreed to privately between firms. Whereas once these trades went totally unregulated, Geithner would require that they be "reported to trade repositories and be subject to robust standards" for documenting and collateralizing, among other new rules. But it's unlikely this will do much to change Wall Street. Geithner's new rules would allow the over-the-counter market to boom again, orchestrated by global giants that will continue to be "too big to fail" (they may have to be rescued again someday, in other words). And most of it will still occur largely out of sight of regulated exchanges. The response favored by the administration, the Federal Reserve and even many in Congress is to create a new all-knowing "systemic risk regulator" with as-yet-undetermined powers. Is such a person sitting at 30,000 feet really going to be able to keep up with all this onrushing complexity, especially as over-the-counter trading resumes in quiet places around the world? It is a triumph of hope over experience to think so. Meanwhile, up in Manhattan, the New York Fed has been conducting meetings on future regulation with a group of major Street insiders and their traditional regulators. At the most recent meeting, on April 1, they agreed on creating central clearinghouses for trading and "trade-information warehouses" that will track market data far better than before. But they have resisted anything more dramatic, like requiring all trading to occur on publicly recognized exchanges. Geithner has also put his stock in clearinghouses; he says he only wants to "encourage greater use of exchange-traded instruments." That has placed Geithner at odds with another Democratic senator, Tom Harkin of Iowa, chair of the agriculture committee, who wants all futures contracts traded on exchange. "The senator feels that what he's offering in his bill does include more integrity and transparency than the current Geithner plan," a Harkin spokesman told me. Officials at the firms who took part in the New York Fed meeting and at the Fed maintain that there is little difference between clearinghouses and formal exchanges; both are regulated and both are industry-run, they say. But that misses a major point, says Michael Greenberger, a former top official at the Commodity Futures Trading Commission who has been a critic of the administration's reform efforts. Exchange trading gives the government authority over fraud and manipulation and emergency powers to stop trading, he says, and it creates the kind of public transparency that isn't possible in a privately run clearinghouse. The White House and Treasury Department did not immediately respond to my requests for comment on these issues or on the March 23 meeting (beyond confirming that it took place). But it's noteworthy that more than a month and a half passed before Obama agreed to the meeting, which was prompted by a letter that Dorgan sent in early February. The senators were invited after one of the group, Sanders, put a hold on the nomination of Gary Gensler, Obama's nominee to be head of the Commodity Futures Trading Commission. In an interview, Sanders said he opposes the nomination because Gensler has spent much of his career in Washington working for Wall Street's interests. Gensler, in testimony, has said he has learned from his past mistakes. "At this moment in our history, we need an independent leader who will help create a new culture in the financial marketplace," Sanders said. Instead, the old culture is reasserting itself with a vengeance. All of which runs up against the advice now being dispensed by many of the experts who were most prescient about the crash and its causes—the outsiders, in other words, as opposed to the insiders who are still running the show. Among the outsiders is Nassim Nicholas Taleb, the trader and professor who wrote "The Black Swan: The Impact of the Highly Improbable." Taleb wrote in the Financial Times this week that a fundamental new approach is needed. Not only should firms be prevented from growing too big to fail, "complex derivatives need to be banned because nobody understands them and few are rational enough to know it," he said. Yet even as we are still picking up the debris, we seem to be ready to embrace that world once again. Read the original article. Labels: bailout, Credit Default Swaps, derivatives, financial crisis, Timothy Geithner, Wall Street 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 (ix): ZizekA series of blog postings by D&S collective member Larry PetersonA Meditation on The Monstrosity of Christ OK, that was a seductively incomplete, or even misleading title for this blog entry. The reference is not so much to Jesus Christ as it is to the atheistic, Marxist-inspired philosopher/critic/psychoanalyst/you-name-it Slavoj Zizek, who has teamed up with the theologian John Milbank in this release by MIT Press, and gave a lecture with the same title at the Brattle Theatre in Cambridge, MA on Monday night. Like most of Zizek's offerings, the title involves wordplay (in this case, the signified work seems to be, as will become apparent later, I hope, the mediaeval devotional work The Imitation of Christ, by Thomas à Kempis) which suggests that the object (Christ) is, in fact, of lesser significance than the historical and social conditions that, given their convoluted, not to mention tragic, historical play, or dialectic, if you will, have come to invest the former with an exaggerated significance. And this symptomatic, inevitably perhaps, fosters cultural and institutional distortions that, in this case, ensure that the plain words of Christ will be, in practice, turned upside down (thereby vitiating any real significance they might still hold for us). By coming in intuitive conflict with his "provocative" wordplay, Zizek hopes to provoke a materialist, common sense, Brechtian awakening. Needless to say, to go from Jesus Christ to matters as disparate as the nature of Lee Kuan Yew's regime in Singapore, contemporary capitalism's seemingly inexplicable resuscitation of rent-seeking, and on to the ideological significance of Batman, the Black-Knight, or whatever the hell he was, is no job for an amateur, and Zizek did not disappoint. In what follows, I will attempt to relate what I found to be the breathtaking intellectual ride Zizek led me on that night. I didn't begin to take notes (in the dark, with a pen almost out of ink, and on the 2"x5" ticket to the event), so my rendition will be impressionistic and topical rather than chronological. Still, I found the argument, which, I felt, was not always made fully implicit, to be remarkably tight, in spite of Zizek's far-flung categorical forays. The unifying theme of the lecture, to me, concerned the nature of the "Other" and of freedom in contemporary society. This sounds hokey, but Zizek made it clear from the start, and with the use of very explicit language, that his notion of the "Other" involves all those aspects of other human beings, which, especially in situations or under social conditions characterized by growing duress, tend to be perceived as unwanted and even unjustifiable constraints on freedom the ability of acting persons to do as they see fit. To some degree, the "Other" always impinges on our freedom, and, in certain cases, we readily and willingly hand over our freedom, at least temporarily, anyway: under the sway of charismatic authority, for instance; and even, as many people understand it, in the defining state of human experience or potential, that of love. But Zizek seemed to hone in on cases in which the "Other" is already defined as that which precisely doesn't bear anything close to this kind of distinction, or on cases in which it's all too easy to fall back on available justifications in the culture to employ acceptable pre-existent barriers to prevent the "Other" from turning into something that could trip us up at all on any kind of purported advance toward wish-fulfillment at best, or avoidance of mere discomfort otherwise. Accordingly, the "Other", to Zizek, is the very sort of person who, far from corresponding to the super-abstract, ghostly presence one has come to expect from tendentious postmodern tomes, seems to go out of his or her way to bring out the worst in us, in terms defined by society in the most emphatic and primitive terms it has at its often considerable disposal. Zizek illustrated with a telling example where he wanted to go with this. He mentioned a dinner party he went to with a professor and some graduate students here in Cambridge a while ago at which participants were instructed to introduce themselves by mentioning, besides their names, their profession or concentration, their sexual orientation. Now this is where Zizek, in my recollection, could have been more explicit, but my take was that his discomfort with this experience concerned the fact that it, inasmuch as it attracted no comment or surprise by the participants, seemed to evidence the pervasiveness of an exaggeratedly formalistic attitude towards sexuality which, though seemingly open and accommodative, is in fact restrictive in precisely those matters the society is most intensely conflicted about, and requires open discussion or, if you will, engagement with the "Other" if it is to resolve, or simply acknowledge the existence of, potentially serious conflicts. Let me try to explain what I mean. Zizek seems to see that normative standards, especially in societies which privilege conceptions of the individual, often work more by appealing to self-conceptions (however accurate) rather than (and in precedence to) notions of others, especially those who are on receiving end. That being the case, the seemingly implicit object of the normative attitude, the "Other", almost invariably appears as an imposition to be avoided from the start, and engagements with that Other will tend to be seen from the start as overly restrictive of freedom. Under these conditions, a real temptation to employ normative conceptions in ways that advertise a strictly limited applicability will almost certainly prove popular, especially if constraints on action are already being vigorously enforced by the society in its everyday workings. And contemporary capitalism is doubly indicted on this point: for, as it provides for the meeting of needs (petty or essential, real or confabulated) more efficiently than any system yet created, it encourages demand for further convenience (or potential freedom), but demands more flexibility (or potential constraint) on the part of the vast majority at the same time, precisely in order to produce these means of fulfillment that forever lag behind their ability to provide true freedom or satisfaction (if such things exist). Back to the dinner party. What Zizek is saying here, I think, goes like this: to define the acceptable limits of conversation and conduct, the question about sexuality is presented to the participants. Most likely, the host expected that it would set his or her guests at ease. But any ease on their part was almost certainly ensured by the fact that they were all enlightened, modern, affluent graduate students and faculty. Where sexuality was concerned, however, the implicit message seemed to be this: you look and act enough like us to gain admittance to our party. But if you have some sort of issue with sexuality, we will not recognize it unless it is strictly limited to the sort which has already been decided in a specific way by just about everyone who would conceivably come to this party. So, if you are homosexual or heterosexual, that's ok; but if you are by some small chance just someone who is a loser, and can't find a partner of whatever sort, or some sort of pervert (if only in demand for a cure, or a sliver of sympathy in dealing with being saddled with such monstrous desires), your situation doesn't fall into the category, and will not be discussed. In the even less likely event that someone who has made it through the implicit winnowing process insists on raising it, that person may be subject to censure, justified expulsion or worse. You have been warned! The reference to Christ then becomes clear: Zizek actually spoke of the "neighbor" as the one who trips us (skandalos means "stumbling block" in Greek) up, or limits our freedom. This elicited in me thoughts of the parable of the Good Samaritan, which, unfortunately, Zizek didn't cite. In this parable, Jesus famously spoke of a man who was beaten and robbed, and left beside the road to die. A priest came by, looked at the body, and moved on. A Levite (or member of a privileged religious caste) came along, and did likewise. Finally, a Samaritan came by, took pity on the man, took him to an inn, and nursed him back to health at his expense. That's where the story ends for most of us. Edifying, right? Well, the way Christ told this story, as Zizek would no doubt affirm, involved a startling inversion. Samaritans, at the time of Christ, were referred to in the most derogatory terms possible; so Christ's reference to them then would have the much same effect as if a contemporary Christ used the n-word to refer to the Samaritan in an updated version of the parable. This is where Christ's words force us to truly confront the structural nature of the "Other". And that is why Christ matters to Zizek; it's not because of Jesus' historical significance, but because of our twisted perception of him, and what that reveals about us, and our society. Zizek knows that normative concepts, though liberally thrown around in our society, are becoming, in fact, less relevant in the way we actually live our lives (in part because the market has come to mediate so much more of our lives). This, coupled with the structural narrowing of the spectrum of free movement in capitalist societies mentioned above, almost ensures that normative thought and discourse will increasingly be employed to preemptively build walls around the "Other" than to engage, however tentatively, with the "Other". "Don't even go there" has become the golden rule of post-industrial, globalized capitalism. And it's for this reason that another society is necessary, one that more effectively, and more self-consciously interacts with the "Other", especially when temptations to ignore cascading categories of "Others" seem to build up as fast as the division of labor becomes more specialized. A society of freely associated producers would be a start. And, lest it be forgotten, it is the "monstrosity" of Christ, or his reference to, nay existence as an "Other" (inasmuch as we limit our conceptions of him to their exact opposites, when we entertain them seriously at all), that constitutes our own "Imitation of Christ". And it will only be by affirming his true "monstrosity", or "Otherness" that we may right this image, and perhaps be able to put to use any parts of Christ's message that remain truly relevant in this day and age. I think this was the invisible string that Zizek held tightly to on his tightrope walk on Monday, but he also said many provocative things on sundry issues I'd like to comment on for the remainder of this post. One of the most interesting concerned his meditation on the opening of a split between capitalism and democracy worldwide. This is where he speaks of Lee Kuan Yew and Singapore. Zizek noted that this kind of authoritarian capitalism was in fact adopted as a model by Deng Xiaoping in China, and, earlier, played no small role in the development of South Korea from bombed-out semi-feudal society to post-industrial consumerism in less than two generations. Even Japan has been a one-party state except for a few years in the 1990s since the war. Zizek's take seems to be that capitalism is becoming less able to garner popular support except in societies in which it is rigorously imposed. And in other societies, its growth trajectory will, in all likelihood, be increasingly reduced. This may not be much of a surprise in the wake of the financial crisis, but