Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. More Speculation on Demise of the PPIPFrom Wall Street Pit:Financial Crisis: The Two Sides of the Balance Sheet Wall Street Pit By James Kwak|Jun 30, 2009 Noam Scheiber at The New Republic has the inside scoop (hat tip Ezra Klein) on why Treasury is letting the Public-Private Investment Program die a quiet death (although at this point the legacy securities component may still go ahead). In short, the argument is that the point of PPIP was to help banks raise capital by cleaning up their balance sheets; since they have been able to raise capital themselves, there is no need for PPIP. According to one person Scheiber spoke to: "If you had asked–I don't want to speak for the secretary–what's problem number one? I think he'd say capital. Problem two? Capital. Problem three? Capital." This represents the latest swing of the pendulum between the two sides of the balance sheet. As anyone still reading about the financial crisis is probably aware, a balance sheet has two sides. On the left there are assets; on the right there are liabilities and equity; equity = assets minus liabilities. (There are different definitions of capital, depending on what subset of equity you use.) The goal has always been to provide confidence that there is enough capital to withstand the impact of market and economic turmoil--in particular, its impact on the toxic assets that litter banks’ balance sheets. However, there are two alternative approaches to doing this. One is to add more equity to the right side by issuing new stock (preferred or common). (This would add cash to the left side to keep them in balance.) The other is to reduce the uncertainty of the left (asset) side by helping banks sell toxic assets; even if the banks have to sell them for a little less cash than their current balance sheet value, this would have the salutary effect of reducing vulnerability, since cash does not lose value (at least not in an accounting sense). Alternatively, you could achieve the same effect by insuring the value of the assets while leaving them on bank balance sheets, because then the risk transfers to the insurer. Read the rest of the post Labels: bailout, banking system, Federal Reserve, financial crisis, PPiP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Eurozone Moves into Deflation for First TimeFrom The Financial Times:Eurozone inflation turns negative By Ralph Atkins in Frankfurt Financial Times Published: June 30 2009 11:03 | Last updated: June 30 2009 18:16 Eurozone annual inflation has turned negative for the first time since records began, creating a headache for the European Central Bank as it seeks to draw a line under emergency measures to tackle continental Europe's recession. Consumer prices in the 16-country eurozone were 0.1 per cent lower in June than the same month a year before, according to Eurostat, the European Union's statistical office. It was the first time eurozone annual inflation had fallen below zero since comparable records began in 1991. The fall in prices reflects sharply lower energy costs and the effects of the region's worst economic downturn since the second world war. Annual inflation is hugely undershooting the ECB's target of "below but close" to 2 per cent. Read the rest of the article Labels: bailout, European Union, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Optimism...They keep saying the UK should emerge faster and stronger than other economies (and that may still turn out to be the case, give horrible performances elsewhere) from the recession--or whatever it is--but the carnage continues to get worse:Economy suffers steepest fall in 50 years The Independent By Russell Lynch, Press Association Tuesday, 30 June 2009 The UK economy recorded its sharpest decline in more than 50 years during the first quarter of 2009, figures showed today. And revisions to figures revealed the current recession began earlier than first thought, with a 0.1 per cent decline seen between April and June last year compared with previous estimates of zero growth. Output fell 2.4 per cent in the first three months of the year - the fastest rate since 1958, the Office for National Statistics (ONS) said. The economy also showed an annual decline of 4.9 per cent - the biggest fall since ONS records began in 1948. The first-quarter decline of 2.4 per cent is much worse than the 1.9 per cent first estimated and comes after bigger-than-expected falls in construction and the UK's key services sector. The plummet in activity between January and March was almost equal to the 2.5 per cent fall suffered during the whole of the recession in the 1990s, Investec's David Page said. He warned: "The economy is now likely to undergo a peak to trough adjustment in excess of 5 per cent, nearly as big as the overall 5.9 per cent collapse seen from 1979-1981." The scale of the decline could put pressure on Chancellor Alistair Darling's forecasts for the public finances this year. Read the rest of the article Labels: bailout, economic indicators, financial crisis, GDP, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). WSJ: Why Cleaning Banks' Books Is So HardIt was almost impossible to get this without being a subscriber, so I'm reproducing it in full (here's the link to the article, which has accompanying charts:JUNE 30, 2009 Wall Street Journal Wary Banks Hobble Toxic-Asset Plan By DAVID ENRICH, LIZ RAPPAPORT and JENNY STRASBURG The government's plan to enable banks to dump troubled assets is facing troubles of its own. Markets initially rallied when Treasury Secretary Timothy Geithner announced in March a two-pronged plan to offer favorable government financing to entice investors to buy bad loans and toxic securities from banks. But that initiative--called the Public-Private Investment Program, or PPIP--has lost momentum. Big banks worried about having to sell at fire-sale prices while small banks feared they would be shut out. Potential buyers balked at the risk of doing business with the government, concerned that politicians might demonize them for making big profits. The program's problems threaten to stymie efforts by struggling smaller banks, in particular, to clean up their balance sheets. That in turn could hinder efforts to revive the nation's economy. A look at why the program has stumbled underscores how difficult it has been to solve one of the economy's biggest problems: Mountains of bad debt sitting on the books of the nation's banks. As those loans and securities lose value, they are saddling the banks with losses and constricting their ability to lend. U.S. officials and investors are playing down expectations for the plan--originally billed as a $1 trillion endeavor. Some federal officials say the banking environment has improved since the program was unveiled. They assert that because a dozen or so big banks recently succeeded in raising capital, they are under less pressure to sell bad assets. Early this month, the Federal Deposit Insurance Corp. essentially shelved one arm of PPIP--the government-financed buying of bad bank loans. Mr. Geithner recently said the other part--to facilitate the buying from banks of troubled securities, many backed by real-estate loans--could be scaled back because investors are "reluctant to participate." This week, the government is expected to name investment firms to manage this securities-buying portion. "The fits and starts on all this stuff has added to the uncertainty that makes [investors] stay on the sidelines," says Trabo Reed, the deputy banking superintendent in Alabama, where many small and midsize banks are looking for cash infusions from investors. Lee Sachs, counselor to the Treasury secretary, says the department remains committed to the program and has received more than 100 applications from would-be investment managers. "One of the goals of the PPIP program has been to help create liquidity in frozen markets," he says. "Some banks will sell assets. Even those that do not will benefit from the greater ability to value the assets they hold." The slimmed-down program will focus not on bad loans, but on toxic securities, which are a problem for a relatively small fraction of the nation's banks. That is bad news for hundreds of smaller banks burdened with growing piles of defaulted loans. These banks are less able to tap capital markets than their larger rivals, so they have been eager for U.S. help unloading loans as a way to bolster their capital cushions. Many of them can face big problems if just one or two large loans go bad. Seventy banks, most of them community institutions, have failed since the start of last year. Analysts are bracing for hundreds of lenders to collapse in the next few years. Because these lenders often play key roles supporting their local economies, taken together, they are important to the financial system and to a U.S. economic recovery, says Kenneth Segal, senior vice president at Howe Barnes Hoefer & Arnett Inc., an advisory firm for small and midsize lenders. During the last banking crisis, nearly two decades ago, the government established the Resolution Trust Corp. to sell off the bad loans and securities of banks that had failed. Many experts credit the RTC with helping defuse that crisis. This time around, efforts to rid banks of soured assets have sputtered repeatedly. In late 2007, federal officials helped cobble together a plan for a bank-financed fund to buy securities held by bank investment funds, but the effort was aborted. In 2008, the Bush administration established a $700 billion program to buy banks' soured assets. Partly because of the complexity of valuing those assets, the U.S. abandoned that plan, instead opting to directly pump taxpayer money into banks. Scott Romanoff, a Goldman Sachs Group Inc. managing director, has referred to the current effort, PPIP, as "the greatest program that never occurred," because it "created confidence in the markets so banks can raise equity capital." In recent weeks, markets have lost some vigor amid renewed concerns about the economy. That could make it more difficult for big banks to raise additional capital. Banks also could face further losses as bad assets decline more in value. On March 23, when Mr. Geithner unveiled PPIP, the Dow Jones Industrial Average surged nearly 500 points, or 7%, its biggest gain since October, on hopes that the program would nurse the banking industry back to health. Many bank executives were skeptical about whether the program could succeed. Even before it was announced, some had grumbled that federal officials weren't consulting them, and instead were crafting the initiative with input from would-be investors. Some banking executives say they warned that they would be loath to sell at the kind of prices investors were likely to demand. Executives at Citigroup Inc. shared those concerns, according to people familiar with the matter. While the New York bank was sitting on at least $300 billion of risky loans and securities, selling them at discounted prices would require painful hits to its already thin capital ratios, these people say. Some Citigroup executives had a different idea: Maybe they could turn a profit by bidding on their own toxic assets at discounted prices, using government financing, according to the people familiar with the talks. Other big banks also talked about setting up distressed-asset units to snap up troubled loans and securities, including from their parent companies, with taxpayer financing. FDIC Chairman Sheila Bair later publicly shot down the idea. Citigroup declined to comment. Meanwhile, many small-town bankers hoped the program would help them unload the bad assets--generally loans to finance commercial real-estate projects--that were hurting their balance sheets. Some potential buyers had surfaced before PPIP was announced, but they were offering such low prices that few banks could afford to sell the loans without severely denting their capital cushions. The hope was that PPIP would help narrow the gap between buyers and sellers. Investors would be able to bid more because the government would offer buyers little-money-down financing, along with some downside protection. "We have illiquid assets," says Patrick Patrick, chief executive of Towne Bancorp of Mesa, Ariz. "It would be helpful to have a vehicle where you could sell them at market and be able to restructure our balance sheet." Like many small banks, Towne Bancorp has been hurt by a handful of loans to finance real-estate projects that went belly up. In the first quarter, the bank said two souring commercial real-estate loans caused its portfolio of loans at least 90 days past due to swell by 52%. Such loans represent more than 22% of Towne Bancorp's $143 million in assets. The company has been trying for months to sell 19 pieces of real estate--including undeveloped land and a warehouse--that it seized when loans went into default. When PPIP was announced, big-name investors were intent on figuring out how to profit from it. Raymond Dalio of giant hedge-fund firm Bridgewater Associates, which oversees $72 billion in assets, initially expressed interest in participating. But within days, he was blasting it, saying buyers and sellers would have difficulty agreeing on pricing and fund managers that profited would be exposed to criticism from politicians. The way PPIP is set up "makes us not want to participate and it makes us question the breadth of interest that we will see in the program," he wrote to clients. Lawyers for hedge funds and private-equity investors warned clients about the risks of doing business with the government. The industry was unnerved by the restrictions placed on banks participating in another federal bailout program, the Troubled Asset Relief Program. Fund managers were also bothered by President Barack Obama's criticism of the hedge funds holding Chrysler LLC debt who had refused the government's buyout offers. In conference calls with bankers and investors, FDIC officials emphasized that PPIP was critically important to cleanse banks of their bad assets. "I think you know the stakes are very high with this," Ms. Bair, the FDIC chairman, said during a March 26 call, according to a transcript. "We need this program to work." Ms. Bair and her deputies encountered skepticism. In an April 9 conference call with the FDIC, Mark Wolf of TRI Investments LLC, described his Carlsbad, Calif., firm as a potential PPIP bidder. "Unless you've got a process that either forces banks to sell or does a better job of encouraging them to sell, we're just going to see banks sitting back and dribbling these things out through an eyedropper over the course of time," he said. Some bankers were hesitant. "If these loans are bought at a discount, we create a hole in capital," Lou Akers, executive vice president of Adams National Bank in Washington, told FDIC officials on the March 26 call. He suggested that regulators consider changing the way they calculate banks' capital in order to cushion the blow. Government officials were noncommittal, a transcript of the call indicates. FDIC officials emphasized on the conference calls that PPIP was intended to benefit all banks, not just industry giants. But smaller banks began to worry they'd be locked out. To participate in PPIP, local lenders were told, they would have to pool their loans with other banks. The process, which the FDIC said it would facilitate, was designed to simplify the bidding process for government officials and prospective investors. The agency didn't want thousands of banks put their loan portfolios on the block separately. But the FDIC planned to require participating banks to kick in a minimum amount of assets, and some small-town bankers worried they wouldn't have enough to qualify. Too high a minimum "will virtually eliminate all community banks from being able to participate in this program," wrote Julian L. Fruhling, president of Legacy Bank in Scottsdale, Ariz., in a letter to the FDIC. Still, some investment firms that were hoping to help manage the government's program were optimistic. Laurence Fink, chief executive of BlackRock Inc., said in mid-April during a trip to Japan that if his firm is selected as a manager, it was ready to raise $5 billion to $7 billion to buy securities through PPIP. He said he hoped to raise money from individual investors in Japan and the U.S., and that potential returns could be as high as 20%. The FDIC and other regulatory agencies were planning to use their "stress tests" of the nation's top 19 banks to push them to sell assets via PPIP, according to people familiar with the matter. But in the weeks before the stress-test results were announced in May, market sentiment began to improve. A number of banks succeeded in raising capital by selling new shares to the public. Once the stress tests were wrapped up in May, even more banks sold shares--a total of roughly $65 billion within a month. The capital-raising removed regulators' leverage to encourage participation in PPIP, according to government officials. Around the same time, BlackRock reduced its goal for the size of its potential PPIP investment fund to about $1 billion, say people familiar with the matter. Earlier this month, the FDIC formally postponed the loan-buying portion of PPIP, called the