Posts tagged with 'credit cards'
Weekly Audit: Reining in the Subprime Scoundrels
by Zach Carter, TMC MediaWire Blogger
President Barack Obama is scheduled to unveil his agenda for revamping financial regulation later this week. As the economy struggles though a recession created by the banking industry, it’s crucial that Obama and his advisers craft a set of rules ensuring that the financial sector strengthens our economy instead of destroying it.
Various government regulatory agencies are sparring over how the final regulatory structure will be divided. But, as Robert Kuttner notes for The American Prospect, the most important aspects of the plan will not be who regulates what, but how stringently they are required to regulate. The Federal Reserve has had the power to devise consumer protection regulations for years, but has generally decided against writing strong rules to defend borrowers. There is perhaps no area of public policy more critical to the nation’s economic stability than consumer protections in banking, especially as the subprime mortgage crisis continues to devastate U.S. households.
Without stronger regulations, the government’s rescue programs for the financial sector will be a complete waste, and bailouts will only reward the destructive behavior that created the current recession. And the bailout plans are getting more absurd every week. Writing for Mother Jones, Nomi Prins details the latest bank bailout farce: The false euphoria emanating from the Treasury Department after it decided to allow 10 banks to return the bailout money it received from the public. Or, at least, some of the bailout money.
As Prins explains, the Troubled Asset Relief Program (TARP) accounts for just a tiny fraction of the bank rescue efforts currently orchestrated by the Treasury, the Federal Reserve and the FDIC. When banks accepted TARP money, they agreed to implement a few modest restrictions on executive pay, though none of the other bailouts came with any strings attached. The FDIC, for instance, agreed to guarantee the corporate debt that banks issue to fund their operations without requiring banks to adopt any changes in the way they do business. This government backing has allowed banks to raise several billion dollars in funding at extremely inexpensive rates, at a time when most banks were struggling to raise any money at all. Suddenly, some of the chief beneficiaries of the FDIC program—Goldman Sachs, Morgan Stanley and American Express, to name three—find themselves flush with cash and able to pay back the TARP money, and thus allow their CEOs to escape the executive compensation caps.
As Laura Flanders explains in the below video from GritTV, there is a difference between how “healthy” a bank appears to the U.S. Treasury and what it actually does for ordinary people. The TARP money was supposed to serve a public purpose by freeing up funds that could be lent out into the economy. But the very banks now going off the public payroll have been retroactively jacking up interest rates on credit cards all year and spending millions to lobby against legislation that would prevent foreclosures. Small surprise, then, that the state of the U.S. housing market is as bad as it has ever been.
“The lesson is pretty clear: you cannot stabilize the mortgage market and undercut the working family at the same time, you just can’t,” Flanders says.
It’s not as if the economy has suddenly turned a corner. In addition to all those foreclosures, the unemployment rate is 9.4% at last count and keeps surging higher. But the effects of the recession are not being felt equally among all workers. New America Media (NAM) features a piece by Raechal Leone that highlights the even more severe unemployment rate among blacks in the U.S.—a whopping 14.9%. Those numbers are not expected to get better anytime soon. When economists talk about the recession “ending,” they mean that the Gross Domestic Product (GDP), a measurement of the total output of the U.S. economy, will have stopped shrinking. Economists almost universally believe that the unemployment rate will increase well after GDP stops contracting—as many as five years in some predictions.
The Applied Research Center (ARC) has released a report detailing the disparate impact of the recession on minorities, accompanied by a host of constructive policy recommendations. In the financial world, minority borrowers still face a dramatically uneven playing field. Black and Latino borrowers were more much more likely to be steered into an expensive subprime mortgage during the housing bubble than white borrowers were. As Nina Jacinto details for Wiretap, these lending practices have been so pervasive that the NAACP has filed lawsuits against both Wells Fargo and HSBC for systematically targeting black borrowers with expensive supbrime mortgages.
We need to upgrade our anti-discrimination banking regulations to end this systematic predation. Many of the other policies that ARC endorses are not geared specifically toward ending the racial wealth gap, but would alleviate some of the glaring effects of institutional racism. Since people of color are disproportionately relegated to low-paying jobs (or, as Leone noted for NAM, no work at all), policies that make it easier for low-wage workers to organize and demand fair pay, like the Employee Free Choice Act, would help ease this rampant inequality.