given the almost religious belief in the symbiosis of capitalism and democracy that held before the crisis (in spite of the experience of places like Singapore) it is a development that requires keen monitoring. Especially if countries like Singapore, which tend to be export-dependent and hold large current account surpluses, diversify into consumer-led economies (remember China's large and growing income inequality), assuming they can successfully (and quickly) make this transition in the first place. Not that Zizek expects a decisive movement towards socialism, or anything of that sort. I think this is precisely why Zizek focuses on his fears regarding a growing incompatibility between capitalism and democracy than on any promise of social movements that exist at the present. But he seems to insinuate something I have noticed myself: in the financial press, a lot has been written on the "failure" of capitalism, even by former Nobel economists (see, for instance, the Financial Times' series "The Future of Capitalism" http://www.ft.com/indepth/capitalism-future). But the same writers are quick to inform us, often in spite of their own recent myopia regarding capitalism's failures, that there is no alternative. Any elaboration on this juxtaposition is completely lacking, except for the employment of platitudes. I think Zizek is hinting that the repressed thought here goes like this: when such commentators speak of no alternative to capitalism, they are really saying that there is no alternative to capitalism unless we can spontaneously and rapidly adapt to the level of freedom which any removal of capitalism (which so effectively meets needs, but so implacably makes new, often unanticipated demands, and while it conditions us to seek out new sources of freedom, or at least seeming satisfactions) will require of us. And, for once, I must agree with these people: it's almost impossible to see us doing this. But it doesn't make it less necessary, especially given the environmental reckoning. Zizek also notes with some tongue-in-cheek perplexity the fact that the most advanced capitalist economies are relying more and more on rent-seeking forms of revenue than on profits from sales (or generation of surplus value, or even exploitation). In strict Marxian terms, this is odd: society should be moving toward intensifying competition with technological advances, not on protection of existing means of production. Like the resuscitation of absolute surplus value (longer working hours), however, it is an indisputable part of the most advanced economies or, again, it was until the crisis hit. In this vein, Zizek cites all the usual suspects: the vast swathes of corporate America, from financial firms which patent their "innovative" investments and business practices to pharmaceutical firms which do the same with life-forms themselves, and on to the advertisers, media and software firms which are being relied upon more and more to balance our still ridiculously high consumption levels (70% of GDP, down only 2% from before the crisis) internationally. Here, I wish Zizek had mentioned another phenomenon, the seeming revival of something corresponding to primitive accumulation, too. He actually did refer to one of the main documentary sources for this phenomenon, Naomi Klein's The Shock Doctrine. But didn't make any connection between these phenomena. And he didn't speak of another area I think he should find most illustrative of the confused condition of contemporary social structures, the rise of shadow and underground economies, and their increasing overlap with legal and visible ones (assuming talk of reform by the G20 and others on tax havens turns out to be characteristic bluster). It seems to me that all these elements must be put together, while acknowledging the old-fashioned super-exploitation that takes place in many of the places from which we source our consumer goods (though these are more-and-more tied to licensing-based industries like media companies and so on to promote them) and commodities. Where all this is relevant, though, concerns the productive sphere explicitly. Zizek sees that Marx's emphasis on the increase in producers' knowledge of their own processes of production and ability to cooperate in that process is being compromised mightily by just about all of the developments mentioned in the last paragraph. It's funny, because I've seen economic commentary that lauds the fact that economically significant competition will occur more between units within the same company as between firms themselves (or that companies will extract profits more from this competition, presumably by reducing costs and protecting technologies, than by competing in markets for goods and services). I'll wrap this up now. I have no doubt that I haven't done justice to Zizek's virtuoso performance (particularly inasmuch as my comments haven't been suitably critical!). But I hope that this post, if it does anything, will encourage others to see or read Zizek: he really does have his finger on a radical pulse that most writers don't even know exists. Labels: cultural theory, ideology, Karl Marx, Larry Peterson, Naomi Klein, Slavoj Zizek, 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!). The Big Banks' Fuzzy MathThere's less than meets the eye to the latest reports of bank profits. Most of it appears to be the result of accounting shell games and TARP money passed through AIG. With the government handing them nearly free money and lots of people wanting to borrow it and pay interest, why can't they make an honest buck?And if you can't answer that, then maybe it's time to talk nationalization. --df From the NYT: Bank Profits Appear Out of Thin Air By ANDREW ROSS SORKIN This is starting to feel like amateur hour for aspiring magicians. Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be - presto! - better-than-expected numbers. But in each case, investors spotted the attempts at sleight of hand, and didn't buy it for a second. With Goldman Sachs, the disappearing month of December didn't quite disappear (it changed its reporting calendar, effectively erasing the impact of a $1.5 billion loss that month); JPMorgan Chase reported a dazzling profit partly because the price of its bonds dropped (theoretically, they could retire them and buy them back at a cheaper price; that's sort of like saying you're richer because the value of your home has dropped); Citigroup pulled the same trick. Bank of America sold its shares in China Construction Bank to book a big one-time profit, but Ken Lewis heralded the results as "a testament to the value and breadth of the franchise." Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch's assets it acquired last quarter to prices that were higher than Merrill kept them. "Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won't be pretty," he said. Investors reacted by throwing tomatoes. Bank of America's stock plunged 24 percent, as did other bank stocks. They've had enough. Why can't anybody read the room here? After all the financial wizardry that got the country - actually, the world - into trouble, why don't these bankers give their audience what it seems to crave? Perhaps a bit of simple math that could fit on the back of an envelope, with no asterisks and no fine print, might win cheers instead of jeers from the market. What's particularly puzzling is why the banks don't just try to make some money the old-fashioned way. After all, earning it, if you could call it that, has never been easier with a business model sponsored by the federal government. That's the one in which Uncle Sam and we taxpayers are offering the banks dirt-cheap money, which they can turn around and lend at much higher rates. "If the federal government let me borrow money at zero percent interest, and then lend it out at 4 to 12 percent interest, even I could make a profit," said Professor Finkelstein of the Tuck School. "And if a college professor can make money in banking in 2009, what should we expect from the highly paid C.E.O.'s that populate corner offices?" Labels: Andrew Ross Sorkin, bank failures, bank nationalization, Citibank, Merrill Lynch, New York Times, Sydney Finkelstein Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Another $3 Billion Ponzi SchemeIt's getting hard to keep track these days. Was anybody making money honestly this past decade?From the WSJ:
Labels: Corporate Fraud, Corporate Swindles, ponzi Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Sky High Unemployment for Blacks With Degrees Another EPI economic snapshot: Fifteen months into a deep recession, college-educated white workers still had a relatively low unemployment rate of 3.8% in March of this year. The same could not be said for African Americans with four-year degrees. The March 2009 unemployment rate for college-educated blacks was 7.2%-almost twice as high as the white rate-and up 4.5 percentage points from March 2007, before the start of the current recession (see chart). Hispanics and Asian Americans with college degrees were in between, both with March 2009 unemployment rates of 5%. See original post for sources and more info. Labels: Black jobless rate, Economic Policy Institute, EPI Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Financialization of the American UniversityThis is from D&S collective member Faisal Chaudhry, with whom we hung out in NYC this past weekend during this year's Left Forum. It follows up on earlier posts on this topic, here and here.Some Further Notes on the 'Financialization' of the American University In recent weeks we have been keeping an active watch on the particular corner of the story of the financial crisis having to do with Harvard’s stunning $10 billion-plus endowment drop due to its highly risky investment strategy. Here are a couple of other notes to round out the still emerging picture. The first further illuminates that Harvard’s corner in this story may not just be one about excessive "risk" taken but something closer to a scandal in the making given a lack of transparency and accountability within the ranks of its administrative bureaucracy and money managers. The second, peels back this little corner of the financial crisis to remind us that it is likely much bigger than the focus on the Harvard story, in specific, has tended to suggest. As the second item makes so clear, if Harvard’s endowment hit has obviously been the most noticeable, it would be wrong to paint its investment strategy as somehow anomalous. Chalk item two up to another chapter in the story about the growing "corporatization" or, perhaps better, financialization of the American higher education system: 1. As the Boston Globe reported earlier this month a new employee at Harvard Management, Iris Mack, warned then university president Lawrence Summers of the ticking financial time bomb the university might be facing. In a letter date May 12 of that year, Mack expressed to Summers the "troubl[ing] and surpris[ing]" nature of the things she had seen as a quantitative analyst with Harvard Management. The particular concerns she expressed—including, according to the Globe, through reiterating them in later emails and conversations—was not only that the university was too heavily invested in derivatives but that her colleagues also seemed to possibly be engaged in insider trading. Despite having asked Summers to consider her communications while keeping her confidence, two months later, Mack—herself a doctoral alumnus of Harvard's mathematics department—was suddenly fired by chief of Harvard Management, Jack Meyer. 2. In a recent email to her campus community, Shirley Tilghman notified her fellow Princetonians that her university was facing a loss of some $5 billion in endowment funds, reflecting a 30 percent drop from $16.4 to $11.5 billion (reported on here). Like Harvard, which has recently reported that it is expected to slash its operating budget quite significantly (including , through instituting a fresh round of layoffs of workers in the clerical and other service sectors; more on this here), Princeton expects cuts to its budget in the range of $90 million. (No word yet on whether major layoffs in its service sector are planned). One might think that it has only been the elite Ivy League institutions that have been so hard hit, given the disproportionate amounts they generally have to invest. This, however, is not the case. According to a recently completed study by the Commonfund Institute in Wilton, Connecticut, in a survey of 629 educational institutions, for the period from July 1 to December 1, 2008 the average drop-off in endowment size was 24%. As Bloomberg news' Gillian Wee recently noted, this compares with an average decline of 29% in the S&P 500. For the Commonfund Institute's report click here. —fc Labels: Faisal Chaudhry, financial crisis, financialization, Harvard University, Laurence Summers, Princeton University Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Big Corps Using Bailout Bucks For LobbyingIt's the best game in town. Get taxpayer bailout billions and spend some of the spare cash on lobbyists to press Congressional Reps and Senators into giving more money and ending onerous conditions like limiting executive compensation.There oughta be a law... --df From the Washington Post: Major recipients of federal bailout money spent more than $10 million to lobby lawmakers in the first three months of 2009, including arguing against pay limits for corporate executives, according to newly filed disclosure records. Labels: bailout, Citigroup, Daniel Fireside, financial crisis bailout, General Motors, JP Morgan Chase, lobbyists, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). American Empire Foreclosed? (Mark Engler)One of the people that we (D&S collective member and blogger Larry Peterson and I) got to hang out with while we were in New York for this year's Left Forum was Mark Engler (author of this review that we published online a couple of months ago).Mark has a great skewering of Niall Ferguson in the Spring issue of Dissent (it looks like that article is not (yet?) online; and there was a nice review of Mark's book How to Rule the World in the Winter issue of Dissent. (Our table at the Left Forum book exhibit was next to Dissent's, and we enjoyed chatting with Maxine, Neil, and David.) Mark has an interesting new piece on U.S. imperialism, recently posted to the website of Foreign Policy in Focus, where Mark is a senior analyst. Empire Foreclosed? Read the rest of the article. --cs Labels: Chris Sturr, empire, imperialism, Mark Engler, Niall Ferguson Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama *Does* Take on Entrenched InterestsI missed a noteworthy item in Saturday's New York Times because I was down in New York for this year's Left Forum (which was terrific, by the way; I hope to be blogging about it here and there in the next couple of days, time permitting). Julia Willebrand, who was tabling next to us for the Union of Radical Political Economics, pointed us to an article about how Obama has failed to take on entrenched interests as he promised to do in the campaign, and to one ridiculous paragraph in it:Despite Major Plans, Obama Taking Softer Stands And here's how his aides respond: Mr. Obama's top aides dismiss suggestions that he has shied from confrontation, saying they ignore his achievements, the need to move quickly to address economic woes and the fights he has picked against some big interest groups in Washington, including components of the Democratic base, like organized labor. See, he has taken on entrenched interests—like organized labor. This response is supposed to satisfy "left commentators and loyal Democrats"? Hmmm... —cs Labels: Barack Obama, Chris Sturr, labor, Left Forum Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Online Course on the Crisis (UMass/CPE)We just received this from the folks at the Center for Popular Economics:If you have ever asked yourself...
