Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Next Wave of Health-Care Sit-InsThe Mobilization for Health Care for All had its latest big wave of sit-ins for single-payer on Wednesday (and this wave is ongoing). Here's their report:Yesterday [Oct. 28th], the next wave of the Mobilization for Health Care for All began with great success. See below for a list of media coverage of the actions. In 11 cities across the country, hundreds of everyday Americans who want Medicare for All confronted the insurance companies and demanded that they redirect the money they're spending to control our democracy to pay for the care they deny to their members. Almost every company refused to even talk to us, and 37 people were arrested including doctor Matt Hendrickson at a Cigna office in Glendale, California. Dozens more - like the 30 people who blockaded the Blue Cross office in San Francisco for hours - sat in but weren't arrested. In Rhode Island, however, the protestors who joined cancer patient Robert Darling in occupying the UnitedHealthcare office won the first concessions of our campaign - a company representative agreed to give an answer to Robert about paying for his previous bone marrow transplant within 24 hours and to arrange a meeting for the group with the UnitedHealthcare CEO within a week! After 115 arrests in 18 cities, these companies are starting to feel the heat of our movement. And with more than 900 people now signed up to sit-in, this battle is just beginning. Today, the Mobilization continued in Louisville, Kentucky and Baltimore, Maryland. The brave folks in Louisville are in the 9th hour of their sit-in inside the Humana headquarters as we send out this email. Humana is trying to wait them out, but may are prepared to stay overnight if they have to. In Baltimore, four people were arrested at a CareFirst (Blue Cross) office including two doctors. One of those doctors, Margaret Flowers of the "Baucus 8," has withheld her name and is planning to stay in jail until the CEO of CareFirst, Chet Burrell, agrees to a public meeting with her. Please call Mr. Burrell immediately and regularly at 410-528-2222 to demand that he agree to meet publicly with Margaret. You can also email CareFirst by going to http://www.carefirst.com/email/html/ContactMediaRelations.html. Send the following message in your email: I am writing to urge CEO Chet Burrell to agree to a public meeting with Dr. Margaret Flowers who was arrested at the CareFirst office in Baltimore while demanding to meet with Mr. Burrell about CareFirst business practices. She is going to stay in jail until Mr. Burrell agrees to a public meeting with her. CareFirst must publicly account for the serious concerns that citizens have about your company's practices. Also, please donate generously today so we can be prepared to pay any bail that is set for Margaret's release. She decided to risk arrest and stay in jail despite a possible 6 month jail sentence for violating probation from her previous arrest in the fight for real health care reform - let's show her that we've got her back. Please donate today to support Margaret and post messages of support for her at our Facebook page (we'll read all messages to her over the phone when she calls from jail). The Mobilization continues in Philadelphia tomorrow, and in more cities across the country next week. Click here for updated lists of all the upcoming actions and info about how you can plug in and participate. The insurance companies, the politicians in their pockets, and even some of the corporate media apparently want our movement to go away. But it's just getting started and spreading across America. Let's show them we're not going anywhere and we won't stop until health care is a right for everyone in America. Thanks for everything you do. —Katie, Kevin, Kai, Julia, Lacy, and the Mobilization team Press Coverage from 10/28: San Francisco Chronicle South Florida Sun-Sentinel NJ.com (Star-Ledger / Trenton Times / Jersey Journal blog) projo.com (Providence Journal blog) Glendale News-Press National Public Radio, Topics Democracy Now Free Speech Radio News Huffington Post Institute for Public Accuracy Atlas Press Photo La Jornada (Mexico) OpEdNews (featured story about doctors, by Kevin Gosztola): OpEdNews (about Philadelphia rally) Bay Area Indymedia (quality article, good for reference): Press Coverage from 10/29: Southern Maryland Online Wave3.com WFPL News Labels: health care reform, Mobilization for Health Care for All, single-payer, sit-in Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Steelworkers Form Collaboration with MondragonA very interesting collaboration--hat-tip to Mary Hoyer.Steelworkers Form Collaboration with MONDRAGON, the World's Largest Worker-Owned Cooperative Pittsburgh (Oct. 27, 2009)—The United Steelworkers (USW) and MONDRAGON Internacional, S.A. today announced a framework agreement for collaboration in establishing MONDRAGON cooperatives in the manufacturing sector within the United States and Canada. The USW and MONDRAGON will work to establish manufacturing cooperatives that adapt collective bargaining principles to the MONDRAGON worker ownership model of "one worker, one vote." "We see today's agreement as a historic first step towards making union co-ops a viable business model that can create good jobs, empower workers, and support communities in the United States and Canada," said USW International President Leo W. Gerard. "Too often we have seen Wall Street hollow out companies by draining their cash and assets and hollowing out communities by shedding jobs and shuttering plants. We need a new business model that invests in workers and invests in communities." Josu Ugarte, President of MONDGRAGON Internacional added: "What we are announcing today represents a historic first—combining the world's largest industrial worker cooperative with one of the world's most progressive and forward-thinking manufacturing unions to work together so that our combined know-how and complimentary visions can transform manufacturing practices in North America." Highlighting the differences between Employee Stock Ownership Plans (ESOPs) and union co-ops, Gerard said, "We have lots of experience with ESOPs, but have found that it doesn't take long for the Wall Street types to push workers aside and take back control. We see Mondragon's cooperative model with ‘one worker, one vote' ownership as a means to re-empower workers and make business accountable to Main Street instead of Wall Street." Both the USW and MONDRAGON emphasized the shared values that will drive this collaboration. Mr. Ugarte commented, "We feel inspired to take this step based on our common set of values with the Steelworkers who have proved time and again that the future belongs to those who connect vision and values to people and put all three first. We are excited about working with Mondragon because of our shared values, that work should empower workers and sustain families and communities," Gerard added. In the coming months, the USW and MONDRAGON will seek opportunities to implement this union co-op hybrid approach by sharing the common values put forward by the USW and MONDGRAGON and by operating in similar manufacturing segments in which both the USW and MONDRAGON already participate. The full text of the Agreement is available here. About MONDRAGON: The MONDRAGON Corporation mission is to produce and sell goods and provide services and distribution using democratic methods in its organizational structure and distributing the assets generated for the benefit of its members and the community, as a measure of solidarity. MONDRAGON began its activities in 1956 in the Basque town of Mondragon by a rural village priest with a transformative vision who believed in the values of worker collaboration and working hard to reach for and realize the common good. Today, with approximately 100,000 cooperative members in over 260 cooperative enterprises present in more than forty countries; MONDRAGON Corporation is committed to the creation of greater social wealth through customer satisfaction, job creation, technological and business development, continuous improvement, the promotion of education, and respect for the environment. In 2008, MONDRAGON Corporation reached annual sales of more than sixteen billion euros with its own cooperative university, cooperative bank, and cooperative social security mutual and is ranked as the top Basque business group, the seventh largest in Spain, and the world's largest industrial workers cooperative. About the USW: The USW is North America's largest industrial union representing 1.2 million active and retired members in a diverse range of industries. WEBSITES: www.usw.org; www.mondragon-corporation.com. Labels: cooperatives, Mondragon Cooperative, unions, United Steel Workers Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Yes Men and the U.S. Chamber of CommerceSome of us are going to the Yes Men's new movie, The Yes Men Change the World, tomorrow night. The Yes Men themselves will be there, as will our pal Marilyn Frankenstein, radical math professor, who wrote a study guide for the movie. You can watch the official trailer for the movie here.If you haven't heard of the Yes Men, they are anti-corporate pranksters who have been described as "Borat meets Michael Moore." One of their more recent pranks involved a press release claiming to be from the U.S. Chamber of Commerce announcing that the business-friendly group had reversed its position on tough climate-change legislation. In his column in Sunday's New York Times, Frank Rich compared the prank favorably to the "balloon boy" prank that got so much media attention. Find the fake Chamber of Commerce press release here; here's Politico's report on the hoax: In a dramatic shift, the Chamber of Commerce announced Monday that it is throwing its support behind climate change legislation making its way through the U.S. Senate. Labels: Frank Rich, The Yes Men, U.S. Chamber of Commerce Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Pensions: The Next Casualty of Wall StreetFrom Mark Brenner at Labor Notes:Pensions: The Next Casualty of Wall Street By Mark Brenner Nobody wants to admit it, but the next casualty of the Wall Street meltdown will probably be your golden years. For years corporations have been trying to choke the life out of traditional pensions, working hard to get out from under the risk—and the cost—of providing for their retirees. Between last year's credit crunch and changes to federal pension laws, they may get their wish. Nearly $4 trillion worth of retirement savings were wiped out in the first weeks of the 2008 financial freefall. Half of the drop was concentrated in traditional pension plans, also known as defined-benefit plans. While most workers in these plans haven't had their monthly benefits cut, unlike the 46 million people riding the stock market with 401(k) defined-contribution plans, the storm clouds are gathering. Labor needs a strategy to protect what we've won. But holding our ground requires moving from defense to offense. If the pension crisis is going to be solved for union members, it has to be solved for everyone. UNCOMFORTABLE ARITHMETIC Even before the financial crisis, traditional pensions were a vanishing breed. Thirty years ago more than a third of the private sector workforce had