Legacy Loan Program. "Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system," Ms. Bair said. Next month, the FDIC intends to use PPIP for a far narrower purpose: to auction loans the agency has seized from failed banks. Eventually, it hopes to resuscitate the loan-buying program so that smaller banks can benefit from it. But that could be tricky. The U.S. initially justified PPIP by invoking its "systemic risk" powers, which enable regulators to step in when the financial system is at risk. Regulators have debated whether such a justification would remain if the program were geared toward smaller banks. FDIC officials doubt they will muster the necessary consensus among regulators to invoke the special powers and keep the loan program alive, according to a person familiar with the matter. Many banking experts contend that the financial system won't fully stabilize until banks get rid of their bad assets. Mr. Segal, the bank adviser, complains that federal officials have cited recent capital raising by big banks as evidence that "the system is OK." That may be true "for the top 15 or 20 banks," he says. "But for everybody else, there really needs to be more attention paid." Labels: bailout, banking system, financial crisis, PPiP, toxic assets Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Steep Increase In Fannie/Freddie DelinquenciesThis is bad news: Fannie and Freddie mainly deal in prime, not subprime, mortgages. Job losses are the culprit. From The Wall Street Journal:By JAMES R. HAGERTY JUNE 29, 2009, 4:44 P.M. ET Wall Street Journal Fannie Sees Jump in Overdue Home Loans Fannie Mae reported a steep increase in the percentage of home mortgages with overdue payments. The government-backed mortgage investor said in a monthly summary released Monday that 3.42% of the single-family mortgages it owns or guarantees were 90 days or more delinquent in April, up from 3.15% a month before. Fannie's main rival, Freddie Mac, reported last week that its single-family delinquency rate for May was 2.62%, up from 2.44% in April. Fannie and Freddie are the main providers of funding for U.S. home mortgages. Although the two companies bought many of the riskier types of home loans in recent years, their main business is in prime mortgages. More prime borrowers have been falling behind as they lose jobs or their incomes fall. Richard DeKaser, an independent economist in Washington, D.C., blamed the continuing rise in loan delinquencies on the spike in job losses and on what her termed the "evaporation" of home equity amid falling home prices, leaving many borrowers without a cushion when they lose their jobs. Read the rest of the article Labels: economic indicators, Fannie Mae, financial crisis, Fredddie Mac, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Background on Coup in HondurasAs the situation in Honduras continues to unfold in unexpected ways, we recommend reading the posts from the America's Policy Program.Labels: America's Policy Program, coup, Honduras Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Another chance to see Steve EarlyIf you can't make it to Cambridge tonight to see Steve Early talk about his new book, Embedded with Organized Labor: Journalistic Reflections on the Class War at Home (see earlier blog posting), he'll be speaking next week in Boston, with Elaine Bernard & Rand Wilson.Steve will address his critique of organized labor, and his vision of how American workers can get out from under the terrible economic and political constraints they endure. Rand Wilson and Elaine Bernard will draw on Steve's analysis to provide their own reflections. More information here. The event will take place on Tuesday, July 7, at 7:00 p.m. at Encuentro 5, a space for progressive movement building, located in Chinatown. Labels: Elaine Bernard, Embedded with Organized Labor, Encuentro 5, labor, labor organizing, Rand Wilson, Steve Early, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economists on IranThe Union for Radical Political Economics (URPE) has recently updated its Web page on Iran. The site features URPE members whose expertise is the political economy of Iran, many of whom come from Iran.Among the highlights: Reza Ghorashi, Tom O'Donnell, Ervand Abrahamian and Manijeh Saba presented a panel at the 2009 Left Forum (on April 18 in New York City) called "Obama and Iran: A New Beginning?" Audio recordings of the talks are posted on the URPE Web page. You can also listen to panels from previous years for background information on Iranian internal politics, the roles of oil and nuclear power, regional power relations, Iran and Israel, etc. Labels: Economists, Iran, Union for Radical Political Economics, URPE Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). TONIGHT: Steve Early on unions --- Boston-area eventMeet the author ofEmbedded with Organized Labor: Journalistic Reflections on the Class War at Home A new book by Steve Early, former CWA organizer, labor journalist, lawyer and frequent contributor to The Boston Globe Speaking at: Porter Square Books (at Porter Sq. Shopping Center across from Red Line T-stop) 25 White St., Cambridge, Mass. (617-491-2220) Monday, June 29 7:00 to 8:30 P.M. With after-party at Christopher’s Restaurant across the street... Find Out More About: —Workers and the economic crisis —The fight for health care reform —The fate of “Employee Free Choice” —Current struggles for union democracy and rank-and-file control —The future of national labor federations like Change to Win and AFL-CIO Sponsored by: Monthly Review Press, Labor Notes, Massachusetts Jobs with Justice, CWA Locals 1400 and 1298, IBEW Locals 2222 and 2321, Boston Newspaper Guild, TNG-CWA, IUE-CWA Local 201, Boston DSA, Boston Radical Education Project, Solidarity, Socialist Alternative, and Dollars & Sense Magazine Refreshments will be served. For more information, call: 617-930-7327 To order the book online, visit: www.monthlyreview.org Labels: labor, labor organizing, Steve Early, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Background on Military Coup in HondurasThe Honduran military has forcibly taken President Manuel Zelaya and put him on a plane to Costa Rica.Two very interesting reports from the Council on Hemispheric Relations (COHA) discuss the background to the coup. 21st Century Socialism Comes to the Honduran Banana Republic discusses the moves that Zelaya had taken as part of the leftist wave in Latin America: joining the alternative free-trade alliance known as ALBA, raising the minimum wage by 60%, and announced plans to support indigenous groups and increase literacy. However, the report also details the increasingly autocratic actions he has taken when faced with opposition. A quick update from Friday discusses the situation leading up to the coup. The Christian Science Monitor has an excellent breaking news piece on today's events. Labels: COHA, Council on Hemispheric Affairs, Honduras, Rafael Zelaya Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bloomberg Preview: June UnemploymentThey see a loss of .2% for the month, which will take it up to 9.6%, and attribute the slower pace to long-awaited signs of stabilization in manufacturing:Unemployment Probably Rose at Slower Pace: U.S. Economy Preview By Shobhana Chandra June 28 (Bloomberg) Unemployment in the U.S. probably rose at a slower pace and the manufacturing slump eased this month as evidence mounted that the end of recession is in view, economists said before reports this week. The jobless rate rose 0.2 percentage point to 9.6 percent, the highest level in 26 years, according to the median of 58 estimates in a Bloomberg News survey. The gain would be the smallest since November 2008. A survey of purchasing managers may show manufacturing shrank at the mildest pace in 10 months. Government efforts to stabilize housing and consumer spending are only now starting to pay off, indicating it will take months before a recovery develops. The job market will remain one of the biggest threats to the emerging rebound as companies from General Motors Corp. to Kimberly-Clark Corp. focus on cutting costs by trimming payrolls. Read the rest of the article Labels: economic indicators, financial crisis, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). On The Situation In IranFirst, a piece by Slavoj Zizek, turned down by the New York Times, which was posted on LBO talk.Second, an FT article on the power struggle at the top, focusing on the supreme leader, Ayatollah Khamenei: Man in the News: Ayatollah Ali Khamenei Financial Times By Roula Khalaf Published: June 26 2009 19:14 | Last updated: June 26 2009 19:14 Not long ago, Ayatollah Ali Khamenei was in an enviable position. Manipulating the levers of power from behind the scenes, the 70-year-old turbaned cleric with oversized glasses was credited with every pragmatic decision taken by the Islamic Republic. Iran's belligerence and extremism, meanwhile, were conveniently laid at the feet of the firebrand president, Mahmoud Ahmadi-Nejad. When the supreme leader spoke, he delivered the last word. No one dared contradict him, or offer an alternative opinion. But that was before disputes erupted over the presidential election a fortnight ago, before Mr Khamenei declared the controversial vote "a divine victory", and before he unleashed his forces to repress peaceful opposition. Now his followers are forced to remind Iranians, time and again, that he had spoken "the last word". The rage of Iran's protesters has turned against him, with an "I hate Khamenei campaign" launched on Facebook, and cries of Allahu Akbar on rooftops at night, an act of defiance borrowed from the days of the 1979 revolution, designed to tell him that no one is above God. These days, Mir-Hossein Moussavi, the opposition leader who says the election was stolen from him, issues statements responding to the ayatollah. It is not in the interest of the country, he said this week, for the supreme leader to be "equated" with the president. And no, he had no intention of bowing to the brutal pressure and accepting a rigged election result. Labels: Ayatollah Ali Khamenei, Iran, Mor-Hossein Moussavi, Slavoj Zizek Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 2 On Subprime/Mortgage MessFirst, a link to Doug Henwood's latest (June 25th) radio program, which features an excellent interview with Alyssa Katz on the history of mortgage lending in the U.S. from the '30s on. Second, this piece about a recent study which casts interesting light on the role of the Community Reinvestment Act on subprime lending (courtesy of Economist's View):Most Subprime Lenders Weren't Covered by CRA The Big Picture By Barry Ritholtz - June 27th, 2009, 9:00AM The CRA brouhaha last year led the Orange County Register to run an analysis of "more than 12 million subprime mortgages worth nearly $2 trillion" in late 2008. What did their data based analysis discover? "Most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market--after smaller, unregulated players showed there was money to be made." Among their research conclusions: Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law. State-regulated mortgage companies such as Irvine-based New Century Financial made just over half of all subprime loans. These companies, which CRA does not cover, controlled more than 60 percent of the market before 2006, when banks jumped in. Another 22 percent came from federally regulated lenders like Countrywide Home Loans and Long Beach Mortgage. These lenders weren't subject to the CRA law, though some were owned by banks that could choose to include them in their CRA reports. Among lenders that were subject to the law, many ignored subprime while others couldn't get enough. Read the rest of the piece Labels: Alyssa Katz, bailout, Barry Ritholtz, Community Reinvestment Act, Doug Henwood, financial crisis, subprime lending, The Big Picture Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Giovanni Arrighi: Internationalist par excellence (1937-2009)An obituary by Salimah Valiani for the left economic sociologist Giovanni Arrighi, who died on June 18th. It is originally posted at Pambazuka News.A good friend in New York City from Latin American circles, then a good friend from African solidarity circles based in Toronto, asked me to write something about Giovanni Arrighi, who died of cancer on June 18, 2009. Because of these two requests, and though I have not been in contact with him for years, I thought I should write something, as one of the few who knew Arrighi, among the many touched by his work. That two of my friends from completely different circles both asked me to write seems emblematic of Arrighi's reach: An internationalist par excellence, open to considering the historic trials of a range of collectivities, however they define themselves. I remain a student of Arrighi's thought, but studied directly under him only in 1998, when I began a PhD at the State University of New York (SUNY) in Binghamton. Having read Arrighi’s work on labour force and capitalist development in Southern Africa, I headed for Binghamton in large part because he was there. The department of Sociology at SUNY-Binghamton was the centre for world systems studies in the 1980s and 1990s, though fading when I reached there. Giovanni Arrighi, along with Immanuel Wallerstein, Terence Hopkins, Dale Tomich, Caglar Keydar, others from the global North, and a host of intellectuals who came yearly to Binghamton from the global South, had built the graduate program, combining what may be called orthodox Marxist ideas with historical approaches to capitalism more familiar in Latin America, Africa, and Asia. There was plenty of heated debate. How did the Atlantic slave trade fit into the development of world capitalism? What about formal colonialism, and countries of largely peasant-producers? Does national development have to emulate development in Western Europe in order to be called 'capitalism'? One of the first things that stood out to me was that Arrighi had the rare ability to articulate plainly a differing opinion to his co-panelist, or colleague, while keeping warmth in his voice. I never saw him take offence or become defensive in intellectual discussion. This was a trait I would never forget and always learn from. Having left his country of birth, Italy, for pre-independence Zimbabwe, in the early 1960s, Arrighi began exposing himself to completely new environments from early in life – a flexibility which would be reflected in much of his research and theorising. A young graduate of economics wanting to escape the feudal-like university system in Italy for paid academic work, he got a job in the satellite of a British university in Africa, not unlike the American university satellites now proliferating in the continent. After joining, with other academics, in some pro-independence, campus political activity, he was jailed for a week and sent away, in 1966. He then spent three years at the University of Dar es Salaam in Tanzania, where scores of people and Mwalimu Julius Nyerere had recently made Tanganyika and Zanzibar (fused to form Tanzania) British-free. Unlike many progressive Europeans, Arrighi understood the historic importance of achieving independence from European colonisers, even if it wasn't a socialist victory at the same time. With his exceptional clarity of mind, Arrighi, in this instance and many others, was able to make the distinction between the historically necessary and the historically possible. Similarly, in his work on China and the potential of its current transformation, unlike most Western progressives, Arrighi is not condemning of the Communist Party's changing policy direction, leaving judgement open for the unfolding of history. This openness, and ultimately, hope, comes from Arrighi’s appreciation of the ancient history of collective resistance in China, of which the Maoist revolution is only a very recent example. Returning to Italy in 1969, where he spent about ten years, Arrighi became well known among students for his radical critique of development theories. Countering dominant theories of development, which prescribed a capitalist route for post-colonial societies, and assumed the development history of Western European countries as the norm, Arrighi, along with Samir Amin, Andre Gunder Frank, and others showed how violence, coercion, and world scale inequality were instrumental in forming capitalist relations in colonies, precluding liberal democracy as an outcome. Like Amin and Gunder Frank, Arrighi then went on to pose larger questions about development and capitalism – how is it that world wealth and power are concentrated in a handful of countries – a question still relevant today. His major work, The Long Twentieth Century (1994), was the answer he offered, having worked on the question for some 15 years, primarily in Binghamton. The dedication in the book is worth noting, as it demonstrates the intimate relation Arrighi had to his intellectual inquiries: 'Between conceiving a book like this and actually writing it, there is a gulf that I would never have bridged were it not for the exceptional community of graduate students with whom I have been fortunate to work during my fifteen years at SUNY-Binghamton. Knowingly or unknowingly, the members of this community have provided me with most of