...then this course is for you! The Economic Crisis and the Case for a Solidarity Economy An Online Course offered by the Center for Popular Economics Summer Session I (June 1 - July 9, 2009) Course Fee: $900 for THREE Univ. of Massachusetts Credits or $400 for non-credit students. 40-60 Professional Development Points (in MA) or 3.6 Continuing Education Credits (outside MA) available. Limited scholarships available for non-credit students. The Center for Popular Economics, in collaboration with the Forum on Social Wealth and the Political Economy Research Institute at Univ. of Massachusetts, Amherst is offering a special topics 3-credit online course (Econ 197) this Summer. The course runs from Monday, June 1st till Thursday July 9th. No background in Economics is required. The course is suited for students as well as activists and community members who want to learn more about the current economic crises, its causes and its solutions. Click here for more information. You can also contact Amit Basole at abasole[ @ ]gmail.com or Emily Kawano at emily[ @ ]populareconomics.org for more details. Overview: The current economics crisis has once again raised the question with great urgency: what purpose do we want our economy to fulfill? Is it fulfilling this purpose today? If not, what can we do about it? In this course we will place special emphasis on the ongoing economic and financial crisis and its long-term and short-term causes and consequences. We will also discuss various alternative economic models rooted in principles of economic democracy, cooperation and sustainability. Finally, we will talk about a vast store of wealth that communities everywhere possess and on which they can draw for constructing alternatives. The course is comprised of two main parts. Part One takes a look at how 30 years of neoliberal economic policy created the conditions for the present crisis, which threatens to be the most severe since the Great Depression. Falling or stagnant wages for the majority of Americans, rising and unsustainable levels of debt in the economy, and a poorly regulated financial sector all played a part in precipitating the crisis. We will also go beyond the crisis and attempt fo understand how our economic model has allowed unprecedented accumulation of wealth by a few and while bringing low wages, longer work hours, and rising healthcare and education costs for the many, in addition to a deterioration of our natural and social environment. We start with a look at the historical roots of neoliberalism and then try to understand the economics behind it. In Part Two, we will talk about how some of the things that we saw going wrong in Part One can be set right. Building a just economy that is not prone to repeated crises depends on the efforts we make. In the midst of growing inequality and corporate power, many grassroots economic alternatives have been springing up throughout the U.S. as well as the rest of the world. This is the new "Solidarity Economy." Grounded in principles of economic democracy, social solidarity, cooperation, egalitarianism, and sustainability, this is an alternative to the Neoliberal vision of the economy. In this part of the course we will look at some examples of such alternatives, including alternatives to the current financial system, as well as understand the economics behind them. We will also see how an economy organized around solidarity principles can tap into reservoirs of social wealth, assets that all communities possess; our cultural and ecological commons and our capacity to work for those we care. Labels: Center for Popular Economics, financial crisis, recession, solidarity economics Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chris Dodd's Personal Bailout (Mother Jones)Interesting article in Mother Jones about Chris Dodd. Today's NYTimes had an article on Dodd that was much less informative (at least it didn't mention the Wall Street money flowing into Dodd's campaign). Hat-tip to TM.Chris Dodd's Personal Bailout How Big Finance is trying to keep the Senate banking chairman's imperiled political career afloat. As Senator Chris Dodd fights for his political career, the embattled chairman of the powerful Senate banking committee is receiving his own economic rescue package from the finance industry. According to the five-term senator's latest campaign disclosures, filed earlier this week, the financial sector is flooding Dodd's campaign war chest with donations in advance of what is expected to be a tough reelection bout. Dodd, who's had a rough year, can certainly use all the support he can get. Last summer, the news broke that he had received two sweetheart loans through subprime lender Countrywide's "V.I.P." program. And in March, Dodd first denied and then later admitted that he had inserted language into the economic stimulus bill that would allow AIG executives to keep their bonuses. Amid accusations that he has grown too chummy with the industries he oversees as head of the banking committee, Dodd has seen challengers to his 2010 reelection crop up on his left and his right. Recent polls show him with a popularity rating of just 33 percent in Connecticut, losing in hypothetical matchups with three different Republicans. Political handicappers consider him the most vulnerable Democratic incumbent in the Senate; the GOP is raring to pick him off. Read the rest of the article. Labels: Christopher Dodd, Mother Jones, senate finance committee Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Workshops on the Crisis in BostonA notice about a terrific popular economics workshop led by the fantastic Mike Prokosch of Community Labor United and United for a Fair Economy."Economic Crisis" workshop series starts April 21 Please join us for "The Economic Crisis, The Global Economy, and the Economy We Want" at Encuentro 5, 33 Harrison Ave, 5th floor, downtown Boston (near the Downtown Crossing and Chinatown stops). This lively three-evening workshop will look at the ways wealth has been stripped from workers, the public sector, and "real economy" corporations over the last 40 years; how that wealth created the Wall Street bubble; the global dimensions of the US economy and crisis; and how we can transform it. This Will Not Be A Lecture. We will form human bar graphs, stack chairs in outrageous piles, sing Wobbly songs, and generally have a riotous time as we rigorously examine our sick economy and how to make it safe for working people. The schedule is: Tuesday April 21: How did they get us into this mess? Tuesday April 28: International Dimensions of the Crisis with Adrian Boutureira of United for a Fair Economy and Tim Costello of Global Labor Strategies Tuesday May 5: Where's our leverage? What's our strategy? with Stephanie Luce of Solidarity All sessions will run from 7 to 9 pm. Pizza will be served at 6:30; pre-register to insure space and pizza with the workshop's sponsor, the Boston Radical Education Project, repboston[@]gmail.com or 617-491-2876. The suggested workshop fee is $5 and no one will be turned away. See you there! Please spread the word. Mike Prokosch (United for a Fair Economy and Jobs with Justice) Labels: Encuentro 5, financial crisis, Mike Prokosch, popular economics Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Job Loss Fallout MapSlate has put together an amazing interactive map illustrating the 5 million jobs that have been lost since the start of the economic meltdown. The immediate image it brings to mind is a fallout map after a nuclear attack.Labels: jobs, Slate, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stiglitz: Wall Street Lobbying Will Doom RescueFrom Bloomberg:The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said. Read the rest of the interview here. Labels: bad banks proposal, Joseph Stiglitz, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Mass Suicide By Broke Indian FarmersFrom the wires:Over 1,500 farmers in an Indian state committed suicide after being driven to debt by crop failure, it was reported today. The agricultural state of Chattisgarh was hit by falling water levels. "The water level has gone down below 250 feet here. It used to be at 40 feet a few years ago," Shatrughan Sahu, a villager in one of the districts, told Down To Earth magazine "Most of the farmers here are indebted and only God can save the ones who do not have a bore well." Mr Sahu lives in a district that recorded 206 farmer suicides last year. Police records for the district add that many deaths occur due to debt and economic distress. In another village nearby, Beturam Sahu, who owned two acres of land was among those who committed suicide. His crop is yet to be harvested, but his son Lakhnu left to take up a job as a manual labourer. His family must repay a debt of £400 and the crop this year is poor. "The crop is so bad this year that we will not even be able to save any seeds," said Lakhnu's friend Santosh. "There were no rains at all." "That's why Lakhnu left even before harvesting the crop. There is nothing left to harvest in his land this time. He is worried how he will repay these loans." Bharatendu Prakash, from the Organic Farming Association of India, told the Press Association: "Farmers' suicides are increasing due to a vicious circle created by money lenders. They lure farmers to take money but when the crops fail, they are left with no option other than death." Mr Prakash added that the government ought to take up the cause of the poor farmers just as they fight for a strong economy. "Development should be for all. The government blames us for being against development. Forest area is depleting and dams are constructed without proper planning. All this contributes to dipping water levels. Farmers should be taken into consideration when planning policies," he said. Labels: Farming, India, poverty, suicide Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Cram Down Those Loans!Senate Democrats are negotiating with banking industry lobbyists on legislation that would allow for bankruptcy judges to "cram down" (or rewrite) mortgage loans. Judges currently have the authority to do this for mortgages on second homes, yachts, and luxury automobiles, but not for primary residences.Bank lobbyists (whose salaries are paid by banks receiving billions in taxpayer bailout funds) are hoping that Senate Republicans can either stop the bill outright or force limits on who would be covered by the bill, as well as a time limit (or sunset period). The House passed a version earlier this month. Advocates for troubled homeowners are pushing for legislation that would allow bankruptcy judges the authority to change the terms of interest rates and loan principle to reflect current market rates. This would help stop the flood of houses going into foreclosure, maintain value for the banks, and prevent neighborhoods from being overwhelmed with vacant properties. The bill would not only benefit homeowners who are able to convince judges that they have the means and will to pay a mortgage brought down to reflect the current value of their homes, but also renters -- a group that represents 40% of all people at risk of eviction because of foreclosure. Banks had no qualms about extending loans on overvalued properties in good times (and then leveraging them many times over in credit default swaps and other derivatives). Their current policy is to foreclose, evict everyone, and let the government deal with the resulting mess of abandoned property and growing homelessness. Even those current on their mortgages lose out as their property values continue to plummet amid the glut of bank-owned properties on the market. With profits rising thanks to government handouts, why should banks be allowed to duck their share of responsibility for the mortgage mess? --df Labels: banking crisis, banking system, Daniel Fireside, derivatives, lobbyists, mortgage backed securities, mortgage meltdown, Renters Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Fox *Outraged* by Frat-Boy Tea HumorOk, so I am not sure we have ever linked to Fox News, and this is a little juvenile, but hey, Doug Henwood posted it at lbo-talk. My three favorite bits: (1) The author sniggers about "teabagging," but then expresses fake scorn for "frat house humor." Meanwhile, I know about teabagging from a highly reputable source: John Waters' fabulous movie Pecker (a must see--Edward Furlong, Christina Ricci, Mary Kay Place, Lili Taylor, Mink Stole, Patricia Hearst, etc.). (2)This quote: "I think what that reveals is how worried they are that this might actually be something serious. You make fun of things you're afraid of, I'd say." (3) The spectacle of Anderson Cooper talking about teabagging with a straight face.Incidentally, I saw some of the teabagger folks on the Blue Line in Boston on Wednesday (I was on my way back to East Boston; they were, I'm guessing, coming back from Fanieuil Hall or the U.S.S. Constitution or something). They looked like nice folks. Anyhow, here's the whole article; or you can read it below. (N.B.: the link below, Click here to join a discussion on teabagging, was actually part of the FoxNews.com story. If you click on it, you will go to their site, which you might not want to. The comments in the "forum" on teabagging are actually pretty amusing, though.) Cable Anchors, Guests Use Tea Parties as Platform for Frat House Humor --CS Labels: Anderson Cooper, bailout, Chris Sturr, financial crisis, Fox News, taxes Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stocks Down, Gun Sales UpA worrisome piece from the WSJ:FAYETTEVILLE, Ga. -- The way Jay Chambers sees it, the semiautomatic weapons in his firearm collection might be the most promising investment in his financial portfolio. Like many gun enthusiasts, Mr. Chambers, a manager for a door wholesaler here, believes President Barack Obama and the Democrats in Congress soon will reimpose a version of an expired federal ban on the sale of so-called assault weapons. If such a law passes, he figures his collection -- enough guns, ammo magazines and weapon parts to assemble about 30 AK-47s, AR-15s and other semiautomatic rifles -- could triple in value. Labels: fear, guns, Wall Street Journal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Skyrocketing ForeclosuresBanks have ended their voluntary halts on foreclosures, sending foreclosure rates skyrocketing 24% in the first three months of 2009.From the wires: Nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March, up from about 650,000 in the same time period a year earlier, according to RealtyTrac Inc., a foreclosure listing firm. During the quarter, Ohio was the state with the seventh