I've been having an email exchange with friends about healthcare and the banks and my position has been that the current healthcare plans and the one I have most contact with, the Mass Romney plan, are hurting my brother's family, the rest of my family, and millions of others while the private insurance companies are reaping government money or tax dollars in the loads. This is the kind of smokescreen liberalism that in some ways would be good liberalism but if not corrected, is just good for big business. Robert Reich has a perfect, short piece on Huffington Post explaining what the heck is going on with government expansion, booming business, yet life as we know it is still in the dumps... Entire article shown here because I think it is so good.
"So how can the Dow be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they're worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save.
Even more curious, how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed "takeover" of health care, autos, housing, energy, and finance? Their anguished cries of "socialism" are almost drowning out all their cheering over the surging Dow.
The explanation is simple. The great consumer retreat from the market is being offset by government's advance into the market. Consumer debt is way down from its peak in 2006; government debt is way up. Consumer spending is down, government spending is up. Why have new housing starts begun? Because the Fed is buying up Fannie and Freddie's paper, and government-owned Fannie and Freddie are now just about the only mortgage games remaining in play.
Why are health care stocks booming? Because the government is about to expand coverage to tens of millions more Americans, and the White House has assured Big Pharma and health insurers that their profits will soar. Why are auto sales up? Because the cash-for-clunkers program has been subsidizing new car sales. Why is the financial sector surging? Because the Fed is keeping interest rates near zero, and the rest of the government is still guaranteeing any bank too big to fail will be bailed out. Why are federal contractors doing so well? Because the stimulus has kicked in.
In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression because of the very thing so many executives are complaining about, which is government's expansion. And regardless of what you call it -- Keynesianism, socialism, or just pragmatism -- it's doing wonders for business, especially big business and Wall Street. Consumer spending is falling back to 60 to 65 percent of the economy, as government spending expands to fill the gap.
The problem is, our newly expanded government isn't doing much for average working Americans who continue to lose their jobs and whose belts continue to tighten, and who are getting almost nothing out of the rising Dow because they own few if any shares of stock. Despite the happy Dow and notwithstanding the upbeat corporate earnings, most corporations are still shedding workers and slashing payrolls. And the big banks still aren't lending to Main Street.
Trickle-down economics didn't work when the supply-siders were in charge. And it's not working now, at a time when -- despite all their cries of "socialism" -- big business and Wall Street are more politically potent than ever.
From Financial Times, an article on how bailed out CEO's have actually taken a comparatively low pay cut. Problem is taking a pay cut is still not the logical conclusion to years of leveraging your extremely large banking institution on risky, risky bets. "Bank chiefs owe a personal debt to taxpayers"
"What is not hard to argue is that the smorgasbord of government programmes and initiatives have helped ensure the survival of these institutions by restoring investor confidence, in turn boosting their stock prices and the value of the chief executives’ stock holdings.
For instance, Mr Blankfein’s 3.4m shares of Goldman, worth about $168m at one point last year, were worth closer to $623m (€425m, £385m) at Friday’s closing prices. Mr Mack’s 4m Morgan Stanley shares, which were worth as little as $27m, have rebounded to $125m. Mr Dimon’s 11.2m shares of JPMorgan are valued at about $503m these days, up considerably from their recent low of $168m. And Mr Lewis’s 4.7m Bank of America shares, at one point valued at around $15m, are now worth about $83m. These calculations do not reflect the additional increased value of the executives’ stock options and unvested stock awards, which have moved up smartly – at least on paper (they are not tradeable) – as a result of the rise in the banks’ stock prices.
This is not a trivial matter, although it is barely mentioned. Those who find the observation petty or unfair would do well to ask Dick Fuld, Lehman Brothers’ one-time chief executive, if he would be willing to trade places with any of his former Wall Street brethren. Unlike Mr Blankfein and Mr Mack, he could not win Fed approval to convert Lehman into a bank holding company. We all know there was no government bailout for Lehman.
After Lehman filed for bankruptcy a year ago, Mr Fuld’s 10m shares of Lehman plus options – once worth as much as $1bn – were rendered worthless, which seems like the correct price for the stock of a bank that was way overleveraged and took too many foolish risks. “I don’t expect you to feel sorry for me,” Mr Fuld testified in front of Congress last October. And we don’t.
But a year later, we still have no good answer as to why the other chief executives were permitted to benefit from the government’s largesse while Mr Fuld could not."