traditional pensions. Last year that number was down to 16 percent. Driving the decline were employers looking to get off cheap, eliminating pensions entirely when they could get away with it, and when they couldn't, shifting to 401(k)s. These programs were legalized in 1978 and were originally designed to supplement traditional pensions. Now they're choking them out like kudzu. Corporations got a great deal, paying about half what they used to towards their workers' retirement by the '90s. Even more important—as anyone who has opened their 401(k) statement recently can attest—the move shifted risk off companies and onto us. Traditional pensions were a collective solution to a collective problem. Young and old contributing together smoothed out insecurity for all. Now it's just you and the stock market—with far less in your pocket. Even before the crash, studies showed that 401(k)s leave workers with 10 to 33 percent of what traditional pensions provide. Given the 30-year squeeze on wages, most people haven't saved much either, which explains why more than half of all 401(k) participants have less than $75,000 when they retire. WHAT'S IN STORE? Even for those with superior defined-benefit plans, the last 20 years have been rocky. Companies spent much of the 1990s gaming the system, siphoning off pension funds to pad the bottom line. At the start of this year the nation's defined-benefit pension plans had only about 75 percent of what they owed participants. Companies may need to contribute as much as $100 billion to cover these gaps. Although Congress waived compliance with new pension rules this year, the law will eventually take effect, and will force employers to cover these pension gaps. Rather than clean up their act, more and more employers are looking for the exit. By April of this year nearly a third of America's largest companies had frozen their pension plans. Many others are invoking the nuclear option, declaring bankruptcy as a way to unload their pension plans on the taxpayers. Unfortunately, the Pension Benefit Guaranty Corporation (PBGC), established in 1975 to backstop private sector pensions, is already reeling from a decade of high-profile and expensive pension defaults at companies like United Airlines and steelmaker LTV. Nine of the 10 largest pension defaults in history occurred since 2000, leaving the PBGC with a deficit of $11 billion at the end of 2008. That gap could swell to more than $100 billion over the next few years, amounting to a backdoor bailout for big corporations, and a bitter pill for abandoned retirees. Workers at Republic Steel saw first hand how it works when they had their pensions cut by $1,000 a month in 2002 by the PBGC and then cut again in 2004. Five workers from the Lorain, Ohio, plant committed suicide after the first time their pension was diminished. In the second round of cuts, retirees like Bruce Bostick, former grievance chair for USW Local 1104, saw their retirements fall from $1,047 a month to $125. The situation for public sector workers isn't much better. Although 80 percent of public employees have traditional pensions, those benefits are now in the cross-hairs of conservative and liberal politicians. Two-thirds of public sector pension plans are underfunded—to the tune of $430 billion—and state and local budget crises are pitting taxpayers against public employees from California to Maine. ANCHORING RETIREMENT For nearly 20 years the various financial bubbles—from the dot-com frenzy of the 1990s to the recent housing market run-up—papered over the urgent need to address the faltering retirement system. Wall Street's collapse last year revealed how the current patchwork of retirement plans is failing almost everyone. As with health benefits, union workers with stable pensions increasingly find themselves on an island of security in a sea of uncertainty. But the water is rising rapidly. As the debate over the auto bailout and state budget crises revealed, defending your own decent pension is tough work when half the workers in the country don't have any retirement at all. The PBGC—which has been swimming in red ink since 2002—is currently set up to pay less than half of what people were promised. If the funding gaps widen, it could fall to pennies on the dollar. There will be calls to bail the PBGC out—which needs to happen—1.2 million people now depend on it. A sensible demand is to make it function more like the FDIC, by guaranteeing 100 percent of pension benefits up to a reasonable threshold. But reform can't stop there. If it does, workers are on the same path as before the economic collapse, with a temporary reprieve. Employers will still seek to drive union workers down to non-union standards and dump more risk onto individuals. We need to return to the original vision of Social Security: a program that (like in Western European nations) can actually pay for most of your old-age living expenses. Read the original article. Labels: 401(k), financial crisis, Pension Benefit Guarantee Corporation, pensions, Social Security, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Pay Czar's Ruling on CompensationThe Wall Street Journal, and (scroll down) Naked Capitalism, on compensation czar Kenneth Feinberg's ruling on executive pay at seven bailed-out financial firms:Pay Czar to Slash Compensation at Seven Firms Read the rest of the article. Yves Smith of Naked Capitalism is skeptical: Pay Czar Decides to Collect a Few Scalps, a Sign of Weakness Read the original post. Labels: ceo pay, compensation, Kenneth Feinberg, Naked Capitalism, Wall Street, Wall Street bonuses Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Civil Rights Movement for the Middle ClassA guest post on Naked Capitalism. Hat-tip to Ben C.A New Civil Rights Movement is Afoot for the Middle Class By John Bougearel, Director of Futures and Equity Research at Structural Logic. Tuesday, October 21 2009 The core of America is the middle class. And Harvard Law Professor and chair of the Congressional Oversight Panel COP (the COP is to oversee TARP, the Troubled Assets Relief Program) Elizabeth Warren tells us that the core of America is being carved up, hollowed out. In her words, "I Believe Middle Class is Under Terrific Assault...Middle class became the turkey at the Thanksgiving dinner" of the financial elite. Elizabeth Warren is more than just right. Call it for what it is. It has more names than Satan. Call it plundering. Call it pillaging. Call it extortion, Call it fraud. Call it racketeering. Call it the financial raping of the middle class. Call it criminal. Consider the following. Middle class never consented to this financial rape. They vehemently protested it when the gov't first proposed a $700 bailout of the financial system called TARP in Septermber 2008. Yet what did Congress and our government do? They went ahead and did it anyway. This boils down to one thing, taxation without representation. Our votes do not matter anymore. This is happening because the US government is allowing it to happen. It is one thing for the government to raise the social safety nets for the poor, elderly and such. It is entirely another to raise the social safety nets for the financial elitists at taxpayer expense. But that is exactly what the government has done in the past year. They have rescued a financial system at the expense of everyone else. Mythical constructs and messages that financial companies are Too Big to Fail, systemic risk is too great, No More Lehman Brothers have been created by the powers that be. And it is in the name of No More Lehman Brothers and Too Big to Fail that Middle Class America is being carved up and hollowed out. Appearing in Michael Moore's "Capitalism: A Love Story, Michael Moore asks Elizabeth Warren (regarding the $700 billion dollar taxpayer funded bailout of the financial elite) "Where's are money? And Warren takes a deep breath, looks briefly over her left shoulder (as if she might find it there), and exhales "I don't know." Washington Post's Lois Romano asked Elizabeth Warren, "Why don't you know?" WARREN: We don't know where the $700 billion dollars is because the system was initially designed to make sure that we didn't know. When Secretary Paulson first put this money out into the banks, he didn't ask for ‘what are you going to do with it.' He didn't put any restrictions on it. He didn't put any tabs on where it was going to go. In other words, he didn't ask... US Secretary of the Treasury Hank Paulson did not ask the banks what they were going to do with our taxpayer money. The US treasury, given Congressional blessing, simply gave the banksters hundreds of billions of taxpayer dollars with no questions asked. This is wholesale taxation without representation. So Romano asks Warren, "Are we, as an [economy] are we better off systemically now? Have we put things in place to prevent this from happening?" Warren replies "This really has me worried." And it should have Warren worried because our Humpty Dumpty financial system had a great fall, and Humpty was put together again by all the King's horses (read the US Treasury and Congress) and all the King's men (read Uncle Sam's taxpayers), Yet, Humpty Dumpty is still the same old fragile egg he was when he sat on a wall right before he had his great fall.
And it is not just the Humpty Dumpty financial system that is so fragile. WARREN: The way I see it is that the financial system itself is quite fragile, and that the underlying economy, the real economy, jobs, housing, household wealth, is still in a very perilous state. So Lois Romano asks Warren, "Are we going to look back in two or three years at this TARP expenditure and say well, it worked." WARREN: "What is so astonishing about the first expenditures under TARP was that taxpayer dollars were put into financial institutions that were still, um, left all of their shareholders intact, that were still paying dividends, that paid their creditors 100 cents on the dollar. We put taxpayer money in without saying ‘you've got to use up everyone else's money first.' And once that's the case, I don't know how you ever put the genie back in the bottle. I don't know how you ever persuade either a large corporation or the wider marketplace that if you can just get big enough and tie yourself to enough other important people, institutions, that if something goes wrong, the taxpayer will be behind you. Aaron Task interviewed Elizabeth Warren at The Economist's Oct 15-16 "Buttonwood Gathering" In that interview, Warren says, The big banks always get what they want. They have all the money, all the lobbyists. And boy is that true on this one. There's just not a lobby on the other side. The Buttonwood Gathering event took place over the weekend following Q3 earnings announcements from the big banks. Because of the taxpayer bailout of these big banks, some of them, namely JPM and GS are now enjoying record profits and will enjoy record bonuses this season. The irony is overwhelming that this is happening in 2009. Because of the failure of the financial system, more than 7 million middle class jobs have been lost, and the US economy is confronting double digit unemployment for the first time since 1982. Without taxpayer dollars, these record profits and record bonuses in 2009 would not even be possible for the big banks. Hell, without taxpayer dollars zombifying them with congressional and White House sanctioning, they'd have gone the way of the dinosaurs, the way of the buggy whips. That is the way history should have gone. But no, that is counterfactual now. There is something very wrong in America, the very way it is being run by government, and run over by the big banks. It is high time for middle class America to push back, precisely because our elected officials have not only failed to do so, but have legislated all of this to make it happen. Our government has become an active agent in the gutting of the middle class. Commenting on Wall Street' record 2009 bonuses Elizabeth Warren says she is