highest number of homes seeing foreclosure activity with about 31,600 receiving at least one filing, up 1 percent from a year earlier. Labels: banking system, financial crisis bailout, foreclosures Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Mall Operator In BankruptcyYou know it's a really bad sign when sales are so slow that the malls are closing up. Unless you hate malls. The company operates malls in 44 states, including Boston's Faneuil Hall Marketplace. Seems likely that this is only the tip of the iceberg for commercial real estate.From the Washington Post: General Growth Properties, the giant shopping mall company whose holdings stretch from Tysons Corner to the planned community of Columbia and Baltimore's Inner Harbor, announced today that it has sought protection from creditors in bankruptcy court. --df Labels: bankruptcy, Commercial Real Estate, Daniel Fireside, real estate market, shopping malls Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More on AIG Bailout and Goldman's EarningsSent in by our long-lost collective member Faisal Chaudhry:Fresh on the heels of the euphoria in the financial press about Goldman Sachs reported first quarter earnings of $1.66 billion, a recent entry on our blog (Questions About Goldman's Great Quarter) asked how much of the current profit is a result of Goldman's getting full payment for its previous financial bets from AIG. While the answer is not clear yet (and likely will remain so), the Monday edition of Bloomberg's "On the Economy" radio program with Tom Keene and Pim Fox (access the audio here) provided a fascinating look into what Wall Street's take on the matter is. The passage from nonplussed nonchalance to equivocating chagrinned concession that Gary Townsend of Hill Townsend Capital undertakes in the space of two plus minutes is priceless for what it reveals about how these questions are regarded, parsed, and set aside by the lords of finance. (Jump to the 11m 6 sec mark .) With a barely subdued glow, Townsend's monotone first points to Goldman's go getter attitude in proposing to use the newfound confidence it has earned in the eyes of the market by rolling up its sleeves and raising $5 billion in equity through sales of its shares in order to "unpartner" itself from its pesky and "unhappy" TARP-induced relationship with the government. He next lodges his "personal" opinion that the companies "who were not particularly interested in accepting the TARP" funds should not be faced now with any restrictions whatsoever on when they can repay the bailout money and "get out" of said pesky relationship. When faced with the obvious next question from Fox about whether Goldman's first quarter would have been as good as they were had it not taken the TARP money it supposedly "never wanted" in the first place, Townsend's swagger starts fading as he lunges towards evasion by highlighting the "additional expense" from the preferred dividend that Goldman has had to pay out to the government already and that has "presumably, worsened the [first] quarter [earnings]" now being reported already. As if it wasn't curious enough to be apparently unable to parse the type of catastrophic cost Goldman's bottom line might have suffered had the "unwanted" bailout money never been poured into its coffers in the first place, things only get worse when Fox asks Townsend what role the credit default swaps paid out during the quarter to Goldman by AIG (via the "unwanted" moneys the government foisted upon that company) played in the $1.6 billion first quarter. You can hear Townsend start folding under the weight of his own inconsistencies (at the 12m30sec mark) after he is left little choice but to concede that the answer to the "very interesting question" he first suggests awaits more data must certainly be in the affirmative. As he grudgingly concedes "what seems to have happened is that the Government is fulfilling the obligation to Goldman and others on the other side of the CDS's" . Alas, he must let drop that "indeed, the government has provided that value [of the AIG bailout] to Goldman." He is sure, however, to ask rhetorically before closing "[but] isn't that rather obvious?". It would seem that a mere two minutes earlier, of course, it was not, at least, to Townsend's mind. As for Wall Street's collective mind, we won't hold our breath. --FC Labels: AIG, bailout, Bloomberg, Faisal Chaudhry, Goldman Sachs, TARP program, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Most Positive View of Income Taxes Since 1956A recent Gallop poll shows Americans have a more positive view of income taxes than they have had in recent years (and the general view is more positive than you might have thought).In response to the question, "Do you consider the amount of federal income tax you have to pay as too high, about right, or too low?", a majority (51%) thought it was either too low or about right (with 48% saying that it was about right):  Meanwhile, in response to the question, "Do you regard the income tax you will have to pay this year as fair?", a solid majority continued to say that it was fair:  I am not quite sure what to make of the fact that the percentage of people saying that their taxes are "fair" is ten to twelve points higher than the percentage of people saying that the amount they pay is "about right." Gallop claims that people are more likely to think that their taxes are "fair" during wartime. Go figure. --CS Labels: Chris Sturr, Gallop, income inequality, income tax, taxes, war Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). On Events in ThailandThe Financial Times has a tolerable opinion leader (never mind the idiotic title) today on the dividing lines in big, pivotal Thailand:Thailand's slide into mob rule Published: April 14 2009 19:45 | Last updated: April 14 2009 19:45 Ever since the autumn 2006 coup that deposed populist prime minister Thaksin Shinawatra, Thailand has given every impression of having succumbed to mob rule, an impression only somewhat relieved by putting a young Eton- and Oxford-educated premier, Abhisit Vejjajiva, at the front of the house. Events like last weekend's cancellation of an Asean summit, with leaders such as China's Wen Jiabao evacuated as "red shirts" protesters loyal to Mr Thaksin overran the coastal venue of Pattaya, are beginning to paint Thailand in the colours of a banana republic. Before that, of course, Thailand ran through a brace of Thaksin proxy leaders, toppled by "yellow shirts" royalists who brought the country and the economy to a standstill under the indulgent eyes of the police and the army. At the root of this now chronic instability is the complete inability of Thailand's ruling class to come to terms with the political implications of Mr Thaksin's constituency. Read the rest of the piece And LBO talk has this link to reports on the demos themselves Labels: Abhisit Vejjajiva, bailout, Class, financial crisis, Financial Times, King Bhumibol, LBO Talk, Thailand, Thaksin Shinawatra Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What Harvard Money Managers MakeAs we reported earlier, Harvard expects to lose $11 billion, or 30% of its endowment (just what they lost is equivalent to what Iceland received in bailout funds). The budget for the entire city of Boston is $2.4 billion.Although a lot of money was lost, the financial geniuses who run the fund (officially the Harvard Management Corporation) have pocketed a pretty penny. Here are the annual compensation packages for the top six managers (fiscal years July 1 to June 30th): 2003 $107.5 million (source) (note: alumni outrage at the compensation from this year prompted the imposition of salary caps, although even then, as seen below, the caps are still quite generous.) 2004 $78.4 million (source) 2005 $56.8 million (source) 2006 $13.3 million (source) (note: total payout is lower because of management turnover and outsourcing of some fund oversight.) 2007 $22.3 million (source) 2008 $26.8 million (source) The total for these six years for the top six money managers (HMC does not report the compensation of the other employees) was $305.1 million. Interestingly, the top managers of Yale's endowment, which has posted similar outsized returns, earn about one tenth of their counterparts at Harvard. Even with the drop to a total value of $20-some billion that is expected to be reported in July, the endowment represents a massive amount of capital controlled by a single non-profit, tax-exempt entity that receives hundreds of millions in taxpayer grant money. --df Labels: Daniel Fireside, executive pay, Harvard University, University endowments Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China Reduces US Dollar Reserves In FebruaryIt's hard to tell how significant or durable an occurence this is, but it certainly deserves close attention. From Brad Setser's fine blog, Follow the Money:China Reduced Its Dollar Holdings in FebruaryPosted on Wednesday, April 15th, 2009 by bsetser It is a good thing the US trade deficit has come down, because foreign demand for US financial assets--actually foreign demand for US assets other than short-term Treasury bills--has dried up. Foreign investors bought $68 billion of T-bills in February. Russia alone (likely Russia's central bank) bought close to $14 billion. Private investors--seemingly Japanese private investors--also bought $23.5b of longer-term Treasury notes. Otherwise, though, foreign investors didn't buy much of anything. And Americans also didn’t buy many foreign assets.* After Keith Bradsher's New York Times article, though, all eyes are on China. In February, China bought Treasuries. $4.64b by my count. It bought $5.61b of bills, while reducing its long-term Treasury holdings by $0.96 billion. But China also reduced its US bank deposits by $17.24 billion. Consequently, by my count, China's total US holdings fell by $13 billion. Short-term claims fell by $11.3b, and long-term claims fell by $2b. The data on China’s short-term claims can be found here. Is this the beginning of the end? Has China decided to stop buying US assets? Read the rest of the post Labels: bailout, Brad Setser, China, dollar, financial crisis, Monetary Policy, trade deficit, Treasury bonds Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Consumer Prices Fall Despite Stimulus, PPIPIt's energy and food prices to a big extent, which is good, but even the whiff of deflation is precisely what scares the bejeezus out of policymakers. Coupled with an industrial production drop (about which, more below), and yesterday's retail sales figures, the spectre can not be dismissed out of hand. From Bloomberg:U.S. Economy: Consumer Prices, Industrial Production Decline By Shobhana Chandra and Courtney Schlisserman April 15 (Bloomberg) Consumer prices posted their first annual decline since 1955 and unused American manufacturing capacity reached a record, alleviating concern that Federal Reserve actions will cause inflation to soar. The consumer price index fell 0.4 percent in March from a year before, and 0.1 percent from the previous month, the Labor Department said in Washington. Output at factories, mines and utilities dropped 1.5 percent last month, when the share of industrial capacity in use slid to 69.3 percent, the Fed said. Today's figures signal deflation, or prolonged price declines, is the bigger danger, and underscores Fed Chairman Ben S. Bernanke’s call for inflation to remain "quite low for some time." The Fed's record injections of cash into the economy have spurred warnings from some economists, including central bank historian Allan Meltzer, that consumer prices will surge. "The more slack there is in the system, the longer it will take for inflation to become a concern," said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. in New York. "Production data look terrible. Things do not look good and this means the dramatic pace of layoffs we've been seeing in manufacturing for the last several months is likely to continue." A Fed survey today also showed that manufacturing in the New York area contracted in April less than forecast, an indication some businesses have adjusted to the economy's lower level of demand, analysts said. The Fed Bank of New York's general economic index rose to minus 14.7 from minus 38.2 the prior month, when the so-called Empire State index reached its lowest level since data began in 2001. Dollar Rallies Stocks and Treasuries were little changed, while the dollar rallied against the euro on demand for the U.S. currency as a haven amid concerns about the global economic outlook. The Standard & Poor's 500 Stock Index was at 838.52 at 11:12 a.m. in New York, benchmark 10-year note yields were at 2.77 percent and the dollar rose 0.6 percent to $1.3182 per euro. Foreign demand for Treasuries spurred a net inflow of long-term international capital into the U.S. in February, government figures showed. The Treasury said net purchases of long-term equities, notes and bonds totaled $22 billion, compared with selling of $36.8 billion in January. Net foreign purchases of Treasury notes and bonds were 21.6 billion in February compared with purchases of $10.7 million a month earlier. Forecast to Rise Consumer prices were projected to rise 0.1 percent, according to the median estimate of 75 economists surveyed. Forecasts ranged from a drop of 0.3 percent to a gain of 0.5 percent. Companies from General Motors Corp. to Macy's Inc. are using incentives and promotions to draw customers as Americans contend with the biggest job losses in the post World War II era and shrinking wealth. "We're in a very deep global recession that's going to hold prices down," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who accurately forecast the drop in CPI. "Deflation is still something that's a risk, though I don't think we'll get into a deflationary spiral." Declining food and fuel costs brought overall prices lower. Energy costs dropped 3 percent, led by decreases in fuel oil and gasoline. Food expenses dropped 0.1 percent on lower costs for dairy and meat products. Inflation, Deflation Some economists argue disinflation could lead to outright deflation, which erodes profits, makes debts harder to repay and delays purchases by consumers and companies. Others caution that in the longer term, the unprecedented fiscal stimulus and the Fed's policy of buying more assets and pumping money into the financial system will reignite inflation. The cost of new cars rose 0.6 percent in March, the Labor report showed, even as automakers boosted discounts. Incentive spending by automakers jumped 30 percent in March from a year earlier to a record average $3,169, according