This week, 9/24-10/1, Jobs with Justice is hosting a week of action to coincide with the G20 meeting of world economic leaders in Pittsburgh. In Pittsburgh and our own cities and towns, we can demand support for education, jobs, healthcare - the things working people are losing but urgently need during this economic crisis. Already, 48 states are facing budget shortfalls with an expected total shortfall in 2010 of $166 billion.
Bay Area ANWF wrote the ANWF Resolution of Support for a statewide California strike. If you're in Cali, please join the students, teachers, and communities who will be going on strike - the University of California system is being gutted as the federal government has given out trillions to the extremely rich on Wall St.
Resolution of Support for UC Strikers
A New Way Forward -- Bay Area ChapterA New Way Forward (ANWF) is a national, netroots organization
demanding fundamental structural changes to the financial sector
including break-up of "Too Big to Fail" banks, imposition of
strong new consumer-protection regulations on financial
institutions, and reversing the "corporations-first, people-last"
priorities that national and state government have followed for
decades.ANWF supports and endorses the September 24th UC Strike because
to a significant degree the issues addressed by the strike are
directly related to, and partially rooted in, the issues we are
concerned with. For example:* Washington deregulates the financial industry so they can go
on a fraud-spree and loot the economy for their private benefit.
When the inevitable crash occurs, Sacramento "balances" the
resulting deficit budget by slashing education, public health,
recreation, and other services that benefit the many rather than
the elite few.* Year after year, Washington and Sacramento cut the taxes of
the biggest corporations. Half the profitable corporations in
California no longer pay any income tax at all. Meanwhile, these
same companies are out-sourcing jobs to low-wage countries
overseas which increases unemployment and further reduces the
tax-base. To pay for these tax cuts, funding for public education
is slashed, and privatization of education is accelerated.* Washington and Sacramento gut public education while wasting
billions of our tax dollars subsidizing and bailing out financial
institutions they consider "Too Big to Fail." Yet after the
bailouts, these behemoths are now even bigger that before and
they are still engaging in the same fraud, chicanery, and
discriminatory practices that crippled the economy and left us
mired in a super-recession that only they have recovered from."
To find out more, visit the site and local groups on anewwayforward.org or join our Bay Area Facebook page or our national Facebook page.
The strike has gained lots of momentum - it is expected to be huge.
Many of the best changes in this country were helped along by lawyers - copyright, civil rights, civil society, citizen engagement, free speech. Lawyers also take on pro bono projects as a way to give back to the community and use their education and skills for whatever good they are most attracted to. I know some great lawyers and have admired their activism and charity. Where would our country be without lawyers? In the dark ages.
Here's a piece in the WAPO about a judge doing the right thing in court against Bank of America and those stinging CEO bonuses:
"Most judges, of course, have long since come to accept and even embrace such ambiguities, which to those outside the legal system may seem absurd. They embrace the legal notion of immaculate conception, which holds that there can be corporate wrongdoing without there necessarily being any wrongdoers. They hold sacrosanct the attorney-client privilege, particularly when it protects the reputation and livelihood of other lawyers. They understand that their job is not to get to the bottom of things, only to the bottom of their own docket.
But not Jed Rakoff. Despite decades on the bench, he's still naive enough to believe that the laws mean what they say, and that just because everyone does it doesn't mean it's right. He refuses to allow his court to be used to burnish the public reputations of the parties, especially when it comes at the expense of the truth. He cares about outcomes more than process.
Come to think of it, maybe Rakoff is exactly the kind of activist judge we need more of, not less."
CREDIT CARD UPDATE:
Credit card companies introduce cards with simpler terms. Chase and Bank of America are among them - flat rates, rates can still go up.
"Congress is considering three bills that would regulate the so-called interchange fees -- which generally amount to 1 to 2 percent of a total sale and totaled $48 billion in 2008. Meanwhile, the Government Accountability Office is doing a study of the fees, as required by a law signed by President Obama in May that bans many unfair credit card industry practices." If we paid the same interchange fee amounts as they do in Australia, we'd save $125 billion. The money usually goes to an outside bank.
NCLC put out a paper that makes the argument that many of the subprime perpetrators escape state laws because national banks were recently put outside of state jurisdiction.
A quote from NCLC:
"It rebuts the claim that reversing preemption will alter 150 years of banking tradition; gives examples of how preemption has hurt consumers; and responds to industry arguments about the nightmare that reversing preemption will cause
It includes new charts showing that in 2006, 32% of subprime loans, 40% of alt-A loans, and 51% of the toxic payment-option and option ARM loans – a total of $700 billion in 2006 alone – were made by national banks, federal thrifts, or their subsidiaries who were immune from state laws."