the questions and many of the answers that constitute the substance of this work. Collectively, they are the giant on whose shoulders I have travelled. And to them the book is rightfully dedicated.' Unlike most, who dedicate books to their partners or close family, Arrighi dedicated his book to his students of the period. Perhaps these were his close family and partner-to-be, but this underlines the point: Here was a man who lived the knowledge he was seeking, who built his life around it. This type of commitment is reflected in all of Arrighi's writing. Responsible to the extreme, his effort to read all inter-related works existing previous to his, in various disciplines, is evident in lengthy bibliographies and rich frameworks. Along the same lines, for the intellectual contributions which he found useful to combine in his own analysis, Arrighi always acknowledged the precise ideas attached to names – from Terence Hopkins, to Fernand Braudel, to Paul Sweezy, to Sugihara Kaoru. Towards what we know now was the end of his life, Arrighi spoke of the need for a world based on mutual respect between humans, and a collective respect for nature. In a recent interview David Harvey asked if this could be called socialism. In classic Arrighi-honesty, Arrighi replied that socialism is a word which has been abused, which has become associated with the practice of state control gone sour. In the interview he assigned David Harvey to find a new expression for this vision. This is a task for us all to share, in honour of the memory of Giovanni. Salimah Valiani is a researcher in political economy and world economic development, an activist, and a writer. Labels: Binghamton, capitalism, development economics, Giovanni Arrighi, internationalism, socialism, world systems theory Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). How Striken Banks Are Making MoneyYou guessed it--fees. From Reuters:June 26th, 2009 Fee bonanza spells more trouble for banks Reuters By: Alexander Smith Alexander Smith is a Reuters columnist. The views expressed are his own Investment banks are going to have a lot of explaining to do. After the lows of 2008, and despite the mauling they've had from politicians and the public, 2009 is going to be a bumper year for those that lived to tell the tale. The banks have pocketed an incredible $16 billion in fees in the second quarter, according to Thomson Reuters first half data on deals and fee income, released on Friday. True, this is down from Q2 2008, when fees were almost $24 billion. But it should not come as a surprise to anyone who has been watching--often in disbelief--the huge amount of capital raising that has been going on in both the equity and bond markets. Take the bond markets, where total first-half issuance--excluding financials--has already reached $598 billion, outstripping previous records for an entire year. If anyone pretends it has been tough selling these bonds, don't believe them. The sales teams have been pushing at an open door, with fund managers buying anything they could get their hands on. The fees are good and so far this year, the risk has been limited. The ones to suffer have been the loan desks, with syndicated lending hitting a 13-year low. But since this market has always been seen as a loss-leader to help sell other products, there are probably fewer tears being shed at the top of the banks involved. The real star of the show, however, has been equity capital markets. Traditionally the poor cousins to the sexier and higher profile "rainmakers" in mergers and acquisitions, ECM desks have raked in underwriting fees of $7.6 billion in Q2 alone, almost half the industry total. As with bond issues, lead managing or underwriting such deals does carry a risk, but so far this year that has been limited as shareholders have lapped up the rights issues. There's no denying that many companies badly needed capital and that the banks have the expertise to get these deals done. The question that will increasingly be asked is whether the fee structure can still be justified. True, rights issues can fail, as underwriters of the 4 billion pound offering by British bank HBOS last year no doubt recall. But with banks charging bigger fees and pricing offerings at larger discounts, the rewards currently outweigh the risks. One area of investment banking which is still in the doldrums is M&A, despite the best efforts of some of the brightest minds in the game to get dealmaking back on track. The Thomson Reuters data shows global M&A revenues declined for a third consecutive quarter, with fees on completed deals down some 66 percent on the same period last year at just $3 billion. M&A activity--measured by the value of deals done--is down almost 45 percent so far this year, the lowest figure since 2003 and the sharpest fall since 2001. Of course, it is possible that these big fees will be wiped out by continued losses on the toxic assets that some investment banks still have on their balance sheets. But for an industry that was teetering on the brink last autumn, investment banking appears in rude health. With a second backlash already beginning as salaries rise and bonuses come back into fashion, the big investment banks--particularly those which still owe taxpayers money or government shareholders--will need to make sure their lines are well rehearsed. At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Labels: baillout, banking system, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). TDCotE (xii): Idealists Should Grow UpThe Dull Compulsion of the Economic (xii)A series of blog postings by D&S collective member Larry Peterson Idealists Should Grow Up I've long harbored a notion that the more modern societies tend to emphasize moral discourse, the less scope actually exists in the same societies to act according to moral precepts in any meaningful or consistent sense; and that all the talk tends more to express--or repress--a sense of helplessness in the face of shrinking agency than any desire to actually encounter the changing world. Hence, I read Onara O'Neil's review of Moral Clarity: A Guide for Grown Up Idealists in FT Weekend (there's no link to it yet that I can see on the FT website) with a sense of weariness and disgust. It's depressing enough to watch the rest of the society get off with on this kind of intellectual and spiritual self-abuse; but when someone gets away with saying that progressives--and, by extension, I suppose, hard leftists--"have nothing to say about...dignity and nobility", as O'Neil claims, I just want to scream. And when she goes on, in the same sentence, to denounce progressives because they "have no heroes", I can no longer just sit back and take it. What ever happened to the left that prided itself on witticisms like (I think this is Brecht) "When they start talking about heroes, it's time to emigrate"? Have we all gone completely soft? It's not that materialists have nothing to say about human dignity and nobility. It's just that, rather than referencing hopelessly vague, and almost-always seriously compromised normative notions, the most admirable leftists have chosen, first and foremost, to let the facts speak for themselves. It is the inevitable contradictions that follow from capitalist social relations that lead, amongst other things, to the decreasing scope of agency that makes personal morality less and less relevant in society. That being the case, it's easy to look round and see how both the economic system, as well as the filthy, sodden superstructural plaster used partially to staunch--and partly to hide--the wounds opened up by the former, fall absurdly short of the promises they deliver. This doesn't mean leftists and progressives don't employ moral standards any less than anyone else; it's just that they realize that an undue reliance on them is unnecessary at best, and hypocritical--hence potentially an obstruction to the sustenance or creation of bonds of true and effective solidarity--at worst. Unfortunately, the fostering of this sort of sense of morality as critique is being increasingly relinquished by progressives. That's why it's all the more important to object whenever people like O'Neill start singing their obfuscatory siren-songs. Labels: Larry Peterson, Onora O'Neill, 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!). Fast Food and Healh Care ReformThis Boston Phoenix review of the new film Food, Inc. contains much many people already know (it's nice to review such things from time to time, though), but it contains one essential thought, anyway: that "You can't have health care [reform] in this country without changing the food industry".Factory food Why the cheap, mass-produced food we eat is killing our environment, our economy--and us Boston Phoenix By MIKE MILIARD | June 25, 2009 Since Squanto taught the Pilgrims to plant maize, no food has been more emblematic of the evolution of American eating habits than corn. That's been true from the sepia-tinged golden age of the Midwestern breadbasket to the present day, where those yellow kernels are lab-engineered and recombinated into a dizzying array of futuristic foodstuffs. In Mark Kurlansky's new anthology, The Food of a Younger Land (Riverhead--which compiles reportage and recipes from "America Eats," an unfinished venture of the Depression-era WPA Federal Writers' Project — we visit Pop Corn Days in North Loup, Nebraska. There, fairgoers munched from "bushels of popped fluffiness" while watching the procession of the Pop Corn Queen, "heralded by buglers with green capes over their uniforms . . . regal in her robes of lustrous gold satin." We also learn how, across the Midwest, corn was "cultivated for uses in 'johnny-cake,' corn mush, 'big hominy,' ash-cake, corn whisky, corn pone, or the small loaves called 'corn dodgers.' " Read the rest of the article Labels: agribusiness, environmental crisis, fast food industry, health care reform, public health crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Incomes Surge, Wages and Salaries FallThis is entirely due to the administration's one off $250 payments to various groups receiving government benefits like Social Security; otherwise, the figures were noteworthy because they document that workers received their first quarterly drop in wages in 50 years. Also: savings increased to an almost unheard-of (well, not for more than a decade) 7%, which sits uneasily with the green shoots notions of recovery, dependent as they are on a sustained revival in consumer spending and, especially, in housing. From the Financial Times:US incomes surge as stimulus kicks in By Alan Rappeport in New York Financial Times Published: June 26 2009 14:16 | Last updated: June 26 2009 15:33 Personal income in the US surged in May thanks to an infusion of government stimulus funds, while consumers raised their spending modestly as confidence about the state of the economy continues to improve. However, most of the monthly rise was the result of Federal benefit transfers and lower taxes. Americans, still facing rising job cuts and falling home prices, have been hoarding most of the additional funds, lifting the savings rate to a 16-year high in May. Households are reverting to a more sustainable spending path vis-à-vis income that allows scope for paying down debt and adding to savings,” said Joshua Shapiro, chief US economist at MFR. Official figures showed on Friday that incomes jumped by 1.4 per cent last month, or $167.1bn, beating economists' expectations and doubling the previous month’s revised rise of 0.7 per cent. Read the rest of the article Labels: baillout, financial crisis, fiscal stimulus, personal income guarantee, savings and loan crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yet Another Thing The City Can Be Proud OfFrom The Financial Times. Reminded me of Karl Marx's immortal New York Tribune piece on the Duchess of Sutherland, the link to which (courtesy Marxists.org) I'm attaching as well.Rothschild and Freshfields founders' had links to slavery, papers reveal By Carola Hoyos Financial Times Published: June 26 2009 23:32 | Last updated: June 26 2009 23:32 Two of the biggest names in the City of London had previously undisclosed links to slavery in the British colonies, documents seen by the Financial Times have revealed. Nathan Mayer Rothschild, the banking family's 19th-century patriarch, and James William Freshfield, founder of Freshfields, the top City law firm, benefited financially from slavery, records from the National Archives show, even though both have often been portrayed as opponents of slavery. Far from being a matter of distant history, slavery remains a highly contentious issue in the US, where Rothschild and Freshfields are both active. Read the rest of the article (with a link to an accompanying video) Labels: City of London, Freshfields, House of Rothschild, Karl Marx, slavery and capitalism Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Monbiot on Climate Change BillObama should really change his slogan to "Yes, We Can't". I suspect this sort of thing will characterize the crafting of legislation on financial regulation and health care as well:Environment George Monbiot's blog The Guardian Why do we allow the US to act like a failed state on climate change? The Waxman-Markey climate bill is the best we will get from America until the corruption of public life is addressed It would be laughable anywhere else. But, so everyone says, the Waxman-Markey bill which is likely to be passed in Congress today or tomorrow, is the best we can expect--from America. The cuts it proposes are much lower than those being pursued in the UK or in most other developed nations. Like the UK's climate change act the US bill calls for an 80% cut by 2050, but in this case the baseline is 2005, not 1990. Between 1990 and 2005, US carbon dioxide emissions from fossil fuels rose from 5.8 to 7bn tonnes. The cut proposed by 2020 is just 17%, which means that most of the reduction will take place towards the end of the period. What this means is much greater cumulative emissions, which is the only measure that counts. Worse still, it is riddled with so many loopholes and concessions that the bill's measures might not offset the emissions from the paper it's printed on. You can judge the effectiveness of a US bill by its length: the shorter it is, the more potent it will be. This one is some 1,200 pages long, which is what happens when lobbyists have been at work. Read the rest of the blog entry Labels: Barack Obama, climate change, George Monbiot, lobbyists Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama in His LabyrinthFrom the Financial Times:Deficit disorder By Edward Luce Published: June 25 2009 19:53 | Last updated: June 25 2009 19:53 Back in February, Barack Obama's presidency suffered an early setback when Judd Gregg, the Republican senator from New Hampshire, withdrew as his nominee for commerce secretary. Mr Gregg, who was to be the most high-profile exhibit of Mr Obama's bipartisan credentials, decided he could not belong to an administration that would preside over such high budget deficits. The figure then being projected for this year was above the $1,000bn mark for the first time. But in the few short months since, the number has rocketed much further--to $1,800bn (1,106bn pounds, 1,291bn euros) or 13 per cent of gross domestic product. The Congressional Budget Office, a nonpartisan watchdog, forecasts that the US will post deficits in excess of a trillion dollars in each of the next 10 years. Even on its relatively optimistic assumptions for economic growth, moreover, the CBO predicts national debt will double to 82 per cent of GDP in the next decade--a level not seen since the second world war. This would push the US close to the chronic debt levels seen in Japan and Italy. "People used to talk about America's long-term fiscal crisis," says Douglas Elmendorf, head of the CBO. "That crisis is now." Once merely a worthy subject of concern, America's fiscal outlook has rapidly become the object of widespread alarm. "Aside from weapons of mass destruction and terrorism, America's fiscal situation is the most dangerous challenge facing the country," says Mr Gregg. "Unchecked, it will reduce growth, weaken the dollar and ultimately undermine America's global leadership role." Read the rest of the article Labels: baillout, Barack Obama, financial crisis, fiscal policy, Monetary Policy, tax policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UN Summit on the Financial CrisisThe G8 will meet in early July in the Italian town of L'Aquila, in a less luxurious setting than had originally been planned, according to a recent Guardian article:The organiser of next month's G8 conference near the earthquake-hit Italian town of L'Aquila today shrugged off the strong aftershocks felt in the area on Monday, suggesting a few tremors may bring the world leaders closer to the victims. We can only hope that the proximity of big-wigs from the rich countries to tent cities and the homeless will get them to remember the less well-off while they discuss ongoing measures to deal with the global financial crisis. Meanwhile, less-rich countries pushed the UN, via the General Assembly, to hold a summit on the financial crisis. Here are some resources on the summit:
—CS Labels: financial crisis, G20, G8 summit, United Nations Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Rebound ... in Bankers' PayFrom the New York Times (6/23): The Times doesn’t say whether or not these figures are inflation-adjusted. But even if they’re not: are you making 40% more than you were in 1998, even in nominal terms—as the analysis projects bankers will in 2009? We’re not. The chart accompanies a piece on Citigroup raising employees’ salaries to make up for their smaller bonuses: Citigroup Has a Plan to Fatten Salaries Read the article here. Labels: Bank of America, Citibank, Citigroup, compensation, Morgan Stanley, New York Times Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two More Items on Reform of Financial RegulationTwo more items on the Obama administration's proposed reforms of financial regulation. First, one by William Greider in the Nation:Obama's False Financial Reform Read the rest of the article. And this, from Jane Hamsher at Firedoglake: 238 Members of Congress Disagree with the President: The Fed Needs More Accountability See the original post. Labels: banking regulation, Federal Reserve, financial regulation, The Fed, William Greider Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two Views of the CrisisA brief, clear comparison from Simon Johnson on the Baseline Scenario blog:There are two views of the global financial crisis and—more importantly—of what comes next. The first is shared by almost all officials and underpins government thinking in the United States, the remainder of the G7, Western Europe, and beyond. The second is quite unofficial—no government official has yet been found anywhere near this position. Yet versions of this unofficial view have a great deal of support and may even be gaining traction over time as events unfold. Go to the original blog for links, including the slides he mentions. Labels: bailout, banking crisis, banking regulation, Baseline Scenario, deregulation, finance sector, financial crisis, financial regulation, fiscal stimulus, larry Summers Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two Good Pieces on Global Finance from FPIFTwo nice relatively new pieces from the good folks at Foreign Policy in Focus. Hat-tip to LF for alerting me to these. (I like that FPIF lists the editor in charge of an article as well as the author—great idea.)Overhauling Global Finance Read the rest of the article. Plus this one on the IMF, by Aldo Caliari, who has written for D&S:
Read the rest of the article. Labels: financia crisis, Foreign Policy in Focus, IMF, Joseph Stiglitz, United Nations Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). World Hunger Reaches 1 Billion MarkNot because there isn’t enough food—see the last paragraph below.From the U.N. Food and Agricultural Organization, as reported by the AP on Saturday: The global financial meltdown has pushed the ranks of the world’s hungry to a record 1 billion, a grim milestone that poses a threat to peace and security, U.N. food officials said Friday.Read the full article here. Labels: agriculture, FAO, food crisis, food security, hunger, rising food prices, United Nations Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). TDCotE (xi): Littlle Zakaria Dresses Like GrownupThe Dull Compulsion of the Economic (xi)A series of blog postings by D&S collective member Larry Peterson Little Zakaria Dresses Like Grownup I usually don't pay much mind to Fareed Zakaria. The Newsweek columnist and frequent television commentator has seemed to me for some time to epitomize most of the familiar failings of the mainstream press: the endless recycling of conventional wisdom, failure to think creatively or with integrity, the obsequiousness towards insiders, you name it: but with a palpable dosage of telegenics thrown in, which no doubt reinforces a "good Muslim" sentiment in its turn. But this week, he published the pompous-sounding "Capitalist Manifesto" in Newsweek, and I found myself reading it, driven by a perverse desire to see how bad it could possibly be. Instead of awful, though, I found the piece totally banal: if this is the best the ruling classes can do by way of propaganda, we socialists shouldn't have much to fear at all. Too bad that propaganda isn't all that matters. The striking thing about Zakaria's piece is that is doesn't amount to much of a manifesto at all. Manifestos, of which Marx and Engels' is the immortal exemplar, both summarize the past and show how past and present trends are set to contribute to a discernable future. Zakaria's piece, except for one brief section which I'll discuss presently, is totally oriented towards the past and present; and all he does is to regurgitate conventional wisdom, as is his wont, for two purposes. First, he wants to say that, despite its unfortunate excesses, capitalism is the most productive means of arranging social production known to man, and, secondly, that for all the talk of crisis, that capitalism isn't likely to be replaced by anything else. In support of the latter idea, he points at similarly dire assessments of the Asian crisis of 1997-8 and the dot.com meltdown, and proclaims that life goes on, with Asia rebounding and Twitter replacing Pets.com. Regarding the former claim, Zakaria takes refuge in paraphrasing that great democrat Winston Churchill (who called Gandhi a "half-naked fakir", and enthused over the carpet-bombing of Arab villages) to the effect that capitalism is the worst system, except for all the others. He also salutes the notion that capitalism has taken more people out of dire poverty in less time than any other system. But most of the essay consists in historical assessments characterized by huge generalizations and simplifications (one example: Zakaria salutes Canada's banking sector, attributing its containment of exposure to the global financial crisis to its conservatism. But it is arguable that Canada's economy, so based on natural resources and exports to the United States--both of which require a certain modicum of stability--could hardly develop a banking sector characterized by free-wheeling deals of the sort Britain or the US did; and Zakaria's breathtaking generalization leaves little room for such subtleties to influence his unruly argument). In this sense, as I said before, his piece is dull, not so much dumb; and one can easily brush aside the tribute to capitalism's productivity by recalling that such successes are disproportionately centered in China, which is hardly capitalist in the conventional sense, and that for all the gains there, there have been huge losses (in healthcare and education, particularly, and one of the chief reasons underlying the world financial crash, the accumulation of excess savings in poor countries, has much to do with the withdrawal of the primitive safety net that existed in China up to the 1980s). And, we must remember that rises in living standards in the developing are being accompanied by the development of huge "precariats" in the developed one. Also, many of the gains of the boom years--in asset values, jobs created, you name it--have been virtually wiped away by the crisis, and will be a long time in returning. So when Zakaria fatuously mentions Twitter replacing Pets.com, he can't extend the same argument about all the jobs created since the mid-nineties that have simply vanished. One more thing Zakaria says that deserves mention: he opines that a world brought to its knees in terms of growth will probably opt for more capitalism, not less, in the coming years. And he refers to economist Robert Schiller, who says more derivatives are required by modern finance, not less, if investments are to be made as efficient and secure as they can be. Regarding the latter, I can only quote from Paul Mason's fine book on the crisis, Meltdown: "however useful derivatives trading might be for finding the true price of shares (and it is), the end result is that profits are funnelled from ordinary savers into the pockets of the rich" (page 78). As long as savings continue to be generated in this lopsided way (and, despite movements in this direction both in the poor and rich worlds, the same situation essentially holds), derivatives will almost certainly be dedicated to destructive uses. Zakaria's comment about growth, along with a few commonplace suggestions on financial re-regulation, are about as much there is regarding the future. A manifesto worthy of the name would be dedicated to teasing out developed suggestions regarding how capitalism will adapt to climate change, the changing balance of power in the world, or perhaps how it will succeed in providing employment opportunities despite the fact that job-creating power is diminished in most upcoming industries compared to their predecessors, or that capitalism seems more challenged where harnessing technology profitably is concerned (consider its retarded uptake of green technologies, biotechnology, and even information technology) anyway. Or how older workers, whose pensions have or will evaporate due to the crisis, are to be re-integrated into the workforce along with legions of youngsters in the developing world. Considering that the former are, in most economic models, supposed to provide much of the demand for the labor of the latter, you'd think a "manifesto" would address this new complication. But all we get from Zakaria is, of all things, an appeal to morality. I have in the past fulminated on the tendency of economists and financial commentators to reduce the crisis to a deficiency in confidence, or "animal spirits", rather than acknowledging the real economic disasters that culminated in the crisis. But Zakaria goes beyond this, opting for the last refuge of the soft-headed, morality, to point toward a future for capitalism: Throughout this essay, I have avoided treating this economic crisis as a grand morality play—a war between good and evil in which demon bankers destroyed all that is good and true about our societies. Complex historical events can rarely be reduced to something so simple. But we are suffering from a moral crisis, too, one that may lie at the heart of our problems. And here's Zakaria's big idea: There's a need for greater self-regulation not simply on Wall Street but also on Pennsylvania Avenue. We get exercised about the immorality of politicians when they're caught in sex scandals. Meanwhile they triple the national debt, enrich their lobbyist friends and write tax loopholes for specific corporations—all perfectly legal—and we regard this as normal. The revolving door between Washington government offices and lobbying firms is so lucrative and so established that anyone pointing out that it is—at base—institutionalized corruption is seen as baying at the moon. Not everything is written down, and not everything that is legally permissible is ethical. Who was the last ex-president to refuse to take a vast donation for his library from a foreign government that he had helped when in office? But the politics of "gut check" have culminated in the victory of Obama, whose "change we can believe in" has consistently amounted to little except (besides rhetoric) the recruitment of the same interests to regulate the downturn as they did the bubble. From financial re-regulation to health care, this administration has committed itself firmly to the least ambitious proposals imaginable to combat intractable problems. In the Communist Manifesto and other works, Marx and Engels spoke eloquently of the ways in which modern production, despite its benumbing and exploitative effects, also contained a progressive element, that of cooperation, which could allow the working class to organize politically and change the productive system in ways that would enhance the latter and potentially be harnessed without the friction of competition to result in a more effective mode of production, as well as one that fostered incalculably greater human happiness. Zakaria, precisely because he does not interest himself adequately in the material forces conditioning conventional wisdom, can say nothing eloquent about his beloved capitalism whatsoever aside from an empty and ineffectual appeal to morality. It's all the more a shame that those material forces have had such a corrosive effect on working class consciousness (and in this respect Marx and Engels did not come close to anticipating actual developments)--and culture generally--that more people are going to look to Zakaria's manifesto than Marx and Engels'. Labels: Barack Obama, Fareed Zakaria, Friedrich Engels, Karl Marx, Larry Peterson, Paul Mason, 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!). CIA Hiring Failed Wall Street AnalystsAccording to the Wall Street Journal, the CIA is recruiting out of work financial analysts from Wall Street.Why would they seek out the financial expertise of the people most directly responsible for the global economic meltdown? The CIA now produces a daily Economic Intelligence Brief for President Barack Obama, chronicling economic, political, and leadership developments that could impact the world economic order. We can only hope that this explanation is only a cover for their real mission: covertly placing Wall Street's failed finest in charge of the financial and economic sectors of our worst enemies. --d.f. Labels: CIA, Daniel Fireside, economic meltdown, unemployment, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Plunging State Income Tax RevenuesAn interesting piece from Mish's Global Economic Trend Analysis (a blog).States in Deep Trouble Over Plunging Income Tax Revenues The Nelson A. Rockefeller Institute of Government has issued a State Revenue Flash Report discussing an across the board enormous drop in personal income tax revenues. Total personal income tax collections in January-April 2009 were 26 percent, or about $28.8 billion below the level of a year ago in states for which we have data. In April 2009 alone (April being the month when many states receive the bulk of their balance due or final payments), personal income tax receipts fell by 36.5 percent, or $18.2 billion. There are numerous tables in the report worth a look. In fact, the entire 9 page PDF is worth reading in entirety. States most dependent on Personal Income Taxes 68.5% of Oregon's Tax Revenue from PIT. Collections off 27.0% 57.2% of Massachusetts' Tax Revenue from PIT. Collections off 28.5% 55.9% of New York's Tax Revenue from PIT. Collections off 31.8% 47.5% of California's' Tax Revenue from PIT. Collections off 33.8% 52.4% of Connecticut's Tax Revenue from PIT. Collections off 25.9% 52.7% of Colorado's Tax Revenue from PIT. Collections off 25.4% Arizona's collections were down a whopping 54.9% depending 25.3% on Personal Income Taxes. South Carolina, Michigan, Vermont, Rhode Island, New Jersey, Idaho, and Ohio are also in deep trouble. 20 states depending on personal incomes taxes for > 25% of total taxes were down 20% or more on collections. This is a very grim report on state finances. Here's the original post. Labels: income tax, recession, state budget shortfalls Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Some Takes on the Regulatory OverhaulHere are some assessments of the Obama administration's overhaul of financial regulation:In his front-page New York Times article on Wednesday (upgraded from the left-hand column of the business section), Joe Nocera finds "only a hint of Roosevelt" in what Obama described as "a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression." Michael Greenberger of the University of Maryland comments on the new regulations in an interview on WBAL Radio, AM 1090 (Baltimore) on Wednesday (it opens up directly into Quicktime audio, but the interview comes through just fine). And Greenberger contributed to this piece from Reuters (also from Wednesday).