Read the rest of the post. Labels: Elizabeth Warren, financial regulation, John Bougearel, middle class, Naked Capitalism, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Cashing in the War Dividend (Jo Comerford)TomDispatch has a new piece by Jo Comerford, director of the National Priorities Project. See below for Tom's introduction to the piece.Comerford also appears in one part of a six-part video series from Brave New Films, Rethink Afghanistan. Part Three, which features Comerford and also Linda Bilmes (who co-wrote The Three Trillion Dollar War with Joseph Stiglitz), addresses the costs of the war in Afghanistan. Both Comerford's article and the video series go well with Tom's own piece Who's Next?: Lessons from the Long War and a Blowback World, which argues that the "Long War" (the term members of the Bush administration wanted to give to the global war on terror) is what the United States has already been fighting in the Middle East for the past 30-odd years. —cs If you want a picture of how Washington deals with American war-making today, check out a moment from NBC's October 11th "Meet the Press." David Gregory, the show's moderator, is conducting a round-table discussion with former Chairman of the Joint Chiefs of Staff General Richard Myers, Senator Lindsey Graham, Senator Carl Levin, and retired General Barry McCaffrey (one of those generals who now spends his time on television explaining our wars to us). At one point, Gregory asks: "Can we beat the Taliban?" General McCaffrey's reply starts this way: "Well, I, I think in 10 years of $5 billion a month and with a significant front-end security component, we can leave an Afghan national army and police force and a viable government and roads and universities. But it's a time constraint that we can't change things in 18 to 24 months. So I think we got to lower expectations." Now, if you were a normal citizen, you might begin frantically calculating: $5 billion a month... 12 months in a year... $60 billion a year... times 10 years... $600 billion dollars. If, in fact, the number of U.S. troops or trainers and advisors rises significantly and the U.S. commitment to the war rises as well, this will surely prove a gross underestimate. But leaving that aside, you, the normal, reasonable human being, might at this point say something like: "Hold on, general, $600 billion more dollars? Ten years? And where's that money coming from? And is that really how you want to invest taxpayer dollars -- in another supposedly too-big-to-fail bailout?" Or, of course, you might just jump up and yell, "Have you lost your senses?" But of course this is Washington where such numbers for American war-fighting are so ho-hum, so run-of-the-mill, that none of the other participants even thinks to comment on or question them or stops for a second in wonder. In fact, when McCaffrey is done, here's how Gregory begins his response: "Just with, with very little time left, I want to get to two other issues. The president spoke last night at the Human Rights Campaign dinner and spoke about 'Don't Ask, Don't Tell'..." And so it goes in "wartime" Washington. Jo Comerford, a TomDispatch newcomer, runs the National Priorities Project, whose mission is to analyze "complex federal spending data and translate it into easy-to-understand information about how federal tax dollars are spent." Its site even has a "cost of war" counter, constantly twirling as the dollars rise in dizzying fashion. Here, as a numbers cruncher, she makes the most basic point of all: Whoever may be losing in our country, others are cashing in their chips and I'm not just talking about Goldman Sachs. After all, there's also the "war dividend." —Tom Cashing in the War Dividend Read the rest of the article. Read Tom Engelhardt's Who's Next?. Watch Rethink Afghanistan. (Not for the faint of heart.) Labels: Afghanistan, Afghanistan war, Jo Comerford, Joseph Stiglitz, Linda Bilmes, militarism, Tom Engelhardt Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Open Letter on Military Offensive in Central IndiaWe encourage readers of D&S and the D&S blog to consider signing the following open letter. Hat-tip to our friend Taki. —csSanhati (www.sanhati.com), a collective of activists/academics who have been working in solidarity with peoples’ movements in India by providing information and analysis, took the initiative to bring together voices from around the world against the Government of India’s planned military offensive in Central India. A statement (Hindi, Bengali, and Telugu versions are available on our website) and a background note were drafted in consultation with Indian activists, and duly circulated for endorsement. Readers are encouraged to endorse the statement by e-mailing sanhatiindia [at] sanhati [dot] com with their full name and affiliation. To: Labels: India, Manmohan Singh, Sanhati, West Bengal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Homeownership Not All It's Cracked Up to Be?An economist at the Wharton School just released a study looking at the ancillary individual and community benefits that supposedly come with homeownership: greater happiness, more civic participation, etc. etc. Her research basically finds no support for these benefits. Here’s a brief excerpt:An interesting portrait of homeowners emerges from my analysis. While homeowners report higher life satisfaction, more joy from both home and neighborhood and better moods on an unadjusted basis, these promising differences become insignificant and much smaller in magnitude once I control for a basic set of confounding factors: household income, housing value and health status. Overall, I find little evidence that homeowners are happier by any of the following definitions: life satisfaction, overall mood, overall feeling, general moment-to-moment emotions (i.e., affect) and affect at home. The average homeowner, however, consistently derives more pain (but no more joy) from their house and home. Although they are also more likely to be 12 pounds heavier, report a lower health status and less joy from health, controlling for the less favorable health status does not change the results. My findings are robust to controlling for financial insecurity. Therefore, unadjusted differences in homeowners’ well-being might have played an important role in establishing the popular beliefs about the American Dream. From Grace W. Bucchianeri, “The American Dream or The American Delusion? The Private and External Benefits of Homeownership.” Labels: Grace W. Bucchianeri, homeownership Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CEOs of the World ... UNITE!A little ideological confusion at the Wall Street Journal's front page article on Ken Lewis having to forgo $2.5 million in compensation. [Don't cry for him, unemployed America: he'll somehow manage to get by on his $69.3 million payout when he retires in a few months).According to the Journal: The move angered many on Wall Street, which has been anxiously awaiting Mr. Feinberg's rulings on compensation at the seven federal wards, which also include Citigroup Inc. and General Motors Co. Mr. Feinberg had been expected to clamp down on compensation by cutting highly paid employees' salaries. But until now, there has been little indication he would take away an employee's entire pay. Since when is a CEO an employee? --d.f. Labels: Bank of America, ceo pay, Daniel Fireside, Golden Parachutes, Ken Lewis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Several Items on Banking RegulationSeveral interesting items about financial (re-)regulation, and the unlikelihood of anything approaching adequate regulation getting through Congress, have come across our desk.First, the business section of Friday's New York Times had a pretty good piece by Joe Nocera on financial regulation, Have Banks No Shame? He partially skewers Barney Frank for watering down the planned regulations, and there are some nice quotes from MIT economist Simon Johnson, a vocal critic of the banking industry. But Nocera ends up endorsing the flawed bill, even with its severely weakened provision for a consumer financial protection agency. Next, our friends Jane D'Arista and Gerald Epstein and folks at the Political Economy Research Institute have started a new organization of economists pushing for tougher banking regulation: Economists' Committee for Stable, Accountable, Fair and Efficient Financial Reform Next, the Sunlight Foundation's blog has a great post (with this great graphic) about how members of the House Financial Services Committee are "on F.I.R.E":  One year after the biggest economic collapse since the Great Depression, Congress is still debating new financial regulations to protect consumers and prevent risk-taking in the financial sector. The House Committee on Financial Services is currently undertaking the important first step of writing, amending and voting on some of the pieces of the long-proposed financial regulatory reform. While debating these issues top committee members have been the recipients of disproportionate campaign contributions from the very industry that they are tasked with regulating. Twenty-seven committee members have so far received over one-quarter of their contributions from the finance, insurance and real estate (FIRE) sector. This includes Chair Barney Frank, Ranking Member Spencer Bachus, four subcommittee chairs and four subcommittee ranking members. Of the twenty-seven, twelve committee members received over 35% of their contributions in 2009 from the FIRE sector. Ranking Member Bachus, a crucial decision maker on the committee, received 71% of his campaign contributions from the finance, insurance and real estate (FIRE) sector so far this year. (These numbers run from January 1-June 30.) For his career, the Alabama congressman receives 45% of his contributions from the FIRE sector. Bachus leads the committee in his reliance on FIRE sector campaign contributions. Bachus has taking a position in opposition to most of the regulatory reforms. Bachus recently stated in a hearing, “this is absolutely the wrong time to be creating a new government agency empowered not only to ration credit, but to design the financial products offered to consumers.Read the rest of the post. Last but not least, the Buffalo News had an article on the conference of post-Keynesians that was held in the rust-belt city last weekend (with D&S classroom readers available at the book exhibit). The article has its charmingly corny moments, starting with the title (get it?) and the first quotation, but it's nice coverage.