to research firm Edmunds.com, helping to boost sales. The decline in industrial production was led by decreases in consumer goods, including furniture and electronics, and by business equipment such as computers and communications gear. "Businesses look like they are still quite uncertain about the outlook for the economy," said Zach Pandl, an economist at Nomura Securities International in New York. "These production cuts are still necessary because inventories are still bloated." Intel Corp.'s Chief Executive Officer Paul Otellini yesterday said his company still faces a "fragile global economic environment." Sales of personal-computer processors likely bottomed out in the first quarter after manufacturers worked through their stockpiles of parts, Otellini said. While the worst of the slump is "probably now behind us," the world's biggest chipmaker isn't ready to predict growth this quarter, he said. Labels: bailout, CPI, deflation, financial crisis, industrial production, monetary pilicy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Questions About Goldman's Great QuarterInteresting times at Goldman Sachs.In September of 2008 it became part of the US banking system (now the country's fifth largest bank), making it eligible for TARP funds, but also putting itself under much greater regulatory scrutiny. Lately that has also meant facing some limits on executive compensation. The company reported that it earned $1.66 billion in the first quarter of 2009. The company is now frantically raising capital to try to repay $5-10 billion of the $28 billion of TARP money it has received. A few questions: What happened in December? Or more precisely, what happened to December? It seems that the company has decided that instead of starting its fiscal year on December 1, as it has traditionally done, it will now start it on January 1st. That means that December 2008, its worst month in history (about $1.3 billion in pre-tax losses), is missing from the official reports. How is it making so much money? The company says it's because it's one of the only players left to handle everyone's trades. But some analysts find it more likely that the company is making increasingly risky investments with its own money -- the kind that brought the entire financial system crashing down in first place. Even though it should be under greater regulatory scrutiny now, the regulators are still playing catch-up. From Reuters: Some analysts believe that argument and say that Goldman is playing an important role in buying and selling client assets now even as competitors are not. Spokesman van Praag notes that banks are under enormous pressure to keep financing markets open and liquid, which Goldman is doing. Finally, how much of their current profit is a result of getting full payment for its previous financial bets from AIG? The failed insurer and recipient of some $167 billion in taxpayer dollars has so far paid Goldman Sachs $12.9 billion since the government bailout. As Elliot Spitzer asked, But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed? --DF Labels: AIG, Daniel Fireside, Goldman Sachs, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Poor Retail Sales Counters Optimism on BanksFrom Reuters:Retail sales show recession far from bottom Tue Apr 14, 2009 1:42pm EDT By Lucia Mutikani WASHINGTON (Reuters) Sales at U.S. retailers unexpectedly fell 1.1 percent in March after rising for two straight months, government data showed on Tuesday, dimming hopes the 16-month-old recession was close to hitting bottom. A separate report showed prices received by U.S. producers fell a surprising 1.2 percent last month, underscoring the economy's weakness and lack of pricing power. Despite the weak March sales data, economists said consumer spending likely rebounded in the first quarter, which could mean gross domestic product fell less steeply than the 6.3 percent annual rate recorded in the last three months of 2008. Federal Reserve Chairman Ben Bernanke, meanwhile, said figures released in the last few weeks on housing and consumer spending suggest signs of improvement. "Recently we have seen tentative signs that the sharp decline in economic activity may be slowing. A leveling out of economic activity is the first step toward recovery," Bernanke said in remarks prepared for delivery later on Tuesday. Read the rest of the article Labels: bailout, Ben Bernanke, financial crisis, retail Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China To TIGHTEN CreditThey did this in the run-up to the crash, too. And were blamed for it then. Article contains a distressing picture of China's real estate market from one of Chiona's chief economists, which would pour some cold water on hopes that China's stimulus program can create, rather quickly, demand on the scale required to put a serious dent in trade and currency imbalances. From The Financial Times:Beijing to tighten controls on credit By Kathrin Hille and Jamil Anderlini in Beijing Published: April 12 2009 16:43 China's central bank on Sunday warned it planned to "strictly control" credit to some sectors of the economy after the country recorded a record surge in bank loans and money supply in March. The central bank's statement, made after a routine quarterly monetary policy meeting, followed the release on Saturday of the money supply data. The data appeared to confirm that Beijing's stimulus measures are revitalising the domestic economy but raised credit risk and inflation concerns. Read the rest of the article Labels: bailout, China, financial crisis, Monetary Policy, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Two Piracies in SomaliaDemocracy Now! had an interesting segment today shedding some light on the root causes of piracy off the coast of Somalia. Here's an excerpt of the transcript:AMY GOODMAN: While the pirates story has dominated the corporate media, there has been little to no discussion of the root causes driving piracy. Read the rest of the transcript (video available too). An excerpt from Mohamed Abshir Waldo's article: Much of the world's attention is currently focused on the Somali sea lanes. The navies of big and small powers are converging on the Somali waters in the Gulf of Aden and Indian Ocean. The recent hijacking of the Saudi oil tanker and Ukrainian MV Faina, laden with arms for Kenya, off the coast of Somalia by Somali pirates captured world media attention. War has been rightly declared against this notorious new shipping piracy. But the older and mother of all piracies in Somalia—illegal Read the rest of the article. Labels: Democracy Now, Mohamed Abshir Waldo, piracy, Somalia Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Frank Rich on Larry SummersA follow-up on the last post (about Harvard money managers lost $11bn): Frank Rich's column in Sunday's New York Times made a nice connection between recent revelations of Larry Summers' $5.2 million hedge fund earnings in 2008 and the fact that Summers, while president of Harvard, chided Cornel West for making a hip-hop album and supposedly thereby neglecting his professorly duties. It turns out that Summers did some real moonlighting while president of Harvard, consulting for the hedge fund Taconic Capital Advisors:On the same Friday that the Labor Department reported the latest jobless numbers, the White House released (in the evening, after the network news) some other telling figures on the financial disclosure forms of its top officials. From those we learned more about how much the bubble's culture permeated this administration. Read the whole column; hat-tip to TM. Labels: financial crisis, Frank Rich, Harvard University, Lawrence Summers, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). How Harvard Lost $11 BillionForbes has an interesting breakdown of how the financial wizards running Harvard University's endowment lost an estimated $11 billion (or about 30%) of their money since last November. To put that into perspective, that's roughly the annual GDP (PPP) of Trinidad and Tobago, site of the upcoming Summit of the Americas.Sure, everybody has seen their investments plummet, but it turns out that outlandishly compensated Harvard money managers didn't have the usual stock portfolio (as we reported on this blog way back in December). It was heavy on commodities, hedge funds, forests, credit default swaps, and private equity partnerships. Every penny and then some was leveraged, so when the markets started melting down, it got ugly real fast. Since so much of the endowment is tied up in private equity partnerships and other deals that can't be accurately priced until they sell, it's quite likely that the fund has fallen more than most insiders are willing to acknowledge. Besides the obvious question of why managers of a nonprofit educational institution were making hundreds of millions of dollars, perhaps it's time to ask if this is a rational way to actually fund higher education. From Forbes:
Rest of article here. Labels: economic meltdown, Harvard University Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 'A New Way Forward'--Demos TodaySorry for the late notice about this. It looks like all the demos start at 2pm ET and 11am PT, so there may still be time for people to get to them. Hat-tip to LF:Link to the site of A New Way Forward: http://www.anewwayforward.org/demonstrations/ Sorry about the perfunctory post. Labels: activism, banking crisis, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 'Bailout Funds' to 'Allow' Main Street to InvestYesterday's New York Times had this article about the Obama administration's proposal to have mutual-fund-style "bailout funds" that ordinary mom-and-pop investors can buy into:U.S. May Enlist Small Investors in Bank Bailout The fantastic Mike Prokosch responded with this letter to the Times (who knows whether they'll print it): To the editor: Labels: bailout, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Poverty Is Bad For Your HealthIn the January/February 2008 interview with Ichiro Kawachi, a professor of social epidemiology at the Harvard School of Public Health, (full article here) Dr. Kawachi discussed his research linking inequality to public health problems.An article in Monday's Washington Post discusses the disturbing findings of studies showing the potentially harmful links between poverty and mental and physical health issues, beginning in childhood. Children raised in poverty suffer many ill effects: They often have health problems and tend to struggle in school, which can create a cycle of poverty across generations. Full story here. Labels: health care, income inequality, Inequality, poverty, racial wealth divide Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Auto Dealers In Dire StraitsAuto dealers are feeling the pain of the car market meltdown particularly hard. In the first quarter of 2009, 271 dealerships went under, leaving 19,738. According to the Wall Street Journal, analysts project that about 1,200 dealerships will close in 2009, a 20% jump over 2008.Dealers are being hit in all directions, from tighter credit for financing to the overall plummeting car sales trends. Labels: auto industry, credit crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Time To Shift the Tax Burdon BackA new report from the Institute for Policy Studies shows how the rich have shifted the tax burden onto the backs of workers over the past fifty years, and why we need to reverse the trend.Download the full report here. Here are the highlights: Washington, D.C. - America's highest-income taxpayers, analysts at the Institute for Policy Studies detail in a new Tax Day report, pay a staggeringly smaller share of their incomes in taxes than America's rich did back in the 1950s. Labels: Chuck Collins, Institute for Policy Studies, John Cavanagh, regressive taxation, taxes, wealth inequality Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Taxpayers On the Hook For Up To $10.9 TrillionAlthough the final bill will probably be less, Reuters has pulled together all the current and potential (i.e. authorized but not enacted) bailout liabilities so far. The amounts for most items are the total that the taxpayers would be on the hook for if the loans completely failed, which is unlikely. But hey, that's what they used to say about Bear Stearns collapsing.Original link is here. April 7 (Reuters) - The U.S. government has launched an Labels: bailout, financial crisis bailout, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Housing Meltdown Leads To More BankruptciesFrom EPI. Hardly surprising, but the numbers are still very striking:Economic Snapshot for April 8, 2009 Housing collapse drives up consumer bankruptcies by Nooshin Mahalia The bursting of the housing bubble, which led to a foreclosure crisis and economic downturn, is also likely triggering a surge in bankruptcies. Consumer bankruptcy filings hit more than 1 million in 2008, up from just under 600,000 in 2006. Since falling home prices reduce an owner's ability to use home equity to manage financial distress and debt-related difficulties, we would expect bankruptcies to be more common in states with declining home values. The latest data show how strong that connection is. Between 2006 and 2008, personal bankruptcies rose 58% in states without declines in the Home Price Index (HPI)1 but rose 118%-more than twice as fast-in the 16 states with HPI declines (see Chart).  