It's hard to understand on a daily basis what is going on with the economy. We'll be staying abreast of what's happening and report the broadest trends. We'll try to give you a bird's eye view of what is happening with the economic crisis, the market, our banking system, and the politicization of all of those things.
1. Now that we're in a foreclosure crisis, apparently some of the commercial loans out there should. The WSJ reports that a recent study shows that while big companies pay their bills slower, they are also flexing their muscle to collect from small businesses. Businesses under $500 million tend to pay their bills faster and are nicer about collecting from their debtors. A small merchant says, "There's a power struggle going on as the credit crunch has moved to Main Street," says Sung Won Sohn, a former chief economist at Wells Fargo who now teaches at California State University, Channel Islands. "Big firms can force their terms on suppliers and customers. And if you're a small business or a small store in a mall, you have no bargaining power and have to take what's given, which is not much today."
2. The Federal Deposit Insurance Fund insures deposits we make to FDIC-insured banks. Banks are failing at a faster clip in recent days and the FDIC's pool of insurance funds is dwindling. WSj predicts a coming FDIC bailout.
3. Many states are experiencing budget shortfalls as income tax revenue declines with employment. These shortfalls have resulted in lack of funds for education and in LA, they may open up the education system to private companies. Our on-the-ground locals from Detroit report that the city is proposing further salary cuts for more and more teachers in their ailing education system.
4. It's great to hear that more prominent people are standing for a council of or single financial industry oversight body that is different from the Federal Reserve. Both Sheila Bair of the FDIC and Senate Banking Chairman, Dodd propose to strip the Federal Reserve of systemic risk oversight power that it has abused in the past. We're unveiling a petition on that front as well. In our opinion, the toughest obstacle for regulation by council or unified body is having safeguards against either being captured by the banks. Seems like maybe a council would be better for guarding against regulatory capture, but we'll need to look into the best alternative available in the coming days.
5. It's pretty clear changing our financial system for the better is on the back burner while health care is debated. Health care reform outcomes can affect what happens with the banks -- the banks probably are feeling pretty happy and off the hook at this point.
6. The latest lobbying attack by the US Chamber of Commerce makes you feel like the banks that took down the country understand regulation was missing in the lead up to the financial crisis. After they get down to our level of understanding, they try to trick us by saying that to solve the problem we should follow their wisdom and stop consumer protection measures.
Their talking points include the following:
"· Clear regulatory gaps contributed to great economic harm to millions of Americans and failed to protect consumers adequately. The U.S. Chamber of Commerce supports reform solutions that will, in fact, better protect consumers in the future.
· We agree with the diagnosis that regulators failed to have a coherent and
effective approach to consumer protection, and agree that reform is necessary.
· The objectives of such reform should be to regulate previously unregulated
entities, weed out predatory products, and improve disclosures so they are clear, concise and apprise consumers in understandable terms about the risks posed by financial products. We believe this can be done while striking a balance with ensuring consumer choice, credit and product availability and affordability."
Health care is important, but it seems obvious that it doesn't rally people around a deep and core set of irrefutable ideals. As the tea party movement grows, the rallying cry that comes streaming through the radio and the web that is gaining the most steam and fervor is the call for less government control and intervention. This rallying cry is really a shallow analysis of programs like welfare, income taxes, universal heatlhcare, etc. that touch on a fear of government takeover at a deep level. The complicated way in which Obama laid out healthcare reform allows tea party-goers to grab onto irrelevant, but basic fears of people who dislike Obama's way.
But, if Obama had focused on the banks, would this fear of government stepping in come off as justifiable? The economic crisis and the reckless behavior of an unregulated bank system is at least one point the tea party people would have to concede on. The tea partiers had huge anti-bailout protests and hated that the government was getting involved in the banking system by propping them up with tax dollars.
While we were deep into the economic crisis, Obama had the sentiment for reform behind him to have unveiled a plan that agreed with basic reactions around the bailouts. The plan could have pushed for the bad banks to resolve themselves, for the Fed to have less power, and for some agency that is accountable to Congress to keep the banks in check. What would the party of tea drinking really be able to say? Why did we get into health care in such a complicated way when we could have set an example of good and necessary governance because of one of the best examples of government absence in our country's history?
We need a new movement that stands for ideals, and ones that us other people can believe in. We need a new movement for "Prosperity, Economic Freedom, and and End to 0ut-of-control Corrupt-Corporate-Government Growth".
What's stopping us from finding solutions to world hunger, environmental crises, poverty, and health issues? It's not that we don't have answers. It's that lobbying and special interest public branding has turned us into a society that makes decisions without observable facts and in a fundamental way, disregards science. We have moved far from a society that makes decisions based on the knowable, reasonable cause, and reliable research; the role of empirical evidence in policy-making has been turned into a side conversation. Any industry that has a lobbying arm to promote maximum profit for a select few corporations has kept us far from ever becoming a more optimistic culture, able to bring about sound solutions and a more vibrant culture.