Read the original article. Labels: banking regulation, barney frank, Gerald Epstein, Jane D'Arista, Joe Nocera, PERI, post-Keynesianism Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Elinor Ostrom breaks the Nobel moldFrom Kevin Gallagher, of Tufts' Global Development and the Environment Institute, in the Guardian. For thoughts on this year's econ Nobel from Larry Peterson of the D&S collective, click here.Elinor Ostrom breaks the Nobel mould The economics profession needs to be shaken up. Ostrom's Nobel prize should encourage us to take a fresh approach Kevin Gallagher | guardian.co.uk | October 13 2009 The economics profession is in such disarray that one of the Nobel prizes in economics this year went to political scientist Elinor Ostrom – the first woman to be awarded the economics prize. This is an excellent choice (in any year) not only because of what Ostrom has contributed to social theory but also because of how she goes about her work. In a nutshell, Ostrom won the Nobel prize for showing that privatising natural resources is not the route to halting environmental degradation. In most economics classes the environment is usually taught as being the victim of the "tragedy of the commons". If one assumes, like many economists do, that individuals are ruthlessly selfish individuals, and you put those individuals onto a commonly owned resource, the resource will eventually be destroyed. The solution: privatise the commons. Everyone will have ownership of small parcels and treat that parcel better than when they shared it. Many environmental experts also reject the tragedy of the commons argument and say the government should step in. Ostrom says the government may not be the best allocator of public resources either. Often governments are seen as illegitimate, or their rules cannot be enforced. Indeed, Ostrom's life work looking at forests, lakes, groundwater basins and fisheries shows that the commons can be an opportunity for communities themselves to manage a resource. In her classic work Governing the Commons: The Evolution of Institutions for Collective Action, Ostrom shows that under certain conditions, when communities are given the right to self-organise they can democratically govern themselves to preserve the environment. At the policy level, Ostrom's findings give credence to the many indigenous and peasant movements across the developing world where people are trying to govern the land they have managed for centuries but run into conflict with governments and global corporations. Some economists on the frontier of their discipline have started to use Ostrom's insights in their work. In their recent book Reclaiming Nature: Environmental Justice and Ecological Restoration, James Boyce, Liz Stanton and Sunita Narain, show how communities in Brazil, India, West Africa and even in the United States have managed their resources in a sustainable manner when given their rightful access to their assets. Indeed, Boyce and his collaborators find that communities should be paid for their services, since they can sometimes do a far better job than government or corporations at managing resources. Indeed, "payment for environmental services" has become a buzzword in development circles. Now even the World Bank has a fund for PES schemes across the world. In terms of methodology, Ostrom proves her findings three times over. As opposed to many economists who never leave the blackboard, Ostrom often conducts satellite analyses of resource depletion to measure amounts of degradation. Second, she actually goes out into the field and performs case studies of human and ecological behaviour all across the world. However, she doesn't stop there. When she gets back from her fieldwork she conducts behavioural experiments to see if random subjects replicate her findings in the field. The Nobel committee should be applauded for recognising such rigorous theoretical and empirical work. Shining light on Ostrom is a call to economists to spend a lot more time analysing human behaviour, rather than assuming that we are all rational selfish individuals. It is also a call on economists to become more empirical and to find ways to validate their theories. Adopting Ostrom's approach will not only help us forge a better relationship with the natural environment, but will help us become more realistic about the economy in general. It's time for a fresh approach to both. Read the original article. Labels: Elinor Ostrom, institutional economics, Kevin Gallagher, Nobel Prize in economics, tragedy of the commons Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Sit-In for Single Payer THURS OCT 15thA coalition called the Mobilization for Health Care for All will be holding sit-ins THURSDAY, OCT 15th at insurance company offices across the country tomorrow (as part of an ongoing campaign) to press for a single-payer health care system—not this ridiculous give-away to the insurance companies that Congress is contemplating. I signed up to participate—you should too. Hat-tip to Mark Engler, whose brother is one of the organizers, through the Center for the Working Poor. —CSOn September 29th in New York City, the Mobilization for Health Care for All launched a national campaign of "Patients Not Profit" sit-ins at insurance company offices to demand an end to a system that profits by denying people care. We want the real "public option": Medicare for All, a single payer plan that cuts out the profit and puts patients first. Together, through this campaign, we can turn the tide and win the fight for health care for all. To succeed, we need to organize sit-ins in as many cities as possible in the month of October. The campaign began in New York City on September 29th and continues in Chicago on October 8th and in cities across the country on October 15th. After the 15th, we will continue to organize actions in as many cities as possible until we win health care reform that ensures that the insurance companies no longer stand between the American people and the health care that we need. It's time to cut out the profit and put patients first with Medicare for All. Insurance companies are the real death panels in America. They make billions in profit and millions for their CEOs while millions of Americans have no health insurance and over 45,000 die every year because they can't get the care they need. That's more than 120 people every day. These insurance companies deny care to their members and the American people for profit. America deserves better, and that's why we voted for change. But the insurance companies are spending millions to confuse and scare the public to keep us from ending their grip on our health and our money. With teabagger town hall protestors and the right-wing noise machine on their side, they're winning. We can't let that happen. It's time to take the fight to the real villain in the health care debate. When the civil rights movement faced a similar challenge in the struggle to end segregation, nonviolent civil disobedience moved the nation and made reform possible. Just like the lunch counter sit-ins did for the civil rights movement, we have to make it impossible for the media and our country to ignore how outrageous the status quo of private insurance is for the American people. It only takes a small group of people to do a sit-in in your community, but our actions can inspire every American who has been abused by the insurance companies and believes it's time for real reform to fight for it. This campaign of nonviolent civil disobedience will continue until the insurance companies no longer stand between the American people and the health care that is our right. Already, doctors, nurses, patients, and people just like you are signing up to be one of the 1000 ordinary but courageous people who will launch this nonviolent battle to end private insurance abuse and win health care for all. Join us! We can't wait any longer—every day more people die because of the insurance company death panels. Sign up to sit in and join the battle today! Labels: Center for the Working Poor, health care, health care reform, Healthcare NOW, Prosperity Agenda Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A second Great Depression is still possibleFrom occasional D&S author Thomas Palley, in the Financial Times' Economists' Forum.October 11, 2009 4:37pm by FT By Thomas Palley Over the past year the global economy has experienced a massive contraction, the deepest since the Great Depression of the 1930s. But this spring, economists started talking of "green shoots" of recovery and that optimistic assessment quickly spread to Wall Street. More recently, on the anniversary of the Lehman Brothers crash, Ben Bernanke, Federal Reserve chairman, officially blessed this consensus by declaring the recession is "very likely over". The future is fundamentally uncertain, which always makes prediction a rash enterprise. That said there is a good chance the new consensus is wrong. Instead, there are solid grounds for believing the US economy will experience a second dip followed by extended stagnation that will qualify as the second Great Depression. Some indications to this effect are already rolling in with unexpectedly large US job losses in September and the crash in US automobile sales following the end of the "cash-for-clunkers" programme. That rosy scenario thinking has returned to Wall Street should be no surprise. Wall Street profits from rising asset prices on which it charges a management fee, from deal-making on which it earns advisory fees, and from encouraging retail investors to buy stock, which boosts transaction fees. Such earnings are far larger when stock markets are rising, which explains Wall Street's genetic propensity to pump the economy. As for mainstream economists, their theoretical models were blind-sided by the crisis and only predict recovery because of the assumptions in the models. According to mainstream theory, it is assumed that full employment is a gravity point to which the economy is pulled back. Empirical econometric models are equally questionable. They too predict gradual recovery but that is driven by patterns of reversion to trends found in past data. The problem, as investment professionals say, is that "past performance is no guide to future performance". The economic crisis represents the implosion of the economic paradigm that has ruled US and global growth for the past thirty years. That paradigm was based on consumption fuelled by indebtedness and asset price inflation, and it is done. There is a simple logic to why the economy will experience a second dip. That logic rests on the economics of deleveraging which inevitably produces a two-step correction. The first step has been worked through, and it triggered a financial crisis that caused the worst recession since the Great Depression. The second step has only just begun. Deleveraging can be understood through a metaphor in which a car symbolises the economy. Borrowing is like stepping on the gas and accelerates economic activity. When borrowing stops, the foot comes off the pedal and the car slows down. However, the car's trunk is now weighed down by accumulated debt so economic activity slows below its initial level. With deleveraging, households increase saving and re-pay debt. This is the second step and it is like stepping on the brake, which causes the economy to slow further, in a motion akin to a double dip. Rapid deleveraging, as is happening now, is the equivalent