Other factors contributing to bankruptcies include job losses, high credit card balances, and costly medical expenses. This finding supports the notion that people were using home equity as part of their personal safety net in times of crisis. With this option quickly disappearing, more people will be forced into bankruptcy court. Note 1. The Office of Federal Housing Enterprise Oversight publishes the Home Price Index by tracking housing values for individual single-family residential properties. States with declines in home price were California, District of Columbia, Florida, Michigan, Massachusetts, Arizona, New York, Nevada, New Jersey, Ohio, Maryland, Minnesota, Rhode Island, Connecticut, New Hampshire, and Hawaii. Labels: bankruptcy, Economic Policy Institute, EPI, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Tarp for Failing Insurers But Not for Car CosAlthough the Treasury Dept won't be extending TARP financing to troubled automakers Chrysler and GM because they cannot be certified as "financially viable," a different set of standards appears to apply to life insurance companies at death's door.The life insurance companies' troubles don't extend from a sudden increase in mortality, but rather a combination of selling annuities with unsustainable rates and excessive bad bets in real estate and the stock market the companies made with premiums. As their portfolios have plummeted, so too have their credit ratings, in turn making it harder for them to raise further capital. Since TARP funding is only available to certain types of financial institutions, many insurance companies have been buying up the odd bank here and there in order to qualify. Although stocks of troubled insurance companies have jumped with this news, it remains far from clear that an infusion of capital will resolve the underlying structural problems. From the Wall Street Journal: "An injection of capital similar to the banks would provide enough capital for even the most thinly capitalized institutions to weather a prolonged and protracted credit cycle," Credit Suisse analyst Thomas Gallagher told clients in a note Wednesday. He added "one major caveat," however: an assumption that the S&P 500 does not drop materially below the 600 level. Why the largess with insurers but not with carmakers? Insurers hold major stakes in bonds, up to 18% of all outstanding corporate bonds, according to the American Council of Life Insurers. As insurers have hoarded cash in the wake of the financial meltdown, they have held off buying new bonds. Labels: auto industry, insurance industry, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). No May Loans for GM and ChryslerGM and Chrysler were not deemed "financially viable" by the Energy Department, a critical benchmarks that makes them ineligible for next month's disbursement of TARP funds.From the Washington Post: Next month, $25 billion in loans aimed at producing more fuel-efficient cars will start flowing to suppliers and automakers -- just not to the two companies most in need of funding, General Motors and Chrysler. Labels: Chrysler, GM, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Elizabeth Warren on TARP on YouTubeLabels: bailout, Elizabeth Warren, financial crisis, PPiP, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economy Still In FreefallA nice, albeit grim, summary of the current economic outlook by Christian E. Weller of UMass Boston for the Center for American Progress (CAP) (full pdf report with graphs can be found here):WASHINGTON, DC-The current recession is the worst the U.S. economy has seen in decades. Mounting job and wealth losses are accelerating and hurting families, while all private sectors of the economy-consumers, investment, and exports-are shrinking. Labels: Center for American Progress, Christian Weller, economic crisis, Umass Boston Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Insolvent Banks and Imaginary Firesale?An interesting article on an interesting academic paper, and at least one blog post expressing reservations about the paper's conclusions. First, the article (I like "crap assets" as an alternative to "toxic assets": far preferable to the ridiculous "legacy assets"):Geithner Wrong, Crap Assets Correctly Priced, Say Harvard And Princeton Profs Next, the interesting paragraphs from the academic paper (which appears to be online only in pdf form--I had to do some reformatting/retyping; this might be the first place where a good chunk of it appears in searchable html form, though I could be wrong): Policymakers are rapidly moving towards using TARP money to purchase toxic assets—primarily tranches of collateralized debt obligations (CDOs)—from banks, with the aim of supporting secondary markets and increasing bank lending. The key premise of current policies is that the prices for these assets have become artificially depressed by banks and other investors trying to unload their holdings in an illiquid market, such that they no longer reflect their true hold-to-maturity value. By purchasing or insuring a large quantity of bank assets, the government can restore liquidity to credit markets and solvency to the banking sector. Read the full paper. Finally, a sharply dissenting view from the blog Economics of Contempt; his point is that the paper's analysis is not of mortgage-backed securities, yet it claims to draw conclusions about them: The introduction states:On March 23, 2009, the Treasury announced that the TALF plan will commit up to $1 trillion to purchase legacy structured credit products. The government's view is that a disappearance of liquidity has caused credit market prices to no longer reflect fundamentals. ... The main objective of this paper is to determine whether …fire sales are required to explain prices currently observed in credit markets. Read the full blog post (though I've given you most of it). The criticism seems sound, but what's interesting is the very suggestion that the "firesale" scenario is imaginary. If they are right (even if the blogger is right that their evidence doesn't support their conclusion), then the bailout represents a huge transfer of wealth from ordinary folks (I hate the term "taxpayers") to shareholders and bondholders. If anyone has a better grip on this than I do, please leave enlightening comments. Labels: bailout, financial crisis, PPiP, TALF, TARP program, Timothy Geithner, toxic assets Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama Econ Team's Flawed Cosmology (AHuff)From HuffPo:The Obama Economic Team's Flawed Cosmology: Still Believing the Universe Revolves Around the Banks Arianna Huffington | Posted April 6, 2009 | 10:10 PM (EST) A series of recent meetings with members of Barack Obama's economic team (including running into Larry Summers on my way to an appointment in the West Wing, leading to a spirited back-and-forth that made me feel like I was back at Cambridge, debating the smartest kid in the class), left me with a pair of indelible impressions: 1) These are all good people, many of them brilliant, working incredibly hard with the best of intentions to solve the country's financial crisis. 2) They are operating on the basis of an outdated cosmology that places banks at the center of the economic universe. Talking about our financial crisis with them is like beaming back to the 2nd century and discussing astronomy with Ptolemy. Just as Ptolemy was convinced we live in a geocentric universe -- and made the math work to "prove" his flawed theories -- Obama's senior economic team is convinced we live in a bank-centric universe, and keeps offering its versions of "epicycles" and "eccentric circles" to rationalize their approach to the bailout. And because, like Ptolemy, they are really smart, they are really good at rationalizing. It's easy to get lost debating the complexity of each new iteration of each new bailout, but the devil here is not in the details -- but in the obsolete cosmology. If you believe the universe is revolving around the earth -- when, in fact, it isn't -- all the good intentions in the world, and all the endless nights spent coming up with plans like Tim Geithner's Public-Private Investment Program will be for naught. The successive bailout plans have been frustrating to many observers (yours truly included), but when you realize how fully the economic team is mired in a bank-centric universe, all the moves suddenly make perfect sense. Here is one example. Everybody agrees on the paramount importance of freeing up credit for individuals and businesses. In a bank-centric universe, the solution was a bailout plan giving hundreds of billions to banks. It failed because, instead of using the money to make loans, the banks "are keeping it in the bank because their balance sheets had gotten so bad," as the president himself acknowledged on Jay Leno. As a result, the administration, again according to the president, had to "set up a securitized market for student loans and auto loans outside of the banking system" in order to "get credit flowing again." But think of all the time we wasted while the first scheme predictably failed. And how much better off we'd now be if we had provided credit directly through credit unions or small healthy community banks or, as happened during the Depression, through a new entity like the Reconstruction Finance Corporation. Luckily, there is a plethora of economic Galileos out there who recognize that the old bank-centric cosmology is just plain wrong. But while Joseph Stiglitz, Simon Johnson, Jeffrey Sachs, Nassim Taleb, Niall Ferguson, Paul Krugman, etc. are not being imprisoned for life for their heretical views -- they are also not being listened to. Which is really surprising for an administration that has prided itself on a "team of rivals" approach. Read the rest of the article. Labels: Arianna Huffington, bailout, banking crisis, Barack Obama, financial crisis, Galileo, Lawrence Summers, Ptolemy, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Re-Examining Capitalism (Jamie Galbraith)National Journal Online had an interesting forum under the title Re-Examining Capitalism. Here is the introduction to the forum, from John Maggs:Do recent events suggest that the tenets of capitalism and free market theory need to be re-examined? The New York Times has suggested that not much soul-searching is happening yet at economics departments. Does the financial meltdown, the housing bubble, or the over-leveraging of businesses and consumers, point to fundamental flaws in market-based capitalism? Does it point to particular alterations? Here's Jamie Galbraith's response (it's from a few weeks ago--h-t to LF for letting me know about it): Responded on March 19, 2009 9:32 PM James K. Galbraith, Professor of Economics, University of Texas (This is all of his comment, but you can find the full forum here.} Labels: economics profession, financial crisis, heterodox economics, James K. Galbraith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Elizabeth Warren: Sack Bank ExecsElizabeth Warren, who has been on top of this crisis since way back, is also calling for shareholders' equity to be wiped out. Too bad she's only the TARP watchdog and not in charge entirely. I like especially where she says she doesn't want to be too hard on Geithner, but essentially calls his approach "preposterous." We wish she'd say what she really thinks!US watchdog calls for bank executives to be sacked James Doran | Sunday 5 April 2009 Elizabeth Warren, chief watchdog of America's $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse. Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees. Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said. She said she did not want to be too hard on Geithner but that he must address the issues in the report. "The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous." The report will also look at how earlier crises were overcome - the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression. "Three things had to happen," Warren said. "Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out." Labels: bailout, Elizabeth Warren, financial crisis, TARP program, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Soros: U.S. banks 'basically insolvent'Just posted to Reuters; hat-tip to Bob F. Too bad that he says nationalization is "out of the question." But interesting in particular that Soros "warned about the danger of watering down mark-to-market accounting rules."NEW YORK (Reuters)—The U.S. economy is in for "a lasting slowdown" and won't recover this year, while "the banking system as a whole is basically insolvent," billionaire investor George Soros told Reuters Financial Television on Monday. While nationalization of banks is "out of the question," he said stress tests being conducted by the U.S. Treasury could be a precursor to a more successful recapitalization. But he warned about the danger of watering down mark-to-market accounting rules, saying this creates conditions for prolonging the life of U.S. 'zombie' banks. Soros also said the U.S. dollar is under pressure and may eventually be replaced as a world reserve currency, possibly by the IMF's Special Drawing Rights, a synthetic currency basket comprising dollars, euros, yen and sterling. China recently proposed greater use of Special Drawing Rights, possibly as an eventual global reserve currency. "In the long run, having an international accounting unit other than the dollar may be to our advantage," Soros said. He added that the system that has allowed the United States to spend more than it earns has to be reformed. "That is coming to an end and it will not be allowed to recur. There will have to be some change." While a global recovery is possible in 2010, Soros said the timing will ultimately depend on the depth of the recession. China, he said, will be the first country to emerge from recession, probably this year, and will spearhead global growth in 2010. He said world policy-makers are "actually beginning to catch up" with the crisis and efforts to fix structural problems in the financial system. The system was "fundamentally flawed, and there is no returning to where we came from," he said. Read the rest of the article. Labels: bank nationalization, banking crisis, banking regulation, financial crisis, George Soros, mark-to-market, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Interview with Bill Black on MoyersRegular readers of this blog know that William K. Black, author of The Best Way to Rob a Bank Is to Own One, a history of the S&L crisis, wrote a prescient history of the U.S. banking industry for us a couple of years ago. (A shorter version of the piece was the cover story in our Nov/Dec 2007 issue; a longer version appeared in our anthology Real World Banking and Finance, which was published in January of 2008.) Bill Black was one of the regulators whom the "Keating Five" tried to deceive, and he has been in the media quite a bit over the past year or so, first during the presidential election commenting on John McCain's unfitness to even be a senator (McCain was one of the Keating Five), and more recently to comment on the role of "control fraud" in the current financial meltdown. He did a terrific interview with Bill Moyers last week. Hat-tip to LF.BILL MOYERS: For months now, revelations of the wholesale greed and blatant transgressions of Wall Street have reminded us that "The Best Way to Rob a Bank Is to Own One." In fact, [William K. Black] wrote a book with just that title. It was based upon his experience as a tough regulator during one of the darkest chapters in our financial history: the savings and loan scandal in the late 1980s. Labels: Bill Moyers, control fraud, financial crisis, savings and loan crisis, William K. Black Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Why We Need to Keep Mark to MarketExcellent analysis from the Center for American Progress about the end of "mark