Sen. Kennedy's death has helped some of us realize that sometimes politics is just too ugly. He was considered a gentlemen of the senate (had polite conversation with opponents) and worked to embody hope in his policy ideas. But, you know the banks have put $6 million into lobbying efforts to help Congress make decisions that would affect our prosperity. There will also be 70 events put on by the banks.
Whenever an issue is tackled for academic reasons only, we get answers that are closer to the truth - really. How can it be any other way? Yet, looking over all the largest political debates, it hasn't been. Education, science, and academia by far get closer to presenting real facts on actual phenomena and create a framework for working towards solutions better than any lobbying group or corporate arm. That seems obvious when put on paper. But, as lobbying groups have gotten smarter, every issue has seemingly gotten too complicated to talk about and understand at our own dinner tables. It's led to healthcare bill shouting at town halls. Of course, when decisions are made in the name of profit alone rather than to solve the exact problem we set out to solve, we don't solve problems, we make money. We don't have the products that are in the best interest of the consumer and our society at large. General Electric used to deny that their waste polluted our neighborhoods and made our world a worst place to live. Now, the evidence is hard to dispute. That seems obvious now, but at the height of the debate, corporate opinion has been seen as an unbiased and much needed voice - really. Why have we let thin arguments become so powerful? The fundamental slowdown to solving world hunger, poverty, environmental sustainability are the lobbies and powerhouses -- they garner more sway on the laws that govern the things we interact with than any peer-reviewed picture of reality based on observable facts and phenomena. Corporations have usurped our collective ability to think about the issues.
I'm not saying that private companies shouldn't be a part of the solution, but they shouldn't lead the brainstorming session on the solution. Basic solutions follow a simple formula -- understand what is going on, then address the circumstances.
But, no.
Look at today's major topics. On the environment, the big oil companies have actually introduced and made semi-permeable the argument that pollution doesn't matter or that we don't even pollute. And on the economic crisis, the largest, most irresponsible banks that have taken down the US economy have convinced us that we should consider not holding them more accountable than we have in the past but rather to allow them to be as irresponsible to their investments as they have been in the past (even though they took down the country EMPIRICALLY). President Obama's plan to cut out unreasonable and excessive billing schemes practiced by corrupt healthcare insurance companies is somehow not important to the debate on universal healthcare. Instead, the health insurance lobbies and the Republicans have trained public on-the-ground lobbyists to focus on myths and their deepest fears.
Danny Schechter, filmmaker, journalist, author of "Plunder" and about to release a movie on the financial crisis, gets at the point I am making -- we as a culture have been lobbied so much on every issue that we don't have a chance to look at the facts.
Only since banks were allowed to balloon out of control have we seen such a huge lobbying force. After Ronald Reagan started to shelve regulatory rules and Clinton continued in his footsteps, the banking sector has increased significantly in size and contributions - Bank of America increased contributions by 1700% between 1990 and 2008, Citigroup increased contributions by almost 500% in the same period. Between 1998-2000, a huge spike in contributions to election campaigns from the Finance, Insurance, Real Estate (FIRE) sector jumped can be seen; the spike coincides with the dismantling of rules against banks becoming mega-supermarket banks. And since then they have convincingly distorted reality - large banks that have effectively shut down numerous companies and millions of jobs are able to say that they shouldn't have a layer of bureacracy or transparency as they grow through their investments. And since then they have convincingly distorted reality - large banks that shut down numerous companies and millions of jobs are able to say that they shouldn't have a layer of bureacracy or transparency. They should not be telling us this, period. I point out these examples, which if you've care about empirical evidence you probably already think. What's not obvious is how much large corporations have muddled the discourse and how we constantly are forced to react to them.
If economics teaches us that people make buying purchases based on rational and sometimes irrational decisions. We also learn that free markets work to the extent that the choices given us are rational. Free market ideology shouldn't determine our monetary policy, rational options and rational monetary policy should determine the free market.
Frederick Kaufman in Harper's Magazine had an article about Bill Gates' model for solving world hunger. The plan most elaborated on in the article relies on the latest research and real empirical evidence to show that the leading proposal has a chance at working. I appreciate that. The proposal makes sense. But further into the article, you learn that, actually, similar plans don't make rational sense and have not worked in the past. The conclusion I walk away with is that the evidence is inconclusive and the proposal is pretty much worth trying. If it fails, we know not to do it that way again. But, if the conversation on world hunger is solely run by large corporate arms, we'd simply hear speeches on how the free market is a cure-all for all and we'd make little of studies that show people dying in droves while corporations reap profits. The point is that if it were not for for Nobel laureates, public interest lawyers, hard working academics, and thinkers we wouldn't have any inkling of what the heck is going on with the most hungry.