of hitting the brakes hard. The only positive is it reduces debt, which is like removing weight from the trunk. That helps stabilise activity at a new lower level, but it does not speed up the car, as economists claim. Unfortunately, the car metaphor only partially captures current conditions as it assumes the braking process is smooth. Yet, there has already been a financial crisis and the real economy is now infected by a multiplier process causing lower spending, massive job loss, and business failures. That plus deleveraging creates the possibility of a downward spiral, which would constitute a depression. Such a spiral is captured by the metaphor of the Titanic, which was thought to be unsinkable owing to its sequentially structured bulkheads. However, those bulkheads had no ceilings, and when the Titanic hit an iceberg that gashed its side, the front bulkheads filled with water and pulled down the bow. Water then rippled into the aft bulkheads, causing the ship to sink. The US economy has hit a debt iceberg. The resulting gash threatens to flood the economy's stabilising mechanisms, which the economist Hyman Minsky termed "thwarting institutions". Unemployment insurance is not up to the scale of the problem and is expiring for many workers. That promises to further reduce spending and aggravate the foreclosure problem. States are bound by balanced budget requirements and they are cutting spending and jobs. Consequently, the public sector is joining the private sector in contraction. The destruction of household wealth means many households have near-zero or even negative net worth. That increases pressure to save and blocks access to borrowing that might jump-start a recovery. Moreover, both the household and business sector face extensive bankruptcies that amplify the downward multiplier shock and also limit future economic activity by destroying credit histories and access to credit. Lastly, the US continues to bleed through the triple haemorrhage of the trade deficit that drains spending via imports, off-shoring of jobs, and off-shoring of new investment. This haemorrhage was evident in the cash-for-clunkers program in which eight of the top ten vehicles sold had foreign brands. Consequently, even enormous fiscal stimulus will be of diminished effect. The financial crisis created an adverse feedback loop in financial markets. Unparalleled deleveraging and the multiplier process have created an adverse feedback loop in the real economy. That is a loop which is far harder to reverse, which is why a second Great Depression remains a real possibility. Thomas Palley is former chief economist of the US-China Economic and Security Review Commission and is currently Schwartz Economic Growth Fellow at the New America Foundation Labels: deleveraging, economic crisis, recession, Thomas Palley Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A Note on the Nobel AwardsThe Nobel Prize for economics was awarded today to a pair of American professors, Elinor Ostrom and Oliver Williamson. Besides being the first economics Nobel to be awarded to a woman, the choice was notewothy on several other accounts. Both laureates were not considered frontrunners, at least by the London bookies who actually take bets on such things, and both teach at public universities, rather than the usual coterie of MIT, Harvard, Stanford and the University of Chicago. But the most interesting characteristic concerns Ostrom: she's not even an economics PhD, but a political scientist. In a field like professional economics, which is compulsive to a ridiculous degree about who qualifies as an economist, this is a very welcome change.It's also welcome inasmuch as both Williamson and Ostrom are practitioners of what is known as "institutional economics". Institutional economics focuses on the way economic outcomes are conditioned by institutions which provide rules of the game--which often-times clash, and are not always transparent, and hence evolve--for individuals party to dealings and transactions that have economic significance. Needless to say, such a contribution have served to flesh out stagnant and superficial ideas of individual rationality and utility maximization that were for all too long taken as axiomatic in conventional economics. In recent years, they've also be increasingly amenable to empirical analysis, though there's still a long, long way to go on this score. Both Williamson and Ostrom were honored because of work they did which has come to replace standard thinking that derives from two classical contributions to conventional welfare economics by Ronald Coase. Williamson expanded on Coase's theory of the size of the firm, which states that the firm exists because it reduces operational costs that would be forbiddingly large if firms didn't exist, and all operations within a firm were carried out by independent contractors with individual contracts. He went beyond Coase by remarking upon ways in which markets were inefficient, as well as by showing how "transactions costs"--the sort of costs of the structures that exist so business can be done in the first place--can be minimized by creating certain organizational structures that address specific problems arising from market encounters themselves characterized by information asymmetries and other sometimes unavoidable impediments to the efficient functioning. Ostrom's work challenged "Coase's theorem," which implies that only the establishment of private contracts can prevent the inefficient distribution of public goods. A more contemporary cahracterization of the problem refers to the "tragedy of the commons," in which goods available to anyone without cost will inevitably involve incentives to maximize utilization of resources to an unsustainable degree. But Ostrom's work details all manner of arrangements which result in the efficient and equitable distribution of natual resource pools, but are not enforced by contracts. Instead, local communities are capable of devising implicit rules transmitted often by custom alone, which are often ingenious and complex enough to regulate distribution of scarce natural resources for long periods. So, the choice is progressive in a kind of weird way (and it's also progressive inasmuch as Eugene Fama, the founder of the Efficient Markets Hypothesis, which was taught in a simplistic and dogmatic fashion to a generation of market movers, and certainly contributed in some way to the current crash--and who was the favorite to win--did not win): it's nice that, particularly in Ostrom's case, factors not reducible to purely economic ones are being investigated and acknowledged as having economic significance, but it's ironic that this is only happening as many such structures have been reduced or even eliminated under the relentless onslaught of marketization for several decades. In this sense, this award, like the one awarded to Joseph Stiglitz, which, by implication, would have been very useful, if heeded, in reducing the horrific scope of the financial crisis, may amount to too little, too late. Labels: Coase's Theorem, Efficient Markets Hypothesis, Elinor Ostrom, Eugene Fama, Nobel Prize in economics, Oliver Williamson, Ronald Coase, The Ideal Size of the Firm Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Calderon Busts Mexican Electrical Workers UnionFrom Laura Carlsen on the Americas Program blog:Calderon Government Sends in Police to Take Over Electrical Company and Bust UnionRead Carlsen’s full post here. And check out Reuters’ very objective take on the same situation, headlined “Mexico takes aim at capital’s bloated power company” here. Labels: Americas Program, Calderon, Laura Carlsen, Mexican Electrical Workers Union (SME), Mexico, Reuters, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two Items on ForeclosuresThe New York Times business section has an interesting article about the limited success of the "Making Home Affordable Program," which was intended to encourage (but not require!) banks to work with homeowners on facing foreclosure to lower their monthly payments. (The copy of the Times that arrived on my doorstep gave this headline to the article: "In Trial Phase, Mortgage Bills Fall for 500,000." The online version of the article has the cheerier "Treasury Hails Milestone in Home Loan Modifications.")The upshot: half a million families have gotten loan modifications, though they often faced "bureaucratic bungling, ceaseless frustration and confusion." This is only 40% of the 1.2 million eligible. And some companies have been better than others about modifying the mortgages. Wells Fargo and BoA have only modified 62,989 and 94,918, respectively, which is only 20% and 11% of those companies eligible mortgages, respectively. Bad BoA! Bad WF! (Has anyone heard anything good about these companies lately? Oh yeah, Ken Lewis resigned.) Still, "economists said the program was still not big enough to prevent many millions of Americans from losing their homes before the books are closed on the Great Recession." Check out the full article. Meanwhile, Slate's blog The Big Money, is advising homeowners facing foreclosure to consider "strategic default," the fancy name for walking away from your mortgage (and your home). It's ok, they assure us. I'm having trouble disagreeing. Go Ahead, Walk Away Read the rest of the post. Labels: Bank of America, foreclosures, mortgage meltdown, Timothy Geithner, Wells Fargo Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Memo to Investigators: Dig Deep (Greider)From The Nation, posted to their website yesterday. For more on the Pecora hearings, check out this NYT op-ed from way back in January.Memo to Investigators: Dig Deep By William Greider | October 8, 2009 When the Financial Crisis Inquiry Commission opened for business on September 17, it was a nonevent for the media. Leading newspapers brushed aside chairman Phil Angelides, the former California state treasurer, and his declaration of purpose--"uncovering the facts and providing an unbiased historical accounting of what brought our financial system and our economy to its knees." As Angelides put it, "The fuses for that cataclysm were undoubtedly lit years before. It is our job to diligently and doggedly follow those fuses to their origins." The press has moved on. Financial crisis was last year's story. Didn't the Treasury and Federal Reserve announce they have already turned things around? Hasn't the president proposed a bunch of complicated reforms (boring!) for Congress to enact? Yes, but that is the problem. How can Washington reform the financial system when we still don't know what happened? We may know the broad outlines, but the landscape remains littered with unanswered questions and informed suspicions about who did what to produce the breakdown. The relevant facts are still buried in the files of Wall Street firms and the regulatory agencies that utterly failed as watchdogs. The Angelides commission has the subpoena power to dig out secrets--from e-mails and private memos, and through testimony under oath--that can disclose political deal-making and ruinous financial strategies. Given the rush of events, the commission may be the public's last, best chance to get at the truth of the matter. Congress created the ten-member commission (six Democrats, four Republicans) to identify the root causes of the