to market" accounting to a system where banks get to make up their own valuations of their toxic assets.Read the full report here. Why should we fear the end of mark-to-market accounting? First, [such moves] would likely undermine investor confidence, decreasing transparency and increasing concerns about the accuracy of bank financial statements. This could have the effect of prolonging or worsening the credit crisis. Labels: Center for American Progress, Mark to Market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Tell CVS To Unlock Their CondomsFrom Mazher Ali, who works with our next door neighbors United for a Fair Economy (UFE), reporting back from a protest at CVS.Groups including Jobs with Justice, Change to Win, and my own, United for a Fair Economy, gathered on CVS' doorstep in downtown Boston for an expression of outrage. With the help of a mass of supporters off the street, we delivered our collective demands for the pharmacy big dog to end its discriminatory practices in communities of color. CVS has already been charged with violation of customer privacy. Now, they're being faced with communities' demands to stop selling expired meds and other goods, stop over-charging customers, and to provide customers with equal access to products in all locations. With regard to the latter, CVS has historically put in place more stringent anti-theft measures in minority communities—the most recent battle is over locked-up condoms. Even CVS' less-than-perfect national competitors, Rite Aid and Walgreens, have agreed to do the right thing and unlock their condoms. So...what's the deal? CVS seems hell-bent on sending a message—one that says "We don't care if HIV/AIDS and other sexually transmitted diseases, or unintended pregnancy become an epidemic in communities of color, so long as our profit margin is secure." This is another sad instance of big corporations placing the value of capital over that of human life. Corporate delinquency won't end without your help. See curecvsnow.org to get involved. Mazher Ali United for a Fair Economy Labels: Change To Win, CVS, Jobs with Justice, United for a Fair Economy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). BLS March Unemployment DataThe Bureau of Labor Statistics released it's initial estimate of the unemployment rate for March 2009 today. Here is the beginning official summary:THE EMPLOYMENT SITUATION: MARCH 2009 Here's the full summary. Bob Feldman dug out some of the details for us here: Black Male Worker Jobless Rate: 16.4 Percent In March Labels: 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!). Gay Marriage BluesIn light of today's unanimous decision by the Iowa Supreme Court to legalize gay marriage, we present a contrarian view from an article by D&S co-editor Amy Gluckman written after the 2004 ruling by the Massachusetts Supreme Court legalizing marriage here.From the May/June 2004 issue of Dollars & Sense: This month, thanks to the state Supreme Court's unprecedented decision last November, gay men and lesbians will begin getting legally wed in Massachusetts. Meantime, in a genuine uprising, gay couples have crowded into city halls in San Francisco, Portland, and New Paltz, New York, for their marriage licenses. I ought to be delighted. When I came out, the idea that in 20 years lesbians and gay men would be donning tuxes and gowns for legally-sanctioned weddings would have seemed—well, unrealistic at best. Labels: Amy Gluckman, gay marriage Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). But What About the Trust Fund Babies?The Senate passed (51-48) a non-binding resolution to lower the estate tax. It's heartening to know that in times of great economic crisis, the US Senate has not forgotten America's future Trust Fund Babies.From the wires: By a 51-48 vote, the Senate embraced a nonbinding but symbolically important amendment by Arkansas Democrat Blanche Lincoln and Arizona Republican Jon Kyl to exempt estates up to $10 million from the estate tax. Estates larger than that would be taxed at a 35 percent rate. The WSJ has, predictably, gone apoplectic:
A few problems with this analysis. The tax affects only 0.2% of all estates, according to the New York Times yesterday: In addition to creating the false impression that the estate tax eventually hits everyone — by mislabeling it a "death tax" - opponents routinely denounce the 45 percent top tax rate as confiscatory. In fact, the rate applies only to the portion of the estate that exceeds the exemption. As a result, even estates worth more than $20 million end up paying only about 20 percent in taxes. Chuck Collins has previously demolished the myths surrounding the estate tax for Dollars & Sense: Death Tax Deception includes a handy sidebar detailing the hidden interests behind the campaign to repeal the tax. In The Estate Tax: A Recycling Program in Disguise, Chuck describes how voters in Washington State pushed back an attempt to repeal the estate tax there. For more info, check out the Estate Tax FAQ page from United for a Fair Economy. Labels: Chuck Collins, estate tax Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Leaders Not Facing Up to Scale of Crisis (Guardian)Great piece in today's Guardian, with apt discussion of how G20 protest compare with the protests against the WTO in Seattle in 1999.Our leaders still aren't facing up to the scale of the crisis It's hardly surprising that some want to trash the City, but to claim that the G20 protesters have no alternative is nonsense When mass protests exploded on the streets of Seattle in 1999 against the kind of globalisation embodied in the World Trade Organisation, their anti-capitalist message was widely portrayed as utopian. A decade on, as anti-capitalist demonstrators vented their fury yesterday on the social and ecological vandals of the City and prepared to do battle today outside the G20 meeting in the heart of what was once London's docks, it looks more like common sense. The wreckage of the neoliberal order - which reached its zenith in the wake of Seattle and has generated the greatest global economic crisis since the 1930s - is now all around us. World trade is in free fall and, by some measures, collapsing faster than at the time of the Great Depression. While G20 leaders talk of saving or creating 20 million jobs, 25 million are expected to be lost in the wealthy OECD states alone, whose main area of competition now seems to be their relative rates of economic decline. And what in the richest economies means mass unemployment and rising poverty translates into destitution and rising death rates in the developing world. So it can hardly be a surprise that some people end up trashing the homes or offices of bailed-out bankers - or that French workers have taken to "bossnapping" executives handing out mass redundancies, as has been the experience of astonished Caterpillar and Sony executives in recent weeks. As unrest over the impact of the crisis has grown across Europe, workers are increasingly resorting to direct action against closures and following the example of the successful occupation of the Republic Windows and Doors factory in Chicago, backed by Barack Obama last December. The night before last, workers occupied Belfast's Visteon car components plant after 565 out of its 610-strong UK workforce were sacked on Tuesday, and by yesterday morning the action had spread to its factories in Enfield and Basildon. There is likely to be plenty more of this kind of thing to come, as conflict over who carries the costs of the crisis becomes more overt - and so there will have to be if we are to avoid the return to business as usual that politicians and corporate powerbrokers evidently still envisage across the western world. Of course, all the talk at the ExCel centre is of regulation, a green New Deal and "partnerships of purpose". Champions of the failed free market are thin on the ground anywhere these days - even Nigel Lawson and Cecil Parkinson, the Thatcherite architects of the 1980s Big Bang City deregulation, this week turned their backs on the financial mayhem they unleashed. But the fact that many of those presiding at the G20 are the same people who brought us to the present catastrophic pass scarcely inspires confidence in their ability to overcome the crisis. No doubt some modest progress will be made on bringing hedge funds and tax havens under control, though the US and Britain are holding out against tougher regulation. The transatlantic battle over regulation versus co-ordinated expansion is in any case largely a phoney one. Obama is right that the US can't be the sole engine of global recovery, but then Germany's own fiscal stimulus is a good deal larger than its politically hybrid government likes to let on. And if demand is boosted simply to refloat the existing failed economic model - which in the US and Britain includes a crippled, corrupted financial system - it won't work anyway. The same goes for G20 plans to inject extra cash into the International Monetary Fund, which claims to have changed the nefarious neoliberal ways that made it a target for the protesters of the 1990s, but is in fact still imposing the kind of structural adjustment conditions which are the opposite of what is needed to pull countries out of the slump. As for today's expected declarations on action against global warming, they barely count as political window-dressing. All the signs are that most of the politicians playing to the gallery in London today have yet to face up to the full scale of the crisis, or what will need to be done to overcome it. Angela Merkel, Nicolas Sarkozy and President Lula are right to single out the Anglo-Saxon model and "white men with blue eyes" for the meltdown - even if that underplays its systemic nature. But this isn't only a crisis of capitalism or of a particular form of capitalism after all, it's one of US economic and global power as well. That's because it's the product not just of financialisation and deregulated markets, but also of chronically low American savings and unsustainable levels of consumption - including the massive military expenditure that has underpinned US wars and global overstretch in the years since the end of the cold war. The deficits they've generated have increasingly been financed by China and the fact that today's meeting is of the G20 rather than the G7 - and that its most important meetings are between Obama and President Hu Jintao - is a symbol of the decline of American economic power exposed by the crisis. The rebalancing of the US relationship with China, which is so far riding the economic storm somewhat more successfully than its western counterparts, can play a part in overcoming the crisis. But right now recovery is being held back by the failure of the US, and even more precariously Britain, to intervene decisively in the financial sector to drive up lending - rather than pour cash into the black hole of bankers' gambling debts. In both countries, the combination of halfhearted quantitative easing and a refusal to take control of the banks is stifling the impact of tax cuts and extra public spending. In Britain in particular, the limits of crude Keynesianism - rather than direct intervention and nationalisation - are clearly being reached. Meanwhile, market enthusiasts have once again been complaining, as they did at the time of Seattle, that the G20 protesters have no alternative. It was never true in the 1990s, but now such claims are simply ridiculous. The policies and programmes now pouring out of the international trade union movement, NGOs, political parties and thinktanks - on climate change, jobs, green investment, public services, trade, finance, international institutions and global justice - are voluminous and serious. The problem is not a shortage of alternatives, but a lack of political muscle so far to make them stick. Labels: activism, financial crisis, G20, protest, rioting, Seattle, WTO Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Too big to save: the end of financial capitalismBy Saskia Sassan, at Open Democracy.The financial logic of neo-liberal capitalism has devoured the world and exhausted itself in the process. A new model beyond "financialisation" is needed, says Saskia Sassen. The misnamed "Group of Twenty" (G20) meets in London on 2 April 2009 to discuss how to save the global financial system. It is too late. The evidence is in: we don't have the resources to save this system - even if we wanted to. It has become too big to save: the value of global financial assets is several times the size of global gross national product (GDP). The real challenge is not to save this system but to definancialise our economies, as a prelude to move beyond the current model of capitalism. Why should the value of financial assets stay at almost four times the overall GDP of the European Union, and even more of the United States. What do everyday citizens - or the planet - gain from such excess? Saskia Sassen is professor of sociology and member of the Committee on Global Thought, Columbia University. Her books include Losing Control? Sovereignty in the Age of Globalization (Columbia University Press, 1996); The Global City: New York, London, Tokyo (Princeton University Press, 2001); Territory, Authority, and Rights: From Medieval to Global Assemblages (Princeton University Press, 2006); and A Sociology of Globalization (WW Norton, 2007) Also by Saskia Sassen in openDemocracy: "A universal harm: making criminals of migrants" (21 August 2003) "Fear and camouflage: the end of the liberal state?" (22 December 2005) - part of a global end-of-year symposium "Free speech in the frontier-zone" (20 February 2006) "A state of decay" (2 May 2006) "Migration policy: from control to governance" (13 July 2006) "Globalisation, the state and the democratic deficit" (18 July 2007) "Lahore: urban space, niche repression" (21 November 2007) "The world's third spaces" (8 January 2008) "The new new deal" (23 September 2008) "Cities and new wars: after Mumbai" (29 November 2008) The question answers itself. To explore further the inner workings of the financial system that has brought the world to this predicament is also to glimpse a future beyond financialisation. The task the G20 should actually address is not to save this financial system but to begin to definancialise the major economies to a significant degree, so that the world can begin to move towards the creation of a "real" economy that delivers security, stability, and sustainability. There is much work to do. The logic A defining feature of the period that begins in the 1980s is the use of extremely complex instruments