Hat-tip to Lynn Fries for these links (though I'd seen the Nocera piece in my morning paper). Labels: financial crisis, financial regulation, Joe Nocera, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Business Press MIA Before the CrisisFrom the current Columbia Journalism Review: a detailed review of whether the U.S. business press was paying attention in the years leading up to the financial crisis. The brief answer is—no.These are grim times for the nation’s financial media. Not only must they witness the unraveling of their own business, they must at the same time fend off charges that they failed to cover adequately their central beat—finance—during the years prior to an implosion that is forcing millions of low-income strivers into undeserved poverty and the entire world into an economic winter. ...The story ends with a short list of lessons to be learned. Here there is a nod to the alternative press, but barely: Fifth, seek alternatives. Read Mother Jones, or something, once in a while.Read the whole article here. Labels: business press, Columbia Journalism Review, financial crisis, New York Times, Wall Street Journal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Unemployment: Both a Leading and a Lagging IndicatorUnemployment has traditionally been considered a lagging indicator in a recession: the idea was that unemployment rises after economic growth falls off, and doesn’t recover until growth has picked up.In the upcoming issue of D&S, John Miller points out that this time, the job losses struck first, so much so that the NBER (National Bureau of Economic Research, the official recession-dater) abandoned the standard metric (two consecutive quarters of falling GDP) and instead dated the recession to December 2007 based on the pace of job losses. In other words, unemployment is suddenly a leading indicator. Arpitha Bykere comes to the same conclusion in Nouriel Roubini’s RGE Monitor: Slower pace of job losses in the U.S. in April and May is welcome news but it hardly means that the labor market and households are out of the woods. The 345,000 job losses seen in May are still more than jobs lost during any month in the last two recessions. ... And the 600,000-plus jobs lost in the late 2008 and Q1 2009 will continue to impact consumption and the financial sector. Read the whole analysis here. Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Recession Tracks the Great DepressionFrom yesterday's Financial Times:The recession tracks the Great Depression By Martin Wolf | June 16 2009 Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one. Two economic historians, Barry Eichengreen of the University of California at Berkeley and Kevin O'Rourke of Trinity College, Dublin, have provided pictures worth more than a thousand words. In their paper, Profs Eichengreen and O'Rourke date the beginning of the current global recession to April 2008 and that of the Great Depression to June 1929. So what are their conclusions on where we are a little over a year into the recession? The bad news is that this recession fully matches the early part of the Great Depression. The good news is that the worst can still be averted. First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s. But Japan's industrial collapse has been far worse than in the 1930s, despite a very recent recovery. Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures. Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression. The two authors sum up starkly: "Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event." Yet what gave the Great Depression its name was a brutal decline over three years. This time the world is applying the lessons taken from that event by John Maynard Keynes and Milton Friedman, the two most influential economists of the 20th century. The policy response suggests that the disaster will not be repeated. Profs Eichengreen and O'Rourke describe this contrast. During the Great Depression, the weighted average discount rate of the seven leading economies never fell below 3 per cent. Today it is close to zero. Even the European Central Bank, most hawkish of the big central banks, has lowered its rate to 1 per cent. Again, during the Great Depression, money supply collapsed. But this time it has continued to rise. Indeed, the combination of strong monetary growth with deep recession raises doubts about the monetarist explanation for the Great Depression. Finally, fiscal policy has been far more aggressive this time. In the early 1930s the weighted average deficit for 24 significant countries remained smaller than 4 per cent of gross domestic product. Today, fiscal deficits will be far higher. In the US, the general government deficit is expected to be almost 14 per cent of GDP. All this is consistent with the conclusions of an already classic paper by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard. Financial crises cause deep economic crises. The impact of a global financial crisis should be particularly severe. Moreover, "the real value of government debt tends to explode, rising an average of 86 per cent in the major post–World War II episodes". The chief reason is not the "bail-outs" of banks but the recessions. After the fact, runaway private lending turns into public spending and mountains of debt. Creditworthy governments will not accept the alternative of a big slump. The question is whether today's unprecedented stimulus will offset the effect of financial collapse and unprecedented accumulations of private sector debt in the US and elsewhere. If the former wins, we will soon see a positive deviation from the path of the Great Depression. If the latter wins, we will not. What everybody hopes is clear. But what should we expect? Read the rest of the article. Labels: economic crisis, financial crisis, Great Depression, Martin Wolf, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economic Benefits of Health Care for ChildrenWe just got this press release about a study showing the economic benefits of providing universal health coverage for children. It is a little off-putting that part of the argument is that good health in children "improv[es] their productivity as adults." The authors of the study are clearly economists! But it looks like a worthwhile study nevertheless.Providing health insurance for US children would be cheaper than expected, study says Research from Rice University's Baker Institute finds that economic benefits would outweigh costs HOUSTON -- (June 16, 2009) -- Extending health insurance coverage to all children in the U.S. would be relatively inexpensive and would yield economic benefits that are greater than the costs, according to new research conducted at Rice University's Baker Institute for Public Policy. "Providing health insurance to all children in America will yield substantial economic benefits," wrote Vivian Ho, chair in health economics at the Baker Institute and associate professor of medicine at Baylor College of Medicine. She co-authored the report with Marah Short, senior staff researcher in health economics at the Baker Institute. They based their research on recent studies published in peer-reviewed journals to examine the evidence regarding the economic impact of failing to insure all children in the United States. The children will receive better health care and enjoy better health, thereby improving their productivity as adults, the researchers said. The cost incurred by providing universal coverage to children "will be offset by the increased value of additional life years and improved health-related quality of life gained from improved health care. From a societal perspective, universal coverage for children appears to be cost-saving." Ho and Short compared the children's health care in the United States to the care provided in other industrialized countries and found that despite higher per capita spending, "the United States ranks third-highest among 30 Organisation for Economic Co-operation and Development countries in the percentage of the population lacking health insurance, with one in seven people uninsured." They estimate the number of uninsured children in the U.S. to be more than 8 million. The literature clearly indicates this lack of coverage leads to "lower access to medical care and lower use of health care services," the authors wrote. It may even be reflected in relatively high child morbidity rates in the United States, they argued. Moreover, lack of health care for children has long-term effects as those children become adults. "The collective body of research that we have reviewed," Ho and Short said, "provides compelling evidence that covering all children in the United States with health insurance will yield immediate improvements in the health of children, as well as long-term returns of greater health and productivity in adulthood. The upfront incremental costs of universal health insurance coverage for children are relatively modest, and they will be offset by the value of increased health capital gained in the long term." Get a pdf of the report. Labels: children, health care, productivity Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Perspectives on the Iranian ElectionA couple of notes on the post-election scene in Iran:MRZine posted results from a poll conducted by Terror Free Tomorrow: Center for Public Opinion a few days ago (prior to the elections in Iran) indicating that Ahmadinejad was the front-runner; some in the left blogosphere have cited this poll as evidence that it is not crazy to suppose that he won by the margins the official reports say he did. Then here is an interesting post from Juan Cole of the Global Americana Institute (from June 14th): Class v. Culture Wars in Iranian Elections Read the full post. Finally, we covered some of the background relevant to the Iranian elections in an article, "Populism and Neoliberalism in Iran," by Rostam Pourzal, in our Nov/Dec 2008 issue. (The article is not available online, but you can order back issues here.) Labels: Ahmadinejad, Class, elections, Iran Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Ending of America's Financial-Military EmpireJust posted at Counterpunch; hat-tip to Ben C.:By MICHAEL HUDSON | June 15th The city of Yekaterinburg, Russia's largest east of the Urals, may become known not only as the end of the road for the tsars but of American hegemony too; as the place not only where US U-2 pilot Gary Powers was shot down in 1960, but where the US-centered international financial order was brought to ground. Challenging America is the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) today and tomorrow (June 15-16) for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It will be joined on Tuesday by Brazil for trade discussions among the so-called BRIC nations—Brazil, Russia, India and China. The attendees have assured American diplomats that it is not their aim to dismantle the financial and military empire of the United States. They simply want to discuss mutual aid—but in a way that has no role for the United States, for NATO or for the US dollar as a vehicle for trade. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. After all, that is what a multipolar world means. For starters, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia. Two years later the SCO countries formally aligned themselves with the former CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO. Yet the Yekaterinburg meeting has elicited only a collective yawn from the US and even European press despite its agenda—nothing less than the replacement of the global dollar standard with a new financial and military defense system. A Council on Foreign Relations spokesman has said he hardly can imagine that Russia and China can overcome their geopolitical rivalry, suggesting that America can use the divide-and-conquer that Britain used so deftly for many centuries in fragmenting foreign opposition to its own empire. But George W. Bush ("I'm a uniter, not a divider") built on the Clinton administration's legacy in driving Russia, China and their neighbors to find a common ground when it comes to finding an alternative to the dollar and hence to the US ability to run balance-of-payments deficits ad infinitum. What may prove to be the last rites of American hegemony began already in April at the G-20 conference, and became even more explicit at the St. Petersburg International Economic Forum on June 5, when Mr. Medvedev called for China, Russia and India to "build an increasingly multipolar world order." What this means in plain English is: We have reached our limit in subsidizing the United States' military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate in exchange for paper money of questionable worth. The artificially maintained unipolar system," Mr. Medvedev spelled out, is based on "one big center of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks." At the root of the global financial crisis, he concluded, is the fact that the United States makes too little and spends too much, particularly its vast military outlays, such as the stepped-up US military aid to Georgia announced just last week, the NATO missile shield in Eastern Europe and the US buildup in the oil-rich Middle East and Central Asia. The sticking point for all these countries is the ability of the United States to print unlimited amounts of dollars. Overspending by U.S. consumers on imports in excess of exports, U.S. buy-outs of foreign companies and real estate, and the dollars that the Pentagon spends abroad all end up in foreign central banks. These banks then face a hard choice: either to recycle these dollars back to the United States by purchasing US Treasury bills, or to let the "free market" force up their currency relative to the dollar—thereby pricing their exports out of world markets and hence creating domestic unemployment and business insolvency. Read the rest of the article. Labels: balance of trade, China, dollar, militarism, Russia, trade deficit Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Back to the Trough for Happy PigletsA comment from Morningstaronline.co.uk; hat-tip to Bob F.:And it's back to the trough Friday 12 June 2009 | Comment | Morningstaronline.co.uk It wasn't that long ago that the banks precipitated a crisis that shook the world's economy to its roots and is still causing the loss of thousands of jobs every month at undercapitalised and credit-starved manufacturing companies. A cycle of share gambling and outrageous risk-taking came to crisis when the banks even stopped trusting each other and refused to lend to other banks for fear that they had been lying about their exposure to unsafe debt. This came about in part because of an unrestrained drive for multimillion-pound bonuses and other payouts by the dealers and high-level market manipulators employed by the banks to generate profits for them from speculation. At the time and, indeed, ever since, the apologists in the capitalist media were carrying on about the emergence of a "new, moral capitalism" minus the short-sellers and speculation that had brought such discredit on their system. There was even a ban on short selling instituted to prevent the ludicrous amount of damage done to capital markets by the practice. But, as anyone with a clear perspective on capitalism could have forecast, such high-sounding sentiments meant little and their implementation couldn't last. The short-selling ban was dropped as hastily as it had been instituted the moment that the immediate glare of publicity had died down a little. Short selling once more became "a necessary tool of the markets" the moment that the City speculators felt that they could get away with it. And once again, the speculators are emerging, jostling for position to get their snouts back into the trough after a short enforced layoff, during which they have been reduced to picking over the corpses of their fellows who have been forced out of business, in the hopes of gleaning a quick buck. One wonders what the 5,000-plus Barclays staff who have been made redundant over the last two years will make of the fact that the bank is selling off its Barclays Global Investors division to US specialist speculator BlackRock and, in the process, making around 380 upper-echelon Barclays employees into millionaires, chief among them being Barclays investment banking boss Bob Diamond. Mr Diamond, he of the £20 million a year salary, is set to pocket £22 million from his share of the action. The redundant staff will certainly not be overjoyed. And neither should the remaining employees, since at least one analyst has pointed out that the deal may be of benefit to those 380 top employees, but the bank is giving up a key revenue stream, which will not be entirely offset by the 19.9 per cent holding in BlackRock it acquired as part of the deal. The shareholders certainly aren't impressed, if the markets are anything to go by. Barclays shares dropped by 3 per cent immediately the deal was announced. But you can bet that those 380 new-made millionaires will be over the moon. As will private equity house CVC, which is in line to receive a £106 million payout of depositors' money for, believe it or not, doing nothing except losing out on buying part of the company. So it's back to the trough for the happy piglets. A deal goes through that doesn't help the company, doesn't help the mass of the shareholders, doesn't help the public and, in fact, only helps 380 speculators and a private equity firm. And Barclays isn't even saying what it will do with the £5.3 billion that it will collect, except that it will put it towards boosting capital resources. In other words, it will just sling it in the vaults, which is, one supposes, logical since Barclays, in common with all the other banks, isn't becoming notable for rebuilding loans to industry. You couldn't make it up. Read the original comment. Labels: bailout, Barclay's Bank, financial crisis, private equity, short-selling, UK Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Less Down is the New Up (Carl Bloice)Great piece by Carl Bloice in his "Left Margin" column at BlackCommentator.com:New Jobless Stats: Still "Less Terrible"? Not for Some By Carl Bloice | BlackCommentator.com Editorial Board BlackCommentator | June 11, 2009 The Lex Column in the Financial Times got it right: "...'less down' is now the new 'up' as media watchers search for stabilization in the overall market." The writer was referring to the world of advertising where some analysts were putting a hopeful spin on revenue that fell 18 percent over the first three months of the year—the eighth quarter in a row to record a drop. But, the same might be said for the buzzwords describing the latest unemployment statistics. "Still terrible, undoubtedly, but a bit less terrible," said Ian Shepherdson, chief