Nov/Dec Issue, QE2, etc.

[This posting's potentially irrelevant image--one taken by me, around the corner from my place. The marina has been having all these great art installations.]

(1) November/December 2010 issue: We have posted two articles from our Nov/Dec 2010 issue:  John Miller's column, That Hurt! Let's Do It Again, and Rob Larson's feature Underwater: Profits and pay are sky-high, even as bad loans are sinking the megabanks. E-subscribers have gotten their e-magazines;  the print version is being printed now.  Here is this issue's p. 2 editorial note (note that some of the material here is taken from this blog):

Patchwork Nation, a reporting  project launched two years ago by the Christian Science Monitor, seeks  to make sense of U.S. electoral politics by looking at demographic  trends. The project’s researchers recently reported finding that the  congressional districts with the most Tea Party “meetups” over the last  four months also had the highest rates of foreclosure.  “There are 38  foreclosures [since January] for every 1,000 homes in those places. And  remember, those figures are just the beginning. They equal lost home  values that prevent moving for some, and lost nest eggs that mean  delayed retirement for others.” The conclusion? Much of the anger in the  electorate “is driven by foreclosures.”

That’s understandable—although why exactly that anger would drive  anyone toward the Tea Party is another question. The Tea Party  candidates in this year’s midterm elections advocated policies like tax  cuts and deregulation that, as John Millerpoints out in this issue (p.  12), are only likely to deepen the economic distress.

On the other hand, there is surely something to the Tea Partiers’ anti-government fervor—or at any rate to the broad disappointment with the federal government’s response  to the Great Recession. Consider Nicolle Bradbury, whose case the New  York Times has depicted as setting off the recent furor over foreclosure  fraud. In 2003, Bradbury bought a modest home in the rural town of  Denmark, Maine, for $75,000. Three years into her mortgage, she lost her  job and soon could no longer afford her payments of $474 a month.

The mortgage was owned by Fannie Mae (which has since been  nationalized) and serviced by GMAC (which is now 90% owned by the  government as a result of the bailout). The companies have since spent  several years—and more money than the house is worth—trying to foreclose  on Bradbury. But in the final hour, Bradbury got some volunteer help  from a retired lawyer named Thomas A. Cox, who noticed irregularities in  the paperwork. Cox had stumbled on the “robo-signing” and fabrication  of documents that are central to what is now being called  “Foreclosuregate.”

Who wouldn’t be angry about the government’s priorities? Here’s a  woman who lost her job (as an employment counselor, no less!), and the  government—in the form of Fannie Mae and GMAC—responds not by offering  her job training or a public works program in her town, but by using  fraudulent means to evict her and her kids from their home. Bradbury  herself makes the best case for government help: “A lot of people say we  just want a free ride. That’s not it. I’ve worked since I was 14. I’m  not lazy. I’m just trying to keep us together. If we lost the house, my  family would have to break up.”

Why shouldn’t we expect a coordinated and humane response to the  foreclosure and job crises, led by the federal government? And shouldn’t  the government be forcing the banks it bailed out to change their ways?  Instead, as Rob Larson’s cover story (p. 13) shows, profits and  executive compensation are soaring while bad loans may well be sinking  the big banks. The federal government appears to wish that the emerging  foreclosure scandal would go away just as much as the big banks do. The  banks’ brief foreclosure freeze was self-imposed, not mandated by  Washington, and state attorneys general are taking the lead in  investigating the scandal.

We’ve seen this before. At the height of the subprime lending spree,  it was the states that were sounding the alarm and trying to regulate  predatory lending. The federal government actually stood in the way, as  Jim Campen points out in his comment on mortgage lending discrimination  (p. 6): “[T]he Comptroller of the Currency, the principal regulator of  the nation’s largest banks, actually went to court to stop New York’s  attorney general from enforcing that state’s anti-discrimination laws  against big national banks.” As Joe Nocera pointed out recently in the  New York Times, it is a good thing that the states are taking the lead in investigating Foreclosuregate—something might actually get done about it this time.

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(2) Quantitative Easing 2, aka QE2:  Selected left and left-ish opinions on the Fed's latest effort--buying $600 billion in Treasury bonds:

--Paul Krugman: D&S frequent author Jerry Friedman had this to say: "Krugman has caught up to Dollars & Sense--He even used the same quote."  He's referring to his own article, Bernanke's Bad Teachers, from our July/August 2009 issue.  Also this blog post from Krugman, in which he distinguishes between quantitative easing and currency manipulation.