financial crisis. It listed more than twenty areas for inquiry, from the collapse of individual institutions to the complex financial instruments now known as toxic assets. It is a gigantic task fraught with explosive implications for government and finance. The commission has chosen an executive director with an impressive twenty-five-year history of uncovering corporate fraud and malfeasance. Thomas Greene, chief assistant attorney general from California endorsed as a nonpartisan straight shooter by the Republican and Democratic attorneys general he served, has led complex investigations into anti-trust, price-fixing and deceptive accounting gimmicks on cases involving big names like Enron, Microsoft and El Paso Natural Gas. The financial crisis has all those elements and more. "If we do this right," Angelides said, "our work can serve as an antidote--much as the Pecora hearings did in the 1930s--to the kinds of financial market practices that none of us would want to see be repeated ever again." In the New Deal years, the Congressional investigation led by Ferdinand Pecora helped build the case for landmark regulatory reforms--legislation establishing the Securities and Exchange Commission and the Glass-Steagall Act, which separated commercial banks from risk-taking investment banks. Like Pecora, Angelides does not intend to propose policy solutions but simply to discover what really happened. "I'm very serious on this point," Angelides told me in an informal conversation. "If we stick to the hard facts, we might turn up some perpetrators, but our job is to accomplish something more than that. If we pursue all the facts, we can give the American people a clear understanding of what occurred during the last twenty years or so. What forces lit the fire that led to this explosion? What exactly happened with those financial firms that failed? What happened in regulation or at the Federal Reserve? What happened in the economy to fuel the fire? Where were the firefighters? Who was asleep? Who was awake? Who sounded the alarm and was ignored? It could be a very disturbing story." Washington cynics have low expectations for Angelides. Too many important people just want the whole thing to go away. The Obama administration had hoped to pass its reform package quickly and then move on. But the White House plan, which rearranges the boxes among regulatory agencies and puts the Fed in charge, is stalled by rising skepticism in Congress and doubts expressed by establishment figures like former Federal Reserve chairman Paul Volcker, who is particularly wary of making the "too big to fail" doctrine into a permanent assumption. In a statement to the House Banking and Financial Services Committee on September 24, Volcker asked, "Will not the pattern of protection for the largest banks and their holding companies tend to encourage greater risk-taking, including active participation in volatile capital markets, especially when compensation practices so greatly reward short-term success?" Volcker wants commercial banks restored to their narrower purpose--taking deposits and lending to borrowers, instead of playing in high-risk financial markets. He does not say so directly, but that would restore some protections enacted seventy years ago by Glass-Steagall and repealed by the Clinton administration. Read the rest of the article. Labels: Ferdinand Pecora, financial crisis, Financial Crisis Inquiry Commission, financial regulation, Pecora hearings, Phil Angelides, William Greider Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The IMF and the World Bank in IstanbulFrom Monday's Guardian. Keep your eye out for an article in our Nov/Dec issue, Putting the "Global" in the Global Economic Crisis, by economist and D&S collective member Smriti Rao.Yes, the global financial sector has upped its game—but not nearly enough The mood at the meeting of the IMF and World Bank in Istanbul was one of quiet confidence, yet there are still worrying signs. Larry Elliot | The Guardian | Monday 5 October 2009 The mood is different this year. Not exactly whooping with joy, you understand, but finance ministers and central bank governors gathered in Istanbul this weekend exuded a sense of relief and quiet confidence. Relief because activity has started to pick up after its precipitous fall around the turn of the year. Quiet confidence because there is a belief that lessons have been learned over the past 12 months. When the International Monetary Fund and the World Bank last met in Washington in October 2008 the global financial system was on the brink of ruin. Bank after bank had run into trouble following the collapse of Lehman Brothers in mid-September. Iceland looked like it was about to go bust. In Britain, cash points would have stopped working had the government not come up with a rescue package that provided billions of pounds of fresh capital in return for part-nationalisation. Dominique Strauss-Kahn, the fund's managing director, says countries were forced to collaborate by the scale of the crisis, and the sense of togetherness will not vanish now the outlook is better. The replacement of the G7 by the G20, it is hoped, will improve global governance and make it easier to tackle the imbalances that lay at the root of the problems. There has, of course, been plenty of this sort of stuff before. Back in 2006, well before anyone had heard of sub-prime mortgages, the fund launched a programme of multi-lateral surveillance designed to see whether the policies being pursued by the big players on the global stage were compatible with reducing global imbalances. They weren't, but nothing happened. The feeling in Istanbul was that it is different this time. Having stood on the edge of the abyss, individual countries are now prepared to look beyond their narrow self-interest to consider whether policies help or hinder the cause of global economic stability. It would be wrong to think that nothing has changed. There is a recognition that the financial system was close to collapse 12 months ago and that collective action helped prevent a severe recession turning into something worse. The decision to make the G20 – where the bigger developing countries are represented – the body that counts for global economic policy is a good one. The G7 will stagger on as a more informal gathering of finance ministers for a quiet chat, but it has had its day. There is a willingness to accept that regulation of the sector should be toughened up. Unless banks are forced to hold more capital, Alistair Darling said on Saturday, we will quickly be back in the mire. He's right about that, and the G20 in Pittsburgh displayed a greater appetite for more intrusive supervision. So, yes, the atmosphere is different. Things have changed. The problem is that they have not changed nearly enough. Growth has nudged up, but as the IMF noted last week it has so far relied almost exclusively on governments doing the spending on behalf of the private sector, and on an inevitable rise in inventories following savage de-stocking. That is no basis for strong, sustained growth and there are already some worrying signs – US unemployment, last week's survey of manufacturing in the UK – suggesting that the recovery is running out of steam. With governments likely to come under pressure to tackle budget deficit from both the financial markets and their voters, there is a risk that economic policy will be tightened too soon. The risks to growth in 2010 are to the downside. What's more, the scars from such a deep recession will take time to heal. Even on the most optimistic scenario, we are facing a jobless and joyless recovery lasting two or three years at the minimum. That particularly applies to Britain, where growth in the pre-crisis years was pumped up by bubbles in financial services and construction. The IMF says that the economy has suffered lasting damage from the downturn, with the trend rate of growth reduced at a time when the next government is going to cut public spending and raise taxes in order to reduce the budget deficit. There is, of course, a chance that things will turn out better than the Fund expects. It may be that global growth will exceed the 3.1% pencilled in for next year and that 2011 will be better still. But unless the fundamental problems are tackled, the respite is likely to be brief. There were those in Istanbul this weekend who predicted it would take a decade for countries to get to grips with the global imbalances. That is a reasonable assumption given the wide gap between rhetoric and action, but it is far too long to wait. The Germans, for example, are resistant to calls that they should run a smaller trade surplus by boosting domestic demand. China has used a cheap currency to build up manufacturing and so hasten the movement of the rural poor into the cities. It is in no hurry to revalue the renminbi significantly. The reluctance by countries running trade surpluses to change their behaviour reflects a design flaw in the post-war international system identified by Keynes: the onus falls on deficit countries to deflate rather than on surplus countries to reflate. Unless this is remedied, global rebalancing will be an uphill struggle. Meanwhile, the financial sector has regrouped and is lobbying hard against "excessive" levels of regulation. Joseph Ackermann, the chief executive of Deutsche Bank, said at the weekend that if banks were forced to hold too much capital it would impair lending and damage the economy. In reality, what the financial sector calls excessive is what was once normal and prudential. Counter-cyclical capital requirements limiting the ability of banks to lend during booms and encouraging them to keep credit flowing during busts are vital for economic stability. It is interesting, though, how the financial sector has managed to conflate its own interests with those of the wider economy. Any attempt at reform – witness Adair Turner's comment that some City activities are socially useless – is met with the argument that the financial sector is an important part of the economy creating lots of jobs. And that is supposed to be that. A different take on that perspective comes from a new study (an alternative report on banking reform; www.cresc.ac.uk) by the Centre for Research of Socio-Cultural Change at Manchester University. It makes a series of points: there has been institutional capture by the City of both main political parties; this coalition thwarts reform by exaggerating the social value of finance while downplaying the cost of taxpayer bail outs; much of what the financial sector does is "banking for itself"; and the pre-2007 era saw the creation of the wrong sort of debt, which encouraged speculation but not the development of productive resources. What is needed, the study concludes, is a smaller financial sector better focused on the real future needs of the economy, such as investment in low-carbon technologies and better pensions for an ageing population. Don't hold your breath. The power of the financial lobby remains immense, despite its role in pushing the global economy to within a whisker of a mark 2 Great Depression. Failure to tackle the imbalances and to reform finance would increase the chances of another crisis. But it may take that for politicians to turn words into action. Read the original article (there are