U.S. economist for the High Frequency Economics. I know. I made the same observation when the April jobless stats were released. But still, this verbal sleight of hand fascinates me, especially when some figures are highlighted while others are de-emphasized or ignored. Last Saturday, AARP sent out an email that looked at first like green shoots in the economic wind until, you got to this line: "The employment picture may be opening up ever so slightly. Economists say employers are likely to begin hiring cautiously in the first half of next year, though the unemployment rate could still continue to climb." Last Friday it was reported that there had been a slight drop in the number of people receiving unemployment insurance payments and a decrease in the number of new claims. "This report provides a glimmer of good news for job seekers, though both declines were small and the figure remains significantly above the levels associated with a healthy economy," said the Associated Press. Meanwhile, Shepherdson told the New York Times, "These are still terrible numbers. We're a million miles away from a recovery." Over the course of last month the average work week declined to its lowest point since 1960s and the numbers of people out of work for over six months rose to 3.9 million. Mark Lieberman, senior economist at FOXBusiness last week pointed out that the jobless rate for college graduates is soaring and "(T)he gap between the number of people unemployed and those collecting unemployment insurance widened to more than 5,000,000." Read the rest of the article. Labels: business press, Carl Bloice, green shoots, real unemployment rate, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Your Digital Converter BoxHere's how to get your digital converter box, if you haven't done so yet.But why not just give up TV? Labels: digital converter box, propaganda, television Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Hyperinflation or Deflation?Interesting piece from Counterpunch from a couple of days ago:Is Hyper-Inflation Around the Corner? By MIKE WHITNEY | Counterpunch | June 9, 2009 The Republicans are convinced that hyperinflation is just around the corner, but don't believe it. The real enemy is deflation, which is why Fed chief Bernanke has taken such extraordinary steps to pump liquidity into the system. The economy is flat on its back and hemorrhaging a half a million jobs per month. The housing market is crashing, retail sales are in a funk, manufacturing is down, exports are falling, and consumers have started saving for the first time in decades. There's excess capacity everywhere and aggregate demand has dropped off a cliff. If it wasn't for the Fed's monetary stimulus and myriad lending facilities, the economy would be stretched out on a marble slab right now. So, where's the inflation? Here's Paul Krugman with part of the answer: "It's important to realize that there's no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.... Krugman believes that conservatives have conjured up the inflation hobgoblin for political purposes to knock Obama's recovery plan off-course. But even if he's mistaken, there's little chance that inflation will flare up anytime soon because the economy is still contracting, albeit at a slower pace than before. A good chunk of the Fed's liquidity is sitting idle in bank vaults instead of churning through the system. According to Econbrowser, excess bank reserves have bolted from $96.5 billion in August 2008 to $949.6 billion by April 2009. Bernanke hoped the extra reserves would help jump-start the economy, but he was wrong. The people who need credit, can't get it; while the people who qualify, don't want it. It's just more proof that the slowdown is spreading. That doesn't mean that the dollar won't tumble in the next year or so when the trillion dollar deficits begin to pile up. It probably will. Foreign investors have already scaled back on their dollar-based investments, and central banks are limiting themselves to short-term notes, mostly 3 month Treasuries. If Bernanke steps up his quantitative easing and continues to monetize the debt, there's a good chance that central bankers will jettison their T-Bills and head for the exits. That means that if he keeps printing money like he has been, there's going to be a run on the dollar. Now that the stock market is showing signs of life again, investors are moving out of risk-free Treasuries and into equities. That's pushing up yields on long-term notes which could potentially short-circuit Bernanke's plans for reviving the economy. Mortgage rates are set off the 10 year Treasury, which shot up to 3.90 per cent by market's close last Friday. The bottom line is that if rates keep rising, housing prices will plummet and the economy will tank. This week's auctions will be a good test of how much interest there really is in US debt. Read the rest of the article. Labels: Ben Bernanke, deflation, financial crisis, Inflation, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Systemic Fear and Forward-Looking FinanceWe have just posted the next installment of Shimshon Bichler and Jonathan Nitzan's "Contours of Crisis" article series: Systemic Fear and Forward-Looking Finance. The article puts forward an original thesis about the class underpinnings—and indeed class limits—of modern finance theory.Here's the beginning of the article: This is the third installment in our series about the current crisis. The first article examined the conventional view that this is a finance-led crisis, a turmoil triggered and exacerbated by "financial excesses." The second debunked the "mismatch thesis," the belief that the present crisis is our punishment for letting financial fiction distort economic "reality." The current paper takes on the notion of the forward-looking investor. According to the conventional creed, investors are forever looking into the future: they discount not profits that have already been earned, but those that they expect to earn. This forward-looking premise lies at the heart of modern finance, and investors usually follow its rituals with religious zeal. Read the full article. Labels: finance sector, 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!). Real Unemployment Rate Now 16.4%We just posted John Miller's article on the real unemployment rate—adjusted to include involuntarily part-time workers and "discouraged" workers. The May numbers from the Bureau of Labor Statistics, using the bureau's expanded "U-6" rate, show an astonishing 16.4% rate of unemployment. As Miller points out, "no bout of unemployment since the last year of the Great Depression in 1941 would have produced an adjusted."Of course, many groups of workers have already been facing official unemployment rates in the double digits—in some cases even higher than the adjusted rate of 16.4%: As of May, unemployment rates for black, Hispanic, and teenage workers were already 14.9%, 12.7% and 22.7%, respectively. Workers without a high-school diploma confronted a 15.5% unemployment rate, while the unemployment rate for workers with just a high-school degree was 10.0%. Nearly one in five (19.2%) construction workers were unemployed. In Michigan, the hardest hit state, unemployment was at 12.9% in April. Unemployment rates in seven other states were at double-digit levels as well.Another measure of how this downturn compares to other post-war recessions: "The current downturn has pushed up unemployment rates by more than any previous postwar recession," from 4.9% at the start of the recession to the current (official) rate of 9.4%—an increase of 4.5 percentage points. The only post-war recession to rival the current one, the 1982 recession, had a peak official unemployment rate of 10.8%. But that was only 3.4 percentage points above the starting rate of 7.4%. And as Miller points out, "topping the 1982 recession's peak rate of 10.8% is now distinctly possible." Read the full article. Labels: Bureau of Labor Statistics, real unemployment rate, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Collaborative MedicineIn the June 1 issue of the New Yorker, Dr. Atul Gawande investigates "The Cost Conundrum": why some cities in the USA have much higher medical costs per person, and often poorer outcomes. He lands in the dusty border town of McAllen, Texas, located in the lowest income county in the US. McAllen also has one of the most expensive health care systems in the country, second only to Miami. In 2006, Medicare spent $15,000 per enrollee here, twice the national average. Despite the poverty, McAllen offers gleaming modern medical facilities. But health outcomes are relatively poor, compared even to nearby El Paso with similar demographics. Gawande quickly identifies the explanation: over-treatment and under-prevention. Doctors order unnecessary tests and treatments, while failing to encourage simple prevention, like immunizations or monitoring of diabetics. Since every procedure carries some risks, over-treatment means poorer outcomes. Motivation for over-treatment is pretty obvious too: doctors make greater profits, especially when they build their own clinics. And there's no money in prevention. So, here's the real mystery: why don't all doctors over-treat and under-prevent? Places like Rochester Minnesota, dominated by the Mayo Clinic; Seattle, Washington; and Durham, North Carolina provide world-class treatment at costs below the national average. Doctors in such places pursue a more collaborative approach to treatment, sharing information and equipment, tackling common problems like error prevention, and sometimes sharing reimbursements. At Mayo in particular, where doctors are on salary, whole teams of doctors evaluate patients. Why the difference? It comes down to local history and norms of behavior. In McAllen, apparently, some fifteen years ago the lure of profit overwhelmed traditional physician concern with simply providing good service. Gawande sees an alarming trend in this direction, potentially stymieing efforts to reform health care. Meanwhile, Dr. David Zakim of the Institute for Digital Medicine has developed a computer program and database for bringing state-of-the-art medical information to bear on individual cases. A central feature is a directed interactive interview with a patient; that is, as the patient types in answers to questions, the program brings up further related questions. The program--now being tested in hospitals in Stuttgart, Germany--helps doctors identify likely diagnoses and recommended tests and treatments. Even more important, the program enables patients with chronic illnesses like diabetes or heart disease to report their condition online, catching problems early and cutting unnecessary visits to the hospital. In short, the digital approach fosters better care at lower cost. It also helps set norms for appropriate treatment, restraining over-treatment and supporting prevention. In Unsafe at Any Speed (1965), Ralph Nader pointed to a system failure in American automobiles and highways. That is, certain features of cars and roads were statistically more likely to cause injuries and deaths. Over the opposition of the auto industry, which preferred to blame individual bad drivers, Nader advocated a system solution: national legislated mandates and incentives to engineer for safety. American medicine suffers from a system failure. As long as we pay doctors for piecework, patient by patient, procedure by procedure, profit motives will tend to overwhelm good medicine. The alternative is collaborative medicine, which measures and rewards success according to good statistical outcomes--such as hospital infections avoided, medication errors prevented, or diabetics trained to eat healthier diets. Digital Medicine and hospitals like Mayo succeed because they foster collaboration, among doctors--including the experts who feed information into the Digital database--and between doctors and patients. These are system approaches. The Obama Administration is struggling to include in its plan a public insurance option to compete with private insurance. Meanwhile, liberals demand "single payer." Yet as Gawande points out, McAllen relies chiefly on Medicare and Medicaid, making it already de facto single payer. Whatever the final shape of Obama's plan, it will fail unless it redirects incentives toward collaborative medicine. &&&&&&&&&&&&&&&&& More Econamici I send Econamici--occasional emails with interesting attachments or links--to friends who are economists or care about economic issues. --Polly Cleveland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Congress Helped Banks Defang Key RuleFrom the WSJ last week; hat-tip to Michael Perelman.Susan Pulliam and Tom McGinty | 3 June | p. A 1. Not long after the bottom fell out of the market for mortgage securities last fall, a group of financial firms took aim at an accounting rule that forced them to report billions of dollars of losses on those assets. Marshalling a multimillion-dollar lobbying campaign, these firms persuaded key members of Congress to pressure the accounting industry to change the rule in April. The payoff is likely to be fatter bottom lines in the second quarter. The accounting issue lies at the heart of the financial crisis: Are the hardest-to-value securities worth no more than what the market is willing to pay, or did the market grow too dysfunctional to properly set values? The rule change angered some investor advocates. "This is political interference on a major issue, and it raises questions about whether accounting standards going forward will have the quality and integrity that the market needs," says Patrick Finnegan, director of financial-reporting policy for CFA Institute Centre for Financial Market Integrity, an investor trade group. The rules had required banks, securities firms and insurers to use market prices to help assign values to mortgage securities and other assets that don't trade on exchanges—to "mark to market." But when markets went haywire last fall, financial firms complained that the rules forced them to slash the value of many assets based on fire-sale prices. That contributed to big losses that depleted their capital and left several of the nation's largest firms on the brink of failure. Earlier this year, financial-services organizations put their lobbyists on the case. Thirty-one financial firms and trade groups formed a coalition and spent $27.6 million in the first quarter lobbying Washington about the rule and other issues, according to a Wall Street Journal analysis of public filings. They also directed campaign contributions totaling $286,000 to legislators on a key committee, many of whom pushed for the rule change, the filings indicate. Rep. Paul Kanjorski, a Pennsylvania Democrat who heads the House Financial Services subcommittee that pressed for the accounting change, received $18,500 from coalition members in the first quarter, the second-highest total among committee members, according to Federal Election Commission records. Over the past two years, Mr. Kanjorski received $704,000 in contributions from banking and insurance firms, the third-highest total among members of Congress, according to the FEC and the Center for Responsive Politics. During a March 12 hearing before the House subcommittee, FASB came under intense pressure from committee members. "If the regulators and standard setters do not act now to improve the standards, then the Congress will have no other option than to act itself," Rep. Kanjorski said in his opening remarks. "We want you to act," Rep. Kanjorski told Robert Herz, FASB's chief. Mr. Herz waffled about how quickly the standards board could act. Rep. Kanjorski leaned over the dais. "You do understand the message that we're sending?" he said. "Yes," Mr. Herz replied. "I absolutely do, sir." FASB made speedy revisions to its rules. In an interview, Mr. Herz said FASB merely accelerated the matter on its agenda, and tried to be responsive to input from investors and financial-services firms. The change helped turn around investor sentiment on banks. Financial firms had the option of reflecting the accounting change in their first-quarter results; they will be required to do so in the second quarter. Wells Fargo & Co. said the change increased its capital by $4.4 billion in the first quarter. Citigroup Inc. said the change added $413 million to first-quarter earnings. The Federal Home Loan Bank of Boston said the shift boosted its first-quarter earnings by $349 million. Robert Willens, a tax and accounting analyst, estimates that the changes will increase bank earnings in the second quarter by an average of 7%. Mark-to-market accounting has been around for decades. Many banks were content with the rules when the markets were going up. But the rules became a big problem in late 2007. As markets turned down, FASB clarified the rules and established how certain financial instruments, including mortgage securities, should be valued. The guidelines said valuations should reflect "observable" input such as market prices whenever possible. They required banks to disclose extensive information about assets they were unable to value based on market prices. Financial firms last year reported losses or write-downs totaling roughly $175 billion, according to Michael