Right now, the fact that most bankruptcies in this country are caused by unexpected medical expenses (including those that are insured) is insignificant to our national debate on healthcare. In the empirical realm, it is examination number 1. Our ability to revere looking at issues objectively has been taken out of national discourse as the lobbies peddle self-interested ideology as value-adds to mainstream media and Congress. This is so because we've helped corporations get so big that these corporations have taken over political decisions and our national culture.
Science might not have the ability to expose the end-all-truths, but it at the very least allows us to develop a greater understanding of the way things work and an ability to organize complexity when it exists. If the public can have an honest look at the science, we may stumble as we move forward, but we do actually progress as a society (and my hunch is that more people would engage in understanding politics).
Science itself moves forward - they have a system of peer-review that is effective, effective in the sense that people work together in a transparent manner to make sure there are no loose nuts and bolts or worse, fake nuts and bolts. With the internet, we need to get to a more sane and respectable way to peer review bills and issues. We need a way to see all the facts that aren't distorted by any special interest, including government. Wikipedia is a good model for peer review. But, what can we do about understanding politics? Kill politics and put up a website, have town halls that allow us to peer review empirical evidence without lobbyists, industry and their puppet Congressperson muddling the process. A few websites can help people vote on what evidence and research is more lobby than fact, and the public can learn to shun, shun all the pollution. Do this, until we all feel confident we know enough about the issue to make an objective opinion for the good of everyone. Then we can set a path to start working on developing the most logical solutions, and then we'd actually be working on something. But, most importantly, we need to redevelop a culture of being suspicious of ideas and facts coming from any profit-that-doesn't-get-back-to-the-science-interests, including government. We already have the Congressional Budget Office (they determine costs for a bill), we're close.
Reality has been distorted and truth muddled. Stop lobbying on all sides, then maybe we can get somewhere. We need publicly-financed elections, return to one person-one vote, a scale-based economy, and academic research on every political issue. As it stands, our common sense has left the room.
Bernanke's appointment to a second run as chairman of the Federal Reserve was pretty much expected by all -- it seems too disruptive to switch Bernanke out for Summers (or anyone else) because Wall Street would react wildly. And since Wall St is what the financial elites and the bankers care about, the media and our president focus their attention there, watching how Wall St does day to day as the barometer for recovery.
But, there is no reason why Obama should not have appointed Bernanke -- the public can't understand and doesn't care about what the central bank does, while public advocates have been unable to pin the central bank with any real blame. The central bank has done a good job of shirking any responsibility of keeping the predatory and subprime bubble from growing and bursting. But, they are the central banks and of course it was partly their fault. They're the ones who set monetary policy. So, the public should take a hard look at the central bank, yes. But, perhaps we need to all start caring about the central bank even more than we did prior to the appointment. Maybe someone should start a petition that gets the Federal Reserve to recognize their role in the crisis and to not repeat what they have done.
Obama is a bystander to the economic recovery, leaving all the decisions to Geithner and Bernanke. He is playing such a small leadership role on this issue, it's like he's literally turned into a fly on the issue. I know that Geithner knows way more than Obama does about the economy, but Obama has the ability to recognize upwards wealth redistribution when it happens, right?
As the confusion over what Obama has always wanted to do vs what he is able to do with his presidency looms over his supporters, maybe we can objectively look at whether or not Obama has given his all. And if the answer is no, maybe this is our opportunity to start making Obama get more involved in the discourse. He needs to get involved at the level where he could personally publish articles on the root causes of the crisis and what we need to do to keep the big banks from continuing to make the most of hard-earned American dollars. But, if he won't get down and dirty, we'll keep pushing for those who are -- we support Dean Baker's plan to democratize the Fed.
The Central Bank (or the Federal Reserve) decides what we do with the country's store of money, interest rates, and money printing machines, among other things monetary. There are 12 regional branches and there are board directors for each of these branches, along with a chairman. Our current Treasury Secretary, Geithner was the Fed Chief of New York. The Fed is often criticized by economists on the left for the revolving door that swings freely between the Fed leadership and our political system. The Fed also did next to nothing to keep the current crisis from happening.
So, the Washington Post reports (in breaking news) that Obama will name Ben Bernanke to head up the Federal Reserve again. Most people thought Bernanke would be appointed to a second term because it would be disruptive to change leadership now. I still can't believe it is true. It's probably because I am 29.