to engage in new forms of primitive accumulation, with taxpayers' money the last frontier for extraction. Global firms that outsource hundreds of thousands of jobs to low-wage countries have had to develop complex organisational formats, using enormously expensive and talented experts. For what purpose? To extract more labour at the cheapest possible price, including unskilled labour that would be fairly low in the developed countries as well. The insidious element is that millions of saved cents translates into shareholders' gains. Finance has created some of the most complicated financial instruments in order to extract the meagre savings of modest households: by offering credit for goods they may not need and (even more seriously) promising the possibility of owning a house. The aim has been to secure as many credit-card holders and as many mortgage-holders as possible, so that they can be bundled into investment instruments. Whether people pay the mortgage or the credit-card matters less than securing a certain number of loans that can be bundled up into "investment products". Once thus bundled, the investor is no longer dependent on the individual's capacity to repay the loan or the mortgage. The use of these complex sequences of "products" has allowed investors to reap trillion-dollar profits on the backs of modest-income people. This is the logic of financialisation, which has become so dominant since the neo-liberal era began in the 1980s. Thus in the United States - ground zero for these forms of primitive accumulation - an average of 10,000 homeowners have been losing their home to foreclosures every day. An estimated 10-to-12 million households in the US will not be able to pay their mortgages over the next four years; under current conditions they would lose their home. This is a brutal form of primitive accumulation: presented with the possibility (which is mostly a fantasy, a lie) of owning a house, many people of modest income will put whatever few savings or future earnings they have into a down-payment. This type of complexity is aimed at extracting additional value from wherever it can - the small and modest and the big and rich. This too explains why the global financial system is in permanent crisis. Indeed, the term "crisis" is in some respects a misnomer: for what is happening is more nearly business as usual, the way financialised capitalism in the neo-liberal era works. The financialising of more and more economic sectors since the 1980s has become both a sign of the power of this financial logic and the sign of its auto-exhaustion. When everything has become financialised, finance can no longer extract value. It needs non-financialised sectors to build on. The last frontier is taxpayers' money - which is real, old-fashioned, not (yet) financialised money. Krzysztof Rybinski's "zombies" are also parasites. The limit The difference of the current crisis is precisely that financialised capitalism has reached the limits of its own logic. It has been extremely successful at extracting value from all economic sectors through their financialising. It has penetrated such a large part of each national economy (in the highly developed world especially) that the parts of the economy where it can go to extract non-financial capital for its own rescue have become too small to provide the amount of capital needed to rescue the financial system as a whole. By way of illustration: the global value of financial assets (which means: debt) in the whole world by September 2008 - as the crisis was exploding with the collapse of Lehman Brothers - was $160 trillion: three-and-a-half times larger than the value of global GDP. The financial system cannot be rescued by pumping in the money available. This in turn explains the abuses of entire economies made possible through extreme forms of financialising. Before the current "crisis" erupted, the value of financial assets in the United States had reached 450% of GDP that is to say 4.5 times total GDP (see "Mapping global capital markets", McKinsey Report, October 2008). In the European Union, it stood at 356% of GDP. More generally, the number of countries where financial assets exceed the value of their gross national product more than doubled from thirty-three in 1990 to seventy-two in 2006. Moreover, the financial sector in Europe has grown faster than in the United States over the last decade, mostly because it started from a lower level: its compound annual growth rate in 1996-2006 was 4.4%, compared with the US rate of 2.8%. Even capitalist economies - leaving aside assessments of whether this is the most desirable economic system - do not need an amount of financial assets that is four times the value of GDP. Thus even within a capitalist logic, giving more funds to the financial sector in order to solve the financial "crisis" is not going to work - for it would just deepen the vortex of financialising economies. The scale Another way to portray the current situation is via the different orders of magnitude involved in (respectively) banking and finance. In September 2008, the value of bank assets amounted to several trillion dollars; but the total value of credit-default swaps (CDS) - the straw that broke the system - stood at almost $60 trillion. That is a sum larger than global GDP. The debts fell due, and the money was not there. More generally - and again, to give a sense of the orders of magnitude that the financial system has created since the 1980s - the total value of derivatives (a form of debt, and the most common financial instrument) was over $600 trillion. Such financial assets have grown far more rapidly than has any other economic sector (see Gillian Tett, "Lost through destructive creation", Financial Times, 9 March 2009). The level of debt in the United States today is higher than in the depression of the early 1930s. In 1929, the debt-to-GDP ratio was about 150%; by 1932, it had grown to 215%. In September 2008, the outstanding debt due on credit-default swaps - a Made-in-America product (and, it should be recalled, only one type of debt - was over 400% of GDP. In global terms, the value of debt in September 2008 was $160 trillion (three times global GDP), while the value of outstanding derivatives is an almost inconceivable $640 trillion (fourteen times the GDP of all countries in the world). These numbers illustrate that this is indeed an "extreme" moment - but, again, it is not anomalous nor is it created by exogenous factors (as the notion of "crisis" suggests). Rather, it is the normal mode of operation of this particular type of financial system. Moreover, every time governments (that is, citizens and taxpayers) have bailed out the financial system since the first crisis of this phase - the New York stock-market crash of 1987 - they have given finance the instruments to continue its leveraging stampede. There have been five bailouts since the 1980s; on each occasion, taxpayers' money was used to pump liquidity into the financial system, and each time, finance used it to leverage. This time, the end of the cornucopia is near - we have run out of money to meet the enormous needs of the financial system. The bridge The implication of the foregoing is that two major challenges need to be faced: ▪ the need to definancialise the major economies ▪ the need to move out of the current model of capitalism. Both will be difficult, but it will help to focus on some very basic facts. The current estimate of official global unemployment is 50 million; the International Labour Organisation (ILO) calculates that 50 million more could lose their jobs as the recession deepens. These figures are tragic for those affected. They are also relatively modest (without minimising the human reality in any way) when set against the 2 billion people in the world who are desperately poor. But this raises the question: how many "jobs" would be created if there were a system that aimed at housing and feeding those 2 billion? The world would then need those 50 million currently unemployed to go to work - and another billion more workers into the bargain. If seen in this light, the financial "crisis" could serve as one of the bridges into a new type of social order. It could help all involved - citizens and activists, NGOs and researchers, local communities and networks, democratic governments - to refocus on the work that needs to be done to house all people, clean our water, green our buildings and cities, develop sustainable agriculture (including urban agriculture), and provide healthcare for all. This innovative order would employ all those interested in working. When all the work that needs to be done is listed, the notion of mass unemployment makes little sense. The technology to underpin this work - in helping to eliminate diseases that affect millions, and to produce enough to feed all - has existed for several decades. Yet millions still die from preventable diseases and even more go hungry. Poverty has become more radical: no longer about having only a plot of land that did not produce more, today it means having only your body. Inequality too has intensified and taken on new dimensions, including a new global class of super-rich and the impoverishment of the traditional middle classes. The history of the last generation confirms that the neo-liberal form of market economy cannot deliver answers to these problems of disease, hunger, poverty and inequality - indeed it reinforces them. Some mixing of clean markets and a strong welfare state has (as in Scandinavia) produced the best outcomes yet; but for most capitalist economies even to come near to this model would entail sweeping internal change (see Amartya Sen, "Capitalism Beyond the Crisis", New York Review of Books, 26 March 2009). In any event, the increase in the financialising of market economies over the last generation has further sharpened the negative effects of profit-maximisation logics. To move even a little in the direction of addressing the problems financialisation has created means entering an economic space that is radically different from that of high finance. The challenge is there for those attending the G20 summit in London - and for those outside the gates. Labels: financial crisis, financialization, G20, Saskia Sassen Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama's Budget: Path to SOCIALISM (EPI)April Fool's "Snapshot" from the Economic Policy Institute, in case you missed it.Obama's Budget Would Push U.S. into Socialism Snapshot for April 1, 2009 | by Ethan Pollack and Kathryn Edwards President Obama's 10-year budget proposes to increase government spending by 2.4% over the baseline spending trajectory. This increase, which represents 0.5% of gross domestic product (GDP), has numerous goals: address the current economic crisis, create jobs, and transform the economy for the 21st century through improvements in energy, health care, and education. Sadly, this upsurge in spending pushes the United States past the socialist threshold.  Developed by Friedrich Hayek, the Socialist Threshold—or “Tipping Point” as it is commonly called—states that an economy abandons capitalism and becomes socialist when spending exceeds exactly 23% of the economy.1 Any government spending beyond that threshold indicates a bleak future filled with universal health care, energy independence, and, in the worst-case scenarios, high-speed commuter rail. Although Obama’s budget would return spending to its pre-spiral-into-socialism level of 22% by 2012 and keep it well within the Reagan-era average (22.3%) for the remainder of the budget window, the effect of having spending exceed the Socialist Threshold, even if for only three years, is enough to permanently purge capitalism and commitment to “free” markets from the U.S. economy. Note: 1. The Hayek Tipping Point was brought into some question in 1983 when, under President Ronald Reagan, spending reached 23.5% of GDP. Most economists agreed, however, that Reagan’s dedication to free market rhetoric and avuncular humor inoculated the U.S. from backsliding irrevocably into socialism. Labels: April Fool's, Economic Policy Institute, Friedrich Hayek, socialism Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Pension Guarantee Corp Going Into StocksOn Monday, the Boston Globe reported what appears to be a scandal with the Pension Benefit Guarantee Corporation, the agency that backs pensions for more than 44 million Americans.According to the story
Blogger Roberto W on TPM notes that the push into stocks and real estate was orchestrated under the leadership of Bush-appointed PBGC head Charles E.F. Millard, formerly of the Lehman Brothers (the company formerly known as a financial services firm until they went bankrupt), and also formerly of Broadway Real Estate Partners. In his column for Time, Justin Fox thinks that it's premature to call this a scandal because the company hadn't changed its investment portfolio as of the end of FY08, however he fails to comprehend that FY08 ended in September (when the market started to tank) and that the corporation refused to release up-to-date numbers to the Globe. If we've learned anything from the AIG debacle, it should be that you don't go gambling with the insurance fund. Labels: Lehman Brothers, Pension Benefit Guarantee Corporation, pensions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Massive Protests at G-20London's Financial District is ground zero for global popular protest right now. CNN reports 4,000 protesters, burning effigies of bankers, a group of protesters dressed as police in an armored personnel carrier, Billy Bragg, and a simultaneous and more subdued environmental protest outside the European Climate Exchange.Photos, links, and first hand-reporting are welcome. From CNN LONDON, England (CNN) -- Police and protesters skirmished around the Bank of England on Wednesday as world leaders gathered for the G-20 Summit. The rest of the report is here. Labels: G-20, global downturn, protest Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
- Home
- Subscribe
- Magazine archive
- D&S books
- About D&S
- For instructors
- Get involved
- D&S blog
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- November 2007
- October 2007
- September 2007
- August 2007
- July 2007
- June 2007
- May 2007
- April 2007
- March 2007
- February 2007
- January 2007
- December 2006
- November 2006
- October 2006
- September 2006
- August 2006
- July 2006
- June 2006
- May 2006
- April 2006
- March 2006
- February 2006
- January 2006
29 Winter Street, Boston, MA 02108 USA
T:(617)447-2177
F:(617)447-2179
.
Copyright © 2010 Economic Affairs Bureau, Inc.