Mayo, an analyst at the CLSA unit of Credit Agricole SA. Rep. Gary Ackerman (D., N.Y.) and Rep. Kanjorski pushed Mr. Herz to agree to a speedier timetable. They repeatedly cited Rep. Perlmutter's legislation to broaden oversight of FASB. "It will be done in three weeks. Can and will," Rep. Ackerman instructed Mr. Herz. "Yes," Mr. Herz replied. "Can and will," Rep. Ackerman repeated. Rep. Ackerman declined to comment through a spokesman. A FASB director, Lawrence Smith, said at the time that FASB had little choice but to act. "We can't ignore what's going on around us," he said. Labels: baillout, campaign contributions, financial crisis, mark-to-market, toxic assets Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Analysis of Indian Election ResultsFrom D&S collective member Smriti Rao; I am posting this belatedly:India-watchers across the world celebrated the unexpectedly strong victory of the Congress-party–led coalition in Indian elections, interpreting it as a victory for centrism over extremism of both the religious and (left) economic kind. Journalists for the mainstream press in the west seemed as relieved about the poor performance of the left parties in India as they were about the defeat of the right-wing nationalist party, the BJP. Every report on the Indian elections seems to end by predicting that the Prime Minister, Manmohan Singh, can now push forward with reforms—the codeword for economic liberalization—now that his hands are no longer 'tied' by a strong Left party presence in the government. And yet, as these same journalists attempt to explain why the Congress won, they usually point to India’s relative insulation from the current economic crash—a result of its moderation in the pursuit of economic liberalization (staying away from further financial sector liberalization, for example)—and its institution of some social safety net programs—particularly a national employment guarantee scheme in rural India. As left commentator Vijay Prashad points out, both 'achievements' were at least partly the result of pressure from the very same Left parties these journalists seem to criticize as holding India back and neither would suggest that this government should interpret its victory as a mandate for further liberalization. (See this Counterpunch article.) The recent appointment of Congress Party veteran Pranab Mukherjee as Finance minister suggests that while the Prime Minister is planning to push the liberalization process forward, he may be willing to proceed cautiously. While Mukherjee cut his political teeth in the Congress' socialist days, he is best known for being a political survivor, able to reinvent himself as the environment around him changes. He was instrumental in pushing forward the recent nuclear deal with the US—a far cry from the days when political upheavals in India were routinely attributed by the Congress Party to the foreign hand' of the US. And he is clearly on board with the broad idea of economic reforms—the government yesterday announced it was considering removing its decades-long program of subsidizing gas prices (see this Reuters report). However, unlike one of the other possible candidates for the Finance Ministry post, he is not considered a free-market ideologue. Let us hope he, and the Prime Minister, vindicate the faith the Indian voter has placed in them. Labels: BJP, Congress Party, elections, India, Manmohan Singh, neoliberalism Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Supreme Court Temporarily Blocks Chrysler SaleRuth Bader Ginsburg put a hold on the Chrysler bankruptcy deal, potentially undermining the deal that would sell Chrysler assets to Fiat. The stay was requested by Indiana pension funds who "said in court papers they would suffer 'irreparable harm' should the sale go forward," according to Bloomberg. Here is the text of the order in full (one sentence—does all caps count as yelling in Supreme Court orders?):Supreme Court of the United States There's some debate about how serious this endangers the Chrysler deal. The Bloomberg article cites Obama administration downplaying it, saying that it's just a short delay so the court can assess the merits of the plaintiffs' request. SCOTUSblog seems to agree, saying that the wording of the order "is the conventional way by which a Justice or the Court carries out an action that is expected to be short in duration, and not controlling--or even hinting at--the ultimate outcome." Yves Smith at Naked Capitalism seems to make more of it, citing a WSJ article according to which the gov't and Chrysler had "warned such an intervention might lead to the liquidation of the auto maker." See this online article we posted a couple of weeks ago indicating alternative paths for Chrysler and the U.S. auto industry. —cs Labels: auto industry, Chrysler, Fiat, Ruth Bader Ginsburg, Supreme Court Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Latino Jobless Rate Jumps To 12.7% In MayA summary of today's BLS report from Bob Feldman:The official "seasonally adjusted” unemployment rate for Latino workers in the United States increased jumped from 11.3% to 12.7% between April 2009 and May 2009, according to the latest Bureau of Labor Statistics data. The official "seasonally adjusted" unemployment rate for white male workers also increased from 8.5% to 9% between April 2009 and May 2009. For all U.S. male workers over 16 years-of-age, the officially "seasonally adjusted" jobless rate increased from 10% to 10.5% between April 2009 and May 2009. For all U.S. workers, the "seasonally adjusted" jobless rate increased from 8.9% to 9.4% between April 2009 and May 2009. The official "not seasonally adjusted" jobless rate for Black female workers over 20 years-of-age also increased from 10.5% to 11.1% between April 2009 and May 2009; and the official "not seasonally adjusted" jobless rate for all Black workers increased from 14.4% to 14.7% during this same period. The official "seasonally adjusted" rate for all Black male workers over 20 years-of age was still 16.8% in May 2009. The official "not seasonally adjusted" jobless rate for Black youth between 16 and 19 years-of-age increased from 33.5% to 40.1% between April 2009 and May 2009, while the "not seasonally adjusted" unemployment rate for Hispanic or Latino youth increased from 26.5% to 31% during this same period. The official "not seasonally adjusted" jobless rate for white youth between 16 and 19 years-of-age also increased from 18.8% to 21.1% between April 2009 and May 2009. According to the Bureau of Labor Statistics' June 5, 2009 press release: "...Employment fell by 345,000 in May...Steep job losses continued in manufacturing... "The number of unemployed persons increased by 787,000 to 14.5 million in May... "The number of long-term unemployed (those jobless for 27 weeks or more) increased by 268,000 over the month... "...The employment-population ratio, at 59.7%, continued to trend down... "Manufacturing employment fell by 156,000 in May...Three durable goods industries—motor vehicles and parts (-30,000), machinery (-26,000), and fabricated metal products (-19,000)—accounted for about half of the overall decline in factory employment...Mining shed 11,000 jobs in May... "Employment in construction decreased by 59,000 in May...In May, employment fell in nonresidential specialty trade contractors (-30,000) and in residential construction of buildings (-11,000)... "Retail trade employment was down by 18,000 in May...Employment in wholesale trade fell by 22,000 over the month... "Financial activities employment continued to decrease in May (-30,000). Securities lost 10,000 jobs and real estate lost 9,000...Employment in information decreased by 24,000 in May... " --b.f. See the full June 5th BLS "Employment Situation Report." Labels: Bob Feldman, Bureau of Labor Statistics, jobs, Latino jobless rate, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Michael Perelman's Iraq Peace PlanRecently posted to lbo-talk:I'm not much of a fan of Milton Friedman, but he once offered a very interesting suggestion to rid society of crime. "The first and most obvious [way to reduce the amount of crime] is to reduce the range of activities that are designated as illegal. Surely, one reason for the growth in crime is that the number of activities that are classified as such, has multiplied in recent decades." Friedman, Milton. 1997. "Economics of Crime." The Journal of Economic Perspectives , Vol. 11, No. 2 (Spring): p. 194. [This idea also has a history in Marxist criminology; it's called "labeling." —D&S] Following Friedman's logic the Defense Department found a simple strategy for evacuating the cities. "On a map of Baghdad, the US Army's Forward Operating Base Falcon is clearly within city limits. Except that Iraqi and American military officials have decided it's not. As the June 30 deadline for US soldiers to be out of Iraqi cities approaches, there are no plans to relocate the roughly 3,000 American troops who help maintain security in south Baghdad along what were the fault lines in the sectarian war. "We and the Iraqis decided it wasn't in the city," says a US military official. The base on the southern outskirts of Baghdad's Rasheed district is an example of the fluidity of the Status of Forces Agreement (SOFA) agreed to late last year, which orders all US combat forces out of Iraqi cities, towns, and villages by June 30." Arraf, Jane. 2009. To Meet June Deadline, US and Iraqis Redraw City Borders. Christian Science Monitor (19 May). Here is my suggestion: just redefine Iraq to be the Green Zone. Declare victory now that U.S. government has conquered the country. The rest could be disputed territory, such as Israel defines the West Bank. The United Nations, Iraq's neighbors, or even the Iraqi people could sort out what to do with this disputed territory. Republicans should be delighted to be able to claim that Bush's policy is vindicated. Democrats could crow about how they achieved peace. And the Defense Department could find a less dangerous land to bomb. Labels: Iraq, iraq war, Michael Perelman, Milton Friedman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Grand Theft Auto (Greg Palast)Greg Palast's take on the GM bankruptcy:Grand Theft Auto: How Stevie the Rat bankrupted GM by Greg Palast Monday, June 1, 2009 They may be crying about General Motors' bankruptcy today. But dumping 40,000 of the last 60,000 union jobs into a mass grave won't spoil Jamie Dimon's day. Dimon is the CEO of JP Morgan Chase bank. While GM workers are losing their retirement health benefits, their jobs, their life savings; while shareholders are getting zilch and many creditors getting hosed, a few privileged GM lenders—led by Morgan and Citibank—expect to get back 100% of their loans to GM, a stunning $6 billion. The way these banks are getting their $6 billion bonanza is stone cold illegal. I smell a rat. Stevie the Rat, to be precise. Steven Rattner, Barack Obama's 'Car Czar'—the man who essentially ordered GM into bankruptcy this morning. When a company goes bankrupt, everyone takes a hit: fair or not, workers lose some contract wages, stockholders get wiped out and creditors get fragments of what's left. That's the law. What workers don't lose are their pensions (including old-age health funds) already taken from their wages and held in their name. But not this time. Stevie the Rat has a different plan for GM: grab the pension funds to pay off Morgan and Citi. Here's the scheme: Rattner is demanding the bankruptcy court simply wipe away the money GM owes workers for their retirement health insurance. Cash in the insurance fund would be replaced by GM stock. The percentage may be 17% of GM's stock—or 25%. Whatever, 17% or 25% is worth, well ... just try paying for your dialysis with 50 shares of bankrupt auto stock. Yet Citibank and Morgan, says Rattner, should get their whole enchilada - $6 billion right now and in cash—from a company that can't pay for auto parts or worker eye exams. Preventive Detention for Pensions So what's wrong with seizing workers' pension fund money in a bankruptcy? The answer, Mr. Obama, Mr. Law Professor, is that it's illegal. In 1974, after a series of scandalous take-downs of pension and retirement funds during the Nixon era, Congress passed the Employee Retirement Income Security Act. ERISA says you can't seize workers' pension funds (whether monthly payments or health insurance) any more than you can seize their private bank accounts. And that's because they are the same thing: workers give up wages in return for retirement benefits. The law is darn explicit that grabbing pension money is a no-no. Company executives must hold these retirement funds as "fiduciaries." Here's the law, Professor Obama, as described on the government's own web site under the heading, "Health Plans and Benefits": "The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits." Every business in America that runs short of cash would love to dip into retirement kitties, but it's not their money any more than a banker can seize your account when the bank's a little short. A plan's assets are for the plan's members only, not for Mr. Dimon nor Mr. Rubin. Read the rest of the article. Labels: auto industry, bankruptcy, General Motors, Greg Palast, JP Morgan Chase, pensions, Steven Rattner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Geithner Couldn't Sell Home (NY Post)From today's New York Post (and AP):The real estate market's troubles are hitting close to home for Treasury Secretary Timothy Geithner. After reducing the price on his house in a tony New York City suburb to less than he paid for it, Geithner still couldn't sell and recently rented it out instead, according to real estate agents familiar with the deal. Geithner put his five-bedroom Tudor near leafy Larchmont on the market for $1.635 million in February, after heading to Washington for his job as the nation's top economic official. A few weeks after the asking price was dropped to $1.575 million, the home was rented for $7,500 a month on May 21, said the agents, Scott Stiefvater of Stiefvater Real Estate and Debbie Meiliken of Keller Williams Realty New York. Neither was directly involved in the rental; the name of the broker and agency that arranged it were not immediately available. Records show Geithner and his wife, Carole Sonnenfeld Geithner, paid $1.602 million for the home in 2004. Labels: real estate market, Renters, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). April-to-May Job Loss: 532,000The ADP National Employment Report covers "nonfarm private employment" and comes out a bit in advance of Bureau of Labor Statistics data. The current report revises upward by 54,000 the estimate of job losses in March-to-April job loss, and estimates April-to-May job loss at 532,000. So it appears that, even before the massive job losses that should follow the bankruptcy of GM, the U.S. economy is still shedding more than half a million jobs a month. So much for "green shoots."Our July/August issue will include an "Economy in Numbers" by John Miller on unemployment, comparing the official unemployment rate (currently 8.5% as of March) with the BLS's broader alternative U-6 measure, which also includes marginally employed and unwillingly part-time workers. John says: "[T]opping the 8.9% peak unemployment rate of the 1973-75 recession or even the 10.8% peak rate in the 1982 recession is now only a matter of time." And that's for the official rate; the U-6 rate is already at 15.6% for March. Here's the abstract of the ADP report: The ADP National Employment Report See the pdf of the full report. Labels: ADP, Bureau of Labor Statistics, real unemployment rate, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Mayor of Lansing Defends AutoworkersWhile we're posting items on the auto industry--here is this video from December that I missed. It's terrific. Hat-tip to Mike P.Labels: auto industry, Fox News, General Motors, UAW, Virg Bernero Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Goodbye, GM (Michael Moore)Another statement on GM's bankruptcy (from MichaelMoore.com):I write this on the morning of the end of the once-mighty General Motors. By high noon, the President of the United States will have made it official: General Motors, as we know it, has been totaled. As I sit here in GM's birthplace, Flint, Michigan, I am surrounded by friends and family who are filled with anxiety about what will happen to them and to the town. Forty percent of the homes and businesses in the city have been abandoned. Imagine what it would be like if you lived in a city where almost every other house is empty. What would be your state of mind? It is with sad irony that the company which invented "planned obsolescence" -- the decision to build cars that would fall apart after a few years so that the customer would then have to buy a new one -- has now made itself obsolete. It refused to build automobiles that the public wanted, cars that got great gas mileage, were as safe as they could be, and were exceedingly comfortable to drive. Oh -- and that wouldn't start falling apart after two years. GM stubbornly fought environmental and safety regulations. Its executives arrogantly ignored the "inferior" Japanese and German cars, cars which would become the gold standard for automobile buyers. And