--Kevin Gallagher, of the Global Development and the Environment Institute at Tufts (our pals), in the Guardian, on why developing countries might object to QE2. Part of the gist:

"carry trade"

Such massive  inflows of hot money into emerging markets will have the destabilising  effects of rapid currency appreciation and asset bubbles. Indeed, the  carry trade has already played a role in accentuating the Brazilian real by 37% since the end of 2008.

--Ted Schmidt, from ArtVoice, which looks like it's a weekly out of Buffalo, via the list-serve of the Union for Radical Political Economics, in a nice popular economics explanation of QE2 and some of the same issues Gallagher raises, plus a proposed alternative--temporarily reduce payroll taxes:

If the goal of this QE medicine is to revive the economic  patient, then there is a better way to accomplish it, and Dr. Ben can  still help. Many have criticized Obama’s stimulus package for wasteful  spending with little impact on jobs. If most people don’t trust  government with increased spending, then any new stimulus should focus  on cutting taxes. And, that tax cut better be directed at those who will  definitely spend it.

Currently, workers and businesses both pay 6.2 percent (12.4  percent total) in Social Security taxes, but the tax only applies to  income less than $106,000. That’s an onerous tax on lower- and  middle-class workers and small businesses. So a better option than QE2  is a temporary 50 percent cut in Social Security taxes. Based on current  Social Security revenues, this would reduce our taxes by a little over  $400 billion over the course of a year, which is less than what Bernanke  proposes.

Read the rest of the article.

(3) Galbraith on the elections: Here is a nice forceful piece by James K. Galbraith on why the elections went so bad for the Dems.  His answer is in the title: It Was the Banks. The main gist:

Up to a point, one  can defend the decisions taken in September-October 2008 under the  stress of a rapidly collapsing financial system.  The Bush  administration was, by that time, nearly defunct. Panic was in the air,  as was political blackmail - with the threat that the October through  January months might be irreparably brutal.  Stopgaps were needed, they  were concocted, and they held the line.

But one cannot defend the  actions of Team Obama on taking office.  Law, policy and politics all  pointed in one direction: turn the systemically dangerous banks over to  Sheila Bair and the Federal Deposit Insurance Corporation.  Insure the  depositors, replace the management, fire the lobbyists, audit the books,  prosecute the frauds, and restructure and downsize the institutions.  The financial system would have been cleaned up. And the big bankers  would have been beaten as a political force.

Team Obama did none  of these things.  Instead they announced "stress tests,"  plainly  designed  so as to obscure the banks' true condition. They pressured the  Federal Accounting Standards Board to permit the banks to ignore the  market value of their toxic assets.  Management stayed in place. They  prosecuted no one. The Fed cut the cost of funds to zero.  The President  justified all this by repeating, many times, that the goal of policy  was "to get credit flowing again."

The banks threw a party.   Reported profits soared, as did bonuses.  With free funds, the banks  could make money with no risk, by lending back to the Treasury. They  could boom the stock market.  They could make a mint on proprietary  trading. Their losses on mortgages were concealed - until the fact came  out that they'd so neglected basic mortgage paperwork, as to be unable  to foreclose in many cases, without the help of forged documents and  perjured affidavits.

But new loans?  The big banks had given up on  that.  They no longer did real underwriting.  And anyway, who could  qualify?  Businesses mostly had no investment plans.  And homeowners  were, to an increasing degree, upside- down on their mortgages and  therefore unqualified to refinance.

Read the full article (it's from Common Dreams).

(4) Plutocracy story of the week: An investment fund manager in Colorado, Martin Joel Erzinger, who manages $1 billion in assets for "ultra high net worth individuals, their families and foundations," was accused of a hit-and-run accident in which he ran over a cyclist with his Mercedes and left the cyclist for dead on the highway. But the  DA and judge decided not to charge him with a felony because, according to the DA, "Felony convictions have some pretty serious job implications for someone in Mr. Erzinger's profession."  Read all the details here and here.  The comments section in the Raw Story post is amusing for its outrage--people are also digging up some interesting dirt on the DA, who sounds like a slimy character anyway.   Speaking of plutocracy, I have been meaning to post the link to Robert Reich's recent piece on the elections, The Perfect Storm (hat-tip: Herr Prof. Snyder).  A good read along this story about Erzinger.

--Chris Sturr