some good charts). Labels: global economic crisis, IMF, World Bank Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The War in Afghanistan, Eight Years OnIt is hard to believe that the war in Afghanistan is eight years old. I remember vividly the day it started. I was in New York City, less than one month after the 9/11 attacks. I had wandered down to Ground Zero, where there was some kind of plywood viewing platform for gawkers like me. I overheard an NYPD cop, talking to some midwestern-looking tourist, use the word "Afghanistan," and immediately knew that an attack had started. And the front page of today's New York Times reported that Obama has ruled out a large reduction in the force in Afghanistan.But at what cost? We received this press release from the excellent National Priorities Project about the costs of the war. It reads well alongside the article from TomDispatch I reposted a couple of days about the cost of the bank bailout, Follow the Money (and especially with the visual depiction of $1 trillion the author links to). Eight Years of U.S. War in Afghanistan Labels: Afghanistan, Afghanistan war, National Priorities Project Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Demise of the Dollar (Robert Fisk)An article by Robert Fisk in today's Independent is creating a bit of a stir. Fisk alleges that the Saudis and other Middle Eastern governments, and China, Russia, Brazil (BRICs minus India), plus Japan and France, have been engaging in "secret meetings" in which they are planning to "end dollar dealings in oil." Today's episode of the public radio program Marketplace will include an interview with Fisk. In the interview, Fisk explains that the shift away from the dollar for oil transactions would have the effect of stabilizing oil prices ("Because you'd have more currencies to bounce along beside each other. And you couldn't have huge dips and falls on the market for either the consumer or the producer"). But it will bring the dollar down by chipping away at its status as reserve currency: "Well I mean the dollar ultimately will go down. It did go down slightly when my story appeared this morning. But then recovered when the Saudis denied that they had any plans for a new currency." (Must be fun to be able to move markets.)Read the transcript of the Marketplace interview (or listen to it) here. Read Yves Smith of Naked Capitalism on the Fisk article here. And here's some of the original article: The demise of the dollar Read the original article. Labels: dollar, reserve currency, Robert Fisk Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Buyouts, Bankruptcy, and BonusesToday's New York Times has two terrific articles about the profits that were made, and the damage done, via debt-financed buyouts. One article focuses on the Simmons Bedding Company (think mattresses), which was bought out by one private equity company after another, with the result that the company is now buried in billions of debt and is filing for bankruptcy. PE managers made off with millions, while bondholders and employees are screwed. The second article (by David Carr) is about a similar scenario at the Tribune Company, which has $8 billion in debt, has laid off thousands of employees, and is in bankruptcy—but its top managers look like they're going to collect $66 million in bonuses. Here they are:Profits for Buyout Firms as Company Debt Soared Read the rest of the article. Of Layoffs, Bankruptcy and Bonuses Read the rest of the article. Labels: bankruptcy, David Carr, layoffs, leverage, private equity, Simmons Bedding Company, Tribune Company Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Old Habits at the IMFA new discussion paper from the Center for Economic and Policy Research finds that 31 of 41 of countries with current International Monetary Fund (IMF) agreements have been subjected to pro-cyclical macroeconomic policies that, during the current global recession, would be expected to have exacerbated economic slowdowns. ... Read the whole paper here. Labels: Center for Economic and Policy Research, IMF Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Follow the Money (Matt Bivens)The latest from TomDispatch, starting with Tom Engelhardt's intro:Pox Americana With up to 61% of Americans, according to a recent poll, convinced that things are going badly indeed in Afghanistan and an official 9.8% of Americans unemployed, Congress is set to respond. This week, it's slated to pass a $636 billion appropriations bill for the Pentagon that will include another $128 billion for our Afghan and Iraq Wars. Meanwhile, the president and his advisors are about to consider the latest plan by our Afghan War commander, General Stanley McChrystal, to gainfully employ up to 40,000 more Americans in Afghanistan. By the way, as in the Bush years, all dollar figures associated with the Pentagon budget and our wars should be considered underestimates. Various military expenses like the upkeep of our nuclear arsenal aren't even in that budget. Depending on who is doing the figuring, estimates of all U.S. defense-related expenditures—and this first budget of the Obama era is already larger than the last monster one from the Bush era—can run upwards of a trillion dollars. As for the war expenses, they invariably prove short of the mark and end up having to be supplemented. When it comes to the Afghan War, this is practically guaranteed. Being prosecuted many thousands of miles from home over long, often embattled, supply lines, it is proving staggeringly expensive. According to one recent estimate, for instance, it costs more than $750,000 a year simply to keep a single U.S. soldier in the field, while the cost of delivering a single gallon of gas to the war zone is estimated at up to $100. And then, don't forget the Afghan army. Its U.S.-NATO upgrade program is already costing an estimated $8 billion a year and is clearly about to be expanded by the Obama administration. As the Afghan government is essentially poverty-stricken, that means its army is going to be U.S. property for years to come. Consider this a small introduction to TomDispatch newcomer Matt Bivens's striking analysis of American investment practices. —Tom Follow the Money Cure Millions of Leprosy—or Just Give Hank Paulson a Tax Break? By Matt Bivens There are many possible responses to the news that we have committed more than four trillion public dollars to Wall Street. Mine is a roar of admiration. Four trillion dollars! Holy hell! I didn't even know that was possible! U.S.A.! U.S.A.! After all, the cost of World War II in inflation-adjusted dollars was $4 trillion. This bailout thing is just getting started, and already we've burned through that. Without even noticing. Certainly without rationing sugar or collecting scrap rubber or any of that nonsense. Who's the Greatest Generation now, baby? Admit it. You feel it too. Just imagine someone snatching your laptop off a table and throwing it, Olympic-discus style, hundreds... and hundreds... and hundreds of feet. Sure, you'd be upset (and stuck with the bill). But however briefly, you'd feel admiration for the physical feat: Look at that thing fly! So it goes with our bailouts, wild tax cuts, and war budgets. The money in play is staggering, but everyone acts like that's something to mope about. Where's the excitement? Often, after reading an incomprehensible dollar figure, I'll Google "What does a trillion dollars look like?" to get myself fired up. One example of where this takes you shows a million dollars (pathetic, wouldn't fill a grocery bag), a billion (interesting, I could fit it in a truck), and then a trillion. (Wow, it spreads for acres! Look at that tiny human included for scale!) It turns out that the United States can pick up that sort of weight and just smash it down on whatever the hell we want. Like Optimus Prime with giant square green paper fists. Slam! Slam! Yet we've committed not one trillion dollars to the incompetent and/or corrupt, but more than four trillion dollars. That's according to a report to Congress from special inspector general Neil Barofsky, the overseer of the bank bailout program. Technically, Barofsky adds, Wall Street's IOU to you and me is at about three trillion dollars these days, since some of it's been paid back. Relieved? Don't be. As these tsunamis of public wealth pour out, ignore the slosh and focus on the order of magnitude. The entire Gross Domestic Product—the number reflecting all wealth generated in this nation for this year—is only $14.1 trillion. So whether the sum of our money that's now their money is $3 trillion (1/5th of all wealth generated in America in a year) or $4.7 trillion (1/3rd of all wealth generated in America in a year), it still means that, for a big chunk of the year, every single one of us was working for Goldman Sachs et al. Barofsky's report also suggests that Wall Street's tab might ultimately work out to $24 trillion, which would be $80,000 per American, or $320,000 for a family of four. But that's, like, totally the worst-case scenario. (Still, wouldn't it be impressive? I envision huge, five-foot-cubed, shrink-wrapped pallets of dollars dropping from the sky onto my neighborhood, smashing houses, crushing cars, killing beloved pets, blasting craters into asphalt streets. Yeah!) Read the rest of the article (there are useful hyperlinks in the original). Labels: $4 trillion, bailout, costs of bailout, costs of war, TomDispatch.com Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Just in Time for Copenhagen...comes this happy bit of news. Not that the findings will increase the likelihood of serious action, anyway. Particularly noteworthy is this riposte to supporters of geoengineering:"Scientists have proposed all sorts of geo-engineering solutions to global warming," said Gattuso. "For instance, they have proposed spraying the upper atmosphere with aerosol particles that would reduce sunlight reaching the Earth, mitigating the warming caused by rising levels of carbon dioxide. From today's (Sunday) Observer: Arctic seas turn to acid, putting vital food chain at risk With the world's oceans absorbing six million tonnes of carbon a day, a leading oceanographer warns of eco disaster Robin McKie, science editor The Observer, Sunday 4 October 2009 Carbon-dioxide emissions are turning the waters of the Arctic Ocean into acid at an unprecedented rate, scientists have discovered. Research carried out in the archipelago of Svalbard has shown in many regions around the north pole seawater is likely to reach corrosive levels within 10 years. The water will then start to dissolve the shells of mussels and other shellfish and cause major disruption to the food chain. By the end of the century, the entire Arctic Ocean will be corrosively acidic. "This is extremely worrying," Professor Jean-Pierre Gattuso, of France's Centre National de la Recherche Scientifique, told an international oceanography conference last week. "We knew that the seas were getting more acidic and this would disrupt the ability of shellfish--like mussels--to grow their shells. But now we realise the situation is much worse. The water will become so acidic it will actually dissolve the shells of living shellfish." Just as an acid descaler breaks apart limescale inside a kettle, so the shells that protect molluscs and other creatures will be dissolved. "This will