it was hell-bent on punishing its unionized workforce, lopping off thousands of workers for no good reason other than to "improve" the short-term bottom line of the corporation. Beginning in the 1980s, when GM was posting record profits, it moved countless jobs to Mexico and elsewhere, thus destroying the lives of tens of thousands of hard-working Americans. The glaring stupidity of this policy was that, when they eliminated the income of so many middle class families, who did they think was going to be able to afford to buy their cars? History will record this blunder in the same way it now writes about the French building the Maginot Line or how the Romans cluelessly poisoned their own water system with lethal lead in its pipes. So here we are at the deathbed of General Motors. The company's body not yet cold, and I find myself filled with -- dare I say it -- joy. It is not the joy of revenge against a corporation that ruined my hometown and brought misery, divorce, alcoholism, homelessness, physical and mental debilitation, and drug addiction to the people I grew up with. Nor do I, obviously, claim any joy in knowing that 21,000 more GM workers will be told that they, too, are without a job. But you and I and the rest of America now own a car company! I know, I know -- who on earth wants to run a car company? Who among us wants $50 billion of our tax dollars thrown down the rat hole of still trying to save GM? Let's be clear about this: The only way to save GM is to kill GM. Saving our precious industrial infrastructure, though, is another matter and must be a top priority. If we allow the shutting down and tearing down of our auto plants, we will sorely wish we still had them when we realize that those factories could have built the alternative energy systems we now desperately need. And when we realize that the best way to transport ourselves is on light rail and bullet trains and cleaner buses, how will we do this if we've allowed our industrial capacity and its skilled workforce to disappear? Thus, as GM is "reorganized" by the federal government and the bankruptcy court, here is the plan I am asking President Obama to implement for the good of the workers, the GM communities, and the nation as a whole. Twenty years ago when I made "Roger & Me," I tried to warn people about what was ahead for General Motors. Had the power structure and the punditocracy listened, maybe much of this could have been avoided. Based on my track record, I request an honest and sincere consideration of the following suggestions: 1. Just as President Roosevelt did after the attack on Pearl Harbor, the President must tell the nation that we are at war and we must immediately convert our auto factories to factories that build mass transit vehicles and alternative energy devices. Within months in Flint in 1942, GM halted all car production and immediately used the assembly lines to build planes, tanks and machine guns. The conversion took no time at all. Everyone pitched in. The fascists were defeated. We are now in a different kind of war -- a war that we have conducted against the ecosystem and has been conducted by our very own corporate leaders. This current war has two fronts. One is headquartered in Detroit. The products built in the factories of GM, Ford and Chrysler are some of the greatest weapons of mass destruction responsible for global warming and the melting of our polar icecaps. The things we call "cars" may have been fun to drive, but they are like a million daggers into the heart of Mother Nature. To continue to build them would only lead to the ruin of our species and much of the planet. The other front in this war is being waged by the oil companies against you and me. They are committed to fleecing us whenever they can, and they have been reckless stewards of the finite amount of oil that is located under the surface of the earth. They know they are sucking it bone dry. And like the lumber tycoons of the early 20th century who didn't give a damn about future generations as they tore down every forest they could get their hands on, these oil barons are not telling the public what they know to be true -- that there are only a few more decades of useable oil on this planet. And as the end days of oil approach us, get ready for some very desperate people willing to kill and be killed just to get their hands on a gallon can of gasoline. President Obama, now that he has taken control of GM, needs to convert the factories to new and needed uses immediately. 2. Don't put another $30 billion into the coffers of GM to build cars. Instead, use that money to keep the current workforce -- and most of those who have been laid off -- employed so that they can build the new modes of 21st century transportation. Let them start the conversion work now. 3. Announce that we will have bullet trains criss-crossing this country in the next five years. Japan is celebrating the 45th anniversary of its first bullet train this year. Now they have dozens of them. Average speed: 165 mph. Average time a train is late: under 30 seconds. They have had these high speed trains for nearly five decades -- and we don't even have one! The fact that the technology already exists for us to go from New York to L.A. in 17 hours by train, and that we haven't used it, is criminal. Let's hire the unemployed to build the new high speed lines all over the country. Chicago to Detroit in less than two hours. Miami to DC in under 7 hours. Denver to Dallas in five and a half. This can be done and done now. 4. Initiate a program to put light rail mass transit lines in all our large and medium-sized cities. Build those trains in the GM factories. And hire local people everywhere to install and run this system. 5. For people in rural areas not served by the train lines, have the GM plants produce energy efficient clean buses. 6. For the time being, have some factories build hybrid or all-electric cars (and batteries). It will take a few years for people to get used to the new ways to transport ourselves, so if we're going to have automobiles, let's have kinder, gentler ones. We can be building these next month (do not believe anyone who tells you it will take years to retool the factories -- that simply isn't true). 7. Transform some of the empty GM factories to facilities that build windmills, solar panels and other means of alternate forms of energy. We need tens of millions of solar panels right now. And there is an eager and skilled workforce who can build them. 8. Provide tax incentives for those who travel by hybrid car or bus or train. Also, credits for those who convert their home to alternative energy. 9. To help pay for this, impose a two-dollar tax on every gallon of gasoline. This will get people to switch to more energy saving cars or to use the new rail lines and rail cars the former autoworkers have built for them. Well, that's a start. Please, please, please don't save GM so that a smaller version of it will simply do nothing more than build Chevys or Cadillacs. This is not a long-term solution. Don't throw bad money into a company whose tailpipe is malfunctioning, causing a strange odor to fill the car. 100 years ago this year, the founders of General Motors convinced the world to give up their horses and saddles and buggy whips to try a new form of transportation. Now it is time for us to say goodbye to the internal combustion engine. It seemed to serve us well for so long. We enjoyed the car hops at the A&W. We made out in the front -- and the back -- seat. We watched movies on large outdoor screens, went to the races at NASCAR tracks across the country, and saw the Pacific Ocean for the first time through the window down Hwy. 1. And now it's over. It's a new day and a new century. The President -- and the UAW -- must seize this moment and create a big batch of lemonade from this very sour and sad lemon. Yesterday, the last surviving person from the Titanic disaster passed away. She escaped certain death that night and went on to live another 97 years. So can we survive our own Titanic in all the Flint Michigans of this country. 60% of GM is ours. I think we can do a better job. Yours, Michael Moore MMFlint@aol.com MichaelMoore.com Labels: bailout, bankruptcy, General Motors, Michael Moore, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nader Statement On GM BankruptcyFrom PR Newswire:WASHINGTON, June 1 /PRNewswire-USNewswire/ -- Consumer advocate Ralph Nader today issued the following statement on GM's bankruptcy filing: Today's bankruptcy declaration in federal court by General Motors is an avoidable, crude weapon of mass devastation for workers, dealers, auto suppliers, small businesses and their depleted communities. For GM's voiceless owners -- the common shareholders -- it is a wipeout. The proximate cause of the bankruptcy was supposed to be the inability of GM and the government's auto task force to reach an accommodation with GM's bondholders. But late last week, the bondholder problem was moving toward rapid resolution, and was clearly resolvable. Why then are GM and its multibillion government financier proceeding with bankruptcy? The bankruptcy and the GM restructuring plan are the product of a secretive, unaccountable, Wall Street-minded government task force that assumed power because of a Congressional abdication of historic magnitude. By all rights, the restructuring plan should have been submitted to Congress for deliberative review and decision. There is little doubt that GM's chronic mismanagement and the deep recession require restructuring and scaling back the auto giant. But the bankruptcy and restructuring plan appear poised to do so in ways that will needlessly harm the stakeholders meant to be helped by Washington's rescue of GM. Many, many jobs will be lost that could be preserved. There is reason to question whether too many plants and brands are being closed -- a matter that should have been taken up in Congress. Just the closing of hundreds of (GM and Chrysler) dealerships will cost more than 100,000 jobs. These sacrificed jobs will fray communities and impose enormous expenses on government entities that will have to provide unemployment and social relief, while suffering lost tax revenues. The unionized workforce will see the wage and benefit structure slashed -- even though auto manufacturer wages make up less than 10 percent of the cost of a car -- so that new jobs at GM will no longer be a ticket to the middle class. This will drag down the wage structure of the entire auto industry -- exactly the wrong direction for the country. America's manufacturing base will be further eroded, as GM pursues its Grand China Strategy -- increasing manufacturing outside of the United States, and increasingly from China, for import back into the United States. Unanswered questions persist about how GM's valuable operations in China, and unrepatriated profits, will be treated in bankruptcy, or excluded from bankruptcy. Victims of defective GM products may find themselves with no legal avenue to pursue justice. In the Chrysler bankruptcy, with complete disregard for the real human lives involved, the Obama task force and auto company have maneuvered effectively to extinguish the product liability claims of victims of defective cars. In a worst case scenario for the GM bankruptcy -- involving an extended court proceeding or severe impairment of consumer confidence in the GM brand -- all of these problems will be magnified. Again, given the path to resolution with the bondholders, this is an avoidable gamble. The GM/task force bankruptcy plans appear geared to saving the General Motors entity -- but at a harsh and often avoidable cost to workers, communities, suppliers, consumers, dealers, and the nation's manufacturing capacity. It will also prove to be a complex political nightmare for President Obama. With the company entering bankruptcy, the next challenge will be to ensure that the government exercises its ownership rights to undo and mitigate, to the extent possible, these damages. Among other measures, this should involve revisiting the serious drag-down, concessionary wage terms imposed on the United Auto Workers; demanding a moratorium on GM's outsourcing of production of cars for sale in the United States; and establishing successorship liability for the new GM, so that victims of dangerous and defective GM cars can have their day in court. Labels: auto industry, bankruptcy, General Motors, Ralph Nader Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Traffic Tickets to Plug Budget Shortfalls?Quite an interesting post from a blog I hadn't heard of, Mish's Global Economic Trend Analysis, about how cops are doing massive "click it or ticket" operations--waiting outside of shopping mall parking lots, in some cases--in attempt to deal with state or municipal budget shortfalls.The blogger comes up with a nice selection examples from across the country, including a California Highway Patrol declaring a "Maximum Enforcement Period" (MEP) for Memorial Day weekend this year, to Texas, where 10% of adults have outstanding warrants, almost all of them for moving violations (see below), and Dallas County, where half of the county's revenue comes from traffic tickets. But he introduces the topic thus: "Cash strapped cities, states, and municipalities are increasingly looking to raise revenue by issuing tickets instead of cutting expenses." How about raising taxes on the rich, or stimulus money for state budget needs rather than for law enforcement? Anyhow, it's a great story. Here's a bit about Texas: In Texas, to my mind, we've already taken this strategy about as far as it can go, to the point that, right now, more than 10% of Texas adults have outstanding arrest warrants--mostly for traffic tickets. Read the rest of the article. A feature in Car and Driver covered the phenomenon back in February: More Tickets in Hard Times Read the rest of the article. (One funny bit was a quote from a motorist who points out that this will have a bad effect on tourism in Michigan "no wonder the state's economy is in the porcelain." I'd never heard that expression—it's a gem.) Labels: law enforcement, state budget shortfalls, Texas, traffic tickets Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Congress's Afterthought, Wall Street's Trillion DollarsFrom Saturday's Washington Post. One premise of the article is that this law is enough to make the Fed's actions legal—are we sure this is the case? And the off-the-balance-sheet obligations dwarf the $1 trillion anyhow.Fed's Bailout Authority Sat Unused Since 1991 By Binyamin Appelbaum and Neil Irwin Washington Post Staff Writers Saturday, May 30, 2009 On the day before Thanksgiving in 1991, the U.S. Senate voted to vastly expand the emergency powers of the Federal Reserve. Almost no one noticed. The critical language was contained in a single, somewhat inscrutable sentence, and the only public explanation was offered during a final debate that began with a reminder that senators had airplanes to catch. Yet, in removing a long-standing prohibition on loans that supported financial speculation, the provision effectively allowed the Fed for the first time to lend money to Wall Street during a crisis. That authority, which sat unused for more than 16 years, now provides the legal basis for the Fed's unprecedented efforts to rescue the financial system. Since March 2008, the central bank's board of governors has invoked its emergency powers at least 19 times: to contain the wreckage of Bear Stearns and ease the fall of American International Group, to preserve Goldman Sachs and Morgan Stanley, to limit losses at Bank of America and Citigroup, to lend more than $1 trillion. The repeated use of the once-dusty law has surprised and alarmed a wide range of people, including economists and members of Congress. It has even raised worries among presidents of the regional banks that make up the Federal Reserve system. Many critics are concerned that an institution not accountable to voters is risking vast amounts of public money and choosing which companies get help. Others are concerned that the Fed's new role will interfere with its basic responsibility for regulating economic growth. There is also a question about the roots of the crisis: Did investment banks take greater risks in the past two decades because they knew the Fed could rescue them? The 1991 legislation, authored by Sen. Christopher J. Dodd (D-Conn.), was requested by Goldman Sachs and other Wall Street firms in the wake of the 1987 market crisis, and it would save some of them a generation later. Fed Chairman Ben S. Bernanke and other leaders of the central bank have argued that the emergency authority has allowed it to rescue the financial system and that without it, the economy would be in far worse shape. And they argue that they are using the power as Congress intended. "This provision was designed as a last resort to make sure credit flows when times are tough and credit isn't being extended," said Scott Alvarez, the Fed's general counsel. "That's exactly what it's being used for today." Read the rest of the article. Labels: bailout, Christopher Dodd, financial crisis, Goldman Sachs, The Fed Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
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