The central bankers convened an annual meeting this past weekend in Wyoming. Daniel Tarullo, current Fed Governor led and created an opening for hope at the meeting with his remarks tackling the difference with big banks in financial crises like we're witnessing. This is the most senior oficial to respond to size in a thorough manner (Bernanke himself has touched on the importance of size in the past).
There promised to be some healthy debate and discourse at the meeting betwen Bernanke and Tarullo and others, but doesn't seem like Bernanke made too much of a splash. The general takeaway from the meeting was that the economic crisis was bottoming out, the road
to recovery would be bumpy and the cost of oil by the barrel will likely cause large problems for the entire country if it keeps going up.
The central bank plans on continuing with the same monetary policy it has been enacting in the past 6 months, that is keeping interest rates low. It's good to remember the following: “This is not a crisis that just comes and goes,” a senior official said.
With that said, there have been articles in the past day about the coming second dip in the recession we're all in. Nouriel Roubini makes a strong case that we'll see some more bottoming out in the next month or in October. If it happens, it won't be good. And the reason why it would happen is because we're still knee high in those darn toxic assets.
Lastly, the Fed has been forced to disclose information about the banks that were bailed out. The fed was trying to use FOIA loopholes to get out of the usually mandatory disclosure, but after a lawsuit filed by Bloomberg LP against their coyness, they have been forced to do what they're supposed to. This is a win, great.
If you haven't heard about Neil Barofsky, he's been doing his service to this country by making sure we get down to the truth on issues relating to the bailouts/TARP.
There are some people that we need to thank for doing a superb job -- Barofksy will be looking into how Citigroup's loans and securities were valued at the time they insured by the taxpayer in the form of federal asset guarantees. If they marked their loans and securities higher than their actual value, there is significant "exposure" to the taxpayer, as pointed out by Nobel laureate Joseph Stiglitz.
Citigroup Inc.’s $301 billion of federal asset guarantees, extended by the U.S. last year to help save the bank from collapse, will be audited to calculate losses and determine whether taxpayers got a fair deal.
Neil Barofsky, inspector general of the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program, agreed in an Aug. 3 letter to audit the program after a request by U.S. Representative Alan Grayson. Barofsky will examine why the guarantees were given, how they were structured and whether the bank’s risk controls are adequate to prevent government losses.
Federal Reserve of Kansas City Chief, Thomas Hoenig and the FDIC are actually doing something about failing banks! Hoenig and Sheila Bair have both been vocal about bad economic policy in the past and are going strong now too!
Hoenig is pushing for letting too-big-to-fail banks fail! He is convening a meeting of Fed Chiefs and directors in Wyoming and will be pursuing a lively debate on the issue on purpose. Bernanke is set to speak tomorrow. Bernanke himself talked about letting big banks fail to avoid moral hazard in a June 24 testimony. Hoenig has been a champion of the real facts -- overconcentration in banking has led to a more unstable and risky system. He suggests we let them fail when they do and allow the shreholders to take the hit instead of taxpayers. Perfect answer to moral hazard and ballooning US debt.
The FDIC is returning to a solution oft proposed in the past - splitting up failed banks into bad and good in order to get them off of the government's books! Hooray. We'll see if there will be buyers from the private market. Either way, trying something to speed up the reslution process is a tribute to making banks own up to their own mistakes.
'JPMorgan Chase is helping one in five troubled homeowners eligible for a government-sponsored housing rescue, while Wells Fargo is reaching 6% of eligible borrowers, and Bank of America is aiding 4%, the U.S. Treasury Department said Tuesday In its first monthly progress report on the $50 billion loan modification program launched in March.
Several loan servicing companies — including American Home Mortgage Servicing and PNC Financial Services Group— have yet to modify a single loan.'
Prosperity Agenda, based in Baltimore and a project of Campaign for Fresh Air and Clean Politics Air, is run by Kevin Zeese. Kevin Zeese is an important political activist who has helped to change the political landscape and engage people in issues that affect our society. Zeese spearheaded efforts to create the Baltimore Economic Crisis Network with other Baltimore activists and organizations. They have organized demonstrations in front of banks, held town hall meetings and organized events on radio discussing the economic problems of Baltimore. He also engaged his organization and members with A New Way Forward starting in May 2009 -- they organized a protest in Baltimore against Wells Fargo on June 11, 2009. Since then, Prosperity Agenda has helped to shape the direction of ANWF and has also graciously offered to make us this new site. In that generous and altruistic spirit, their web expert, Joseph Schroeder has built our new site. We're extremely thankful for all of his hard labor and his willingness to help the cause. We thank people like Kevin and Joseph and their colleagues, who labor in the interest of making a better world.
Our old blogs will be back online soon. Thanks for your patience.
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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