"Many in the financial industry agree with the White House that the Fed should be the highest overall authority when mapping out the role of the risk regulator.
But there is intense skepticism on Capitol Hill, on both sides of the aisle, about giving the Fed any more power — a view that is being echoed by some lawmakers who would play key roles in shaping the new Wall Street rules the administration is calling for....
“The mixing of monetary policy and bank regulation has proven to be a formula for taxpayer-funded bailouts and poor monetary policy decisions,” Shelby said at a July hearing. “Giving the Fed ultimate responsibility for the regulation of systemically important firms will provide further incentive for the Fed to hide its regulatory failures by bailing out troubled firms.""
The pressure from the public through petitions like ours and Rep. Paul's, through conversations in Congress, etc. is apparently helping even if the Fed doesn't go out of their way to give us credit. According to WPost, the Fed is regulating the subprime business a little bit more -- we hope so: "The decision reflects a basic shift at the Fed, which is charged by Congress with protecting consumers from abuses during financial transactions. After leaving its power largely unused during the housing boom, the Fed has lately begun to assert itself, for example imposing new restrictions on mortgage and credit card lenders."
Breaking -- Attempt by Fed to undercut CFPA. The CFPA stands for the Consumer Financial Protection Agency, which is an attempt by Congress, the President and Geithner to put some measure of protection intot he products that banks offer to the public. The agency would monitor products for the safety to customers.
It's a perfect time to sign the No New Powers for the Fed petition to combat their overwhelming power to do almost anything. We only did a soft launch last week and we have 3000 signatures already!
Also, on Thursday there will be the first public meeting of the Financial Crisis Inquiry Commission. It will be held 9/17, 9AM, 1310 Longworth House Office Building, Washington, D.C. 20515 -- the 10 people on the commission have to do a good job!
Thank You Code Pink!
Click for larger image
One year ago today, Lehman was allowed to fail. The economy went into shock and Wall St's investments began to unravel..
Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion" - Center on Budget and Policy Priorities
Here is an explanatory graph:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYdgQkXu9eBg. The quote on the anniversary of Lehman's collapse: “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger. The problems are worse than they were in 2007 before the crisis.”
Wall Street's Mania for Short-Term Results Hurts Economy": "The more fundamental problem, as the Aspen panel reminds us, is that the components of modern finance -- the securities, the trading and investment strategies, the financing techniques, the technology, the fee structures and the culture in which they operate -- are all designed to work together to maximize short-term results. And, in such a self-reinforcing system, it is very difficult to change any one feature without changing all the rest."
Tell Congress
New laws should be put in place that minimize the risk of companies becoming “too big to fail.”
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1)Lawrence Goodwyn’s “The Populist Moment: A Short History of the Agrarian Revolt in America,” one of the truly great works of American history and how to build a foundation for 20th century American political economy.
2)William Greider’s “Secrets of the Temple: How the Federal Reserve Runs the Country,” picks up where Goodwyn’s left off. An essential read in understanding money, banking and finance in the 20th century.
3)Kevin Phillips’ “Bad
Money: Reckless Finance, Failed Politics, and the Global Crisis of
American Capitalism,”
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MELTDOWN CAUSES: Articles and Interviews 1. Finger of blame points to shadow banking’s implosion -Financial Times "FINANCIAL INNOVATIONS" 1. Genesis of the Debt Disaster -Financial Times WHAT TO DO ABOUT THE BIG BANKS THAT FAIL? 1. Willem Buiter -FT ANTITRUST 1. Breaking up the Banks -Zephyr Teachout REGULATION 1. Regulatory Capture -Thomas Frank WHAT'S IT MEAN FOR THE ECONOMY? 1. Evolution or Revolution -Bill Gross Blogs |
By Michael McKee and Scott Lanman
Oct. 15 (Bloomberg) -- U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.
Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.
“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”
At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.
“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.
Fed officials have suggested imposing a tax or requiring higher capital ratios on larger banks to ensure the firms’ safety and reduce some of the competitive advantage from the implied subsidy. Greenspan said that won’t work.
“I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” Greenspan said. “I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings.”
‘Really Arbitrarily’
The former Fed chairman said while “just really arbitrarily breaking down organizations into various different sizes” goes against his philosophical leanings, something must be done to solve the too-big-to-fail issue.
“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.
“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”
To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net