affect the whole food chain, including the North Atlantic salmon, which feeds on molluscs," said Gattuso, speaking at a European commission conference, Oceans of Tomorrow, in Barcelona last week. The oceanographer told delegates that the problem of ocean acidification was worse in high latitudes, in the Arctic and around Antarctica, than it was nearer the equator. "More carbon dioxide can dissolve in cold water than warm," he said. "Hence the problem of acidification is worse in the Arctic than in the tropics, though we have only recently got round to studying the problem in detail." Read the rest of the article Labels: climate change, environmental crisis, oceans Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). September Jobs ReportD&S editor Chris Sturr and I were planning a tag-team response to the horrible jobs numbers yesterday, but beers and dinner intervened, so I'm going to leave commentary in the capable hands of the FT Lex columnist. All the depressing details are covered there.Well, except maybe this.... See you in the dole queue, Larry Peterson Labels: bailout, financial crisis, unemployment rate, US employment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Casino Capitalism as UsualThe latest from our pal Mark Engler, from Foreign Policy in Focus.Casino Capitalism as Usual G20 leaves needed reforms for global economy off the table by Mark Engler Last week’s Group of 20 (G20) meeting in Pittsburgh brought together leaders from the most significant players in the global economy and charged them with renovating the financial system at the heart of the economic crisis. Change was on the agenda, and the heads of state claimed to deliver. As the summit concluded, The New York Times hailed the meeting’s final statement as a momentous shift, reporting that “Leaders of G20 Vow to Reshape Global Economy.” Unfortunately, the changes left off the table at the summit were far more significant than the modest reforms actually debated, and the few alterations that did make it into the final agreement are likely to be further watered down in implementation. Even the most common-sense reforms are being met with determined corporate opposition. Indeed, given the depths of the collapse one year ago and the volume of public outcry for change, the real surprise is how little transformation has yet taken place. Late and Little Many of the items on the Pittsburgh agenda were not bad in themselves. They were merely limited in scope and under siege by lobbyists. The G20 moved in the right direction by announcing that it would require banks and other financial institutions to have greater capital reserves. Mandating that a bank keep more in reserve for every dollar it lends out makes it less likely that the institution will be caught short and need a bailout. While such a change may sound arcane, it could mark a significant break from the past if done right and made part of broader regulations. After all, leveraging assets in order to obtain greater profits—whereby overextended firms made high-risk wagers with ever-greater amounts other people’s money—went far in provoking the crisis. While higher capital ratios and greater oversight would limit this kind of wanton speculation, the G20 statement is short on specifics about the actual requirements that financial institutions would be made to respect. And, sadly, the determined opposition of European bankers will likely keep changes to minimal levels. The difficulty with implementing even this most minor and reasonable of reforms shows how entrenched corporate power remains in post-crisis policymaking. This bodes ill for the prospects of other heralded changes. On Wall Street’s behalf, the Obama administration worked to curtail a French and German push for caps on executive pay—specifically, controls on the outrageous bonuses given to top bankers whose institutions have lost billions. As a result, the G20 agreement forgoes any hard limits on compensation. It instead promotes guidelines that would somewhat delay when bankers receive their multi-million dollar payouts. Ostensibly designed to focus executives on long-term performance, this substitute measure is a far weaker alternative. Why is the Obama administration going to bat for Wall Street firms at international meetings? It’s hard to say, especially since this has not produced any apparent goodwill at home. Despite the White House’s efforts on their behalf, the financial industry is fervently opposing the president’s proposed Consumer Financial Protection Agency, which would protect Americans from predatory lending by credit card and mortgage companies. A representative of the U.S. Chamber of Commerce’s Center for Capital Markets recently explained to McClatchy Newspapers that the Chamber is “spending about $2 million on ads, educational efforts, and a grassroots campaign to kill the agency.” Such backlash against reform suggests that the global economy is still being run like a gambling hall. The betting limits at some tables may be modestly reduced and payouts to the highest of high-rollers slightly reined in, but we have not strayed far from Harrah’s or the MGM Grand. The Muscle Behind Market Fundamentalism The G20 is only one component of the global economy’s management. As it turns out, the activities of other bodies compromise the G20’s declarations of reform. While agreements at the G20 are notoriously lacking in enforcement, financial institutions that can discipline and punish—such as the International Monetary Fund (IMF) and World Trade Organization (WTO)—appear notably unreformed and unrepentant. After a previous meeting of the G20 in London last April, British Prime Minister Gordon Brown announced, “the old Washington consensus is over.” However, key tenets of market fundamentalist economic policy that defined this consensus -- including fiscal austerity and pro-corporate deregulation -- still prevail. At the April G20 meeting, world leaders vowed to provide as much as $1.1 trillion in new resources to the developing world to blunt the impact of economic downturn. However, much of this funding has yet to materialize, and only a fraction of it is slated to go to low-income countries (rather than middle-income states). Moreover, the bulk of these resources are to be channeled through the IMF, which has typically demanded that recipients of its loans accept harsh neoliberal polices as a condition of receiving money. While Fund officials claim to have changed with the times by relaxing “conditionality” and easing their previously stern attitudes toward countries that dare to buck the neoliberal Washington Consensus, many of their recent loans suggest that, in practice, their conversion has been quite limited. A recent report from the Center for Economic Policy Research indicates that the IMF “has tied pro-cyclical, contractionary economic conditions on Eastern European countries to sorely needed loans.” While struggling economies are desperately in need of government social spending and monetary stimulus, IMF agreements with Latvia, Hungary, and Ukraine demand slashed budgets and policy restrictions that look a lot like the “structural adjustment” of old. In advance of the April G20 summit Gordon Brown had admitted, “Too often our responses to past crises have been inadequate or misdirected, promoting economic orthodoxies that we ourselves have not followed and that have condemned the world’s poorest to a deepening crisis of poverty.” Sadly, the IMF has yet to demonstrate that it is truly breaking from this established pattern. The WTO is not helping things either, especially when it comes to reviving financial regulation that can protect the public good. As Lori Wallach, director of Public Citizen’s Global Trade Watch Division, observed last week, “the G20 leaders have announced a very perplexing plan of action that calls for reregulation of the financial sector to try to avoid the next economic crisis while simultaneously calling for completion of the WTO Doha Round, which would require additional financial deregulation, including new WTO limits on accounting standards through a text the disgraced Arthur Andersen firm had a hand in formulating.” New “free trade” rules may prohibit countries from shielding themselves from exotic derivates such as credit default swaps or from capping the size of mega-banks that threaten to take down the entire system when they fail. Left Off The Table That the G20 is not undertaking a more serious transformation of global financial structures might reflect the power of continued corporate lobbying. It does not, however, reflect a lack of good ideas. A broad array of financial experts and civil society organizations – ranging from the Stiglitz Commission tasked with making recommendations to the UN, to grassroots coalitions such as Put People First, the Citizens’ Trade Campaign, and the labor network Global Unions – have advocated for sensible and needed reforms that could be easily enacted if the political will existed. One example is the “Tobin Tax”—a small tax on international financial transfers first advocated in the 1970s by Nobel economist James Tobin as a way of cooling speculation on foreign currencies. ATTAC (the Association for the Taxation of financial Transactions for the Aid of Citizens), a leading organization for globalization activism in many parts of Europe, takes its name from this proposal and has pushed for it for over a decade. A version of the tax recently gained an even higher profile in Europe owing to the support of Adair Turner, the head of the British Financial Services Authority, which regulates UK banking. Oxfam argues that, beyond discouraging short-term gambling on currencies, a tax as small as 0.005% could raise between $33 billion and $50 billion per year. This pool of money could support sustainable development in places where the majority of people are still living on less than $2 per day. Reform proposals also include debt cancellation for countries in the global South. Many poorer nations must spend substantial portions of their budgets on interest payments to the North rather than serve populations hit hard by the crisis. Often, their debts were unjust to begin with, accumulated by dictators who have since been thrown out of power. In most cases the countries’ citizens have already sent back payments that dwarf the original loans. Rather than having to submit to the IMF to receive new loans, poorer countries should be allowed to keep their own resources as part of a just stimulus program. Reflecting the widespread agreement that no corporation should be “too big to fail,” citizen advocates have pushed for a much more aggressive application of anti-trust and anti-monopoly laws. In this vein, the Stiglitz Commission recommended the creation of a “Global Competition Authority” to provide “adequate oversight of these large institutions” and to “limit their size and the extent of their interactions.” These suggestions have a strong grounding in the public interest but are of course anathema to corporate chiefs. Accordingly, they have thus far remained off the table at the G20. Read the rest of the article. Labels: bailout, banking regulation, capital reserves, casino capitalism, G20, G20 summit, Mark Engler, Too Big to Fail Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
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