The Obama team’s regulatory proposal will only mark the beginning of a policy debate that will likely last for months. But make no mistake, serious bank reform is one of the most important steps the government can take to make the economy accountable to ordinary citizens and CEOs alike. Without substantive change in the financial sector, the next meltdown could already be underway.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Ending the Economic Status Quo
by Zach Carter, TMC MediaWire Blogger
The banking lobby still holds enough sway inside the Beltway to torpedo sensible consumer protection rules, even after releasing a flood of predatory mortgages that kicked off the current economic crisis. On issues ranging from payday loans to subprime mortgages, the banking industry continues to successfully defend itself against new regulations that would protect the consumer. As if that weren’t outrage enough, the finance lobby has also joined other corporate interest groups to fund misinformation campaigns that smear unions and block wage growth.
As Mary Kane explains for The Colorado Independent, the push to rein in predatory mortgage lending appears to be losing steam on Capitol Hill. An extremely complex mortgage reform bill that is conciliatory to the finance lobby passed the House last month, angering consumer advocacy groups. Among the problems: the bill pre-empts many stronger state predatory lending laws and protects the Wall Street investment banks that gorged themselves on mortgage-backed securities.
Consumer protection shortfalls are not limited to messy mortgages. Lagan Sebert and David Murdoch detail the payday loan industry’s continued assault on U.S. consumers for the American News Project. By offering small loans, typically in amounts ranging from a few hundred to a few thousand dollars, payday lenders target consumers who need money for basic necessities, then charge them outrageous interest rates (as in, above 700%).
For years, newspaper editorials have denounced payday lenders for systematically exploiting the most vulnerable members of society, including members of the U.S. military, who are often targeted as a result of their reliable paychecks. The solution to the problem is as simple as the business is repulsive: Capping annual interest rates on all consumer credit products at 36% would make this kind of predation impossible.
Nevertheless, the payday loan industry has been able to escape a regulatory crackdown via an intense and sustained lobbying effort. Senate Banking Committee Chairman Chris Dodd, D-Conn., is now parroting payday lending lobbyists. Since payday loans are supposedly paid back within a matter of weeks, Dodd and the payday lending lobby say that it’s unfair to hold them subject to the same standards as a 30-year mortgage.
The argument is insane. No bank would ever get away with charging a 36% interest rate on a mortgage. Even the most predatory subprime mortgages didn’t have interest rates anywhere near that high. But Sebert and Murdoch go further, highlighting a report from the Center for Responsible Lending which found that payday lenders make 90% of their revenue from borrowers who do not pay their loans off on time. The loans are structured to be so expensive that consumers become trapped into making payments for the long-term, often spending thousands of dollars over multiple years to get out from under an initial loan of just a few hundred dollars.
Dodd has received major campaign contributions from the banking industry, but sometimes the lobbying effort is much more subtle. Several major corporate lobby groups have united under the misleading moniker of “Alliance to Save Main Street Jobs” to finance shoddily researched projects that defend the interests of the executive class in economic policy. An Alliance for Main Street Jobs report written by Anne Layne-Farrar has received quite a bit of attention for its claim that the Employee Free Choice Act (EFCA) would kill 600,000 jobs by making it easier for employees to organize. Several major news outlets have cited the allegation, including Fox News, MSNBC, The Wall Street Journal, and CBS News. As Art Levine reveals for In These Times, however, this research relies on completely meaningless statistical trends and disingenuous research design that render its findings utterly hollow.
Corporate executives are not afraid of EFCA because they think it will kill jobs or disenfranchise workers. They are afraid because it will empower workers to fight for living wages and provide safe working conditions—things that leave less money around for big executive bonuses at the end of the year and give workers a greater say in how companies operate.
In some respects, EFCA also represents the other side of the predatory lending problem. It is important to ban abusive loans, but it is just as important to make sure people are paid fairly for their work to ensure they don’t need to seek out shady credit just to make ends meet.
When so many brewing legislative battles relate to the economy, it’s easy to forget about the programs that have already been enacted. Some of the tax cuts included in the economic stimulus package were aimed at fostering investment in low-income and minority neighborhoods—a worthy goal. But as Michelle Chen notes for ColorLines, the program has some significant flaws. Chen highlights a report from the Government Accountability Office (GAO) which found that minority-owned community development entities are largely being excluded from the program, with approval rates about 67% lower than other applicants. The GAO could find no reasonable explanation for why minorities were not making the cut, especially when some recipients of the tax credits have a history of consumer exploitation. Capital One Bank, for instance, is receiving $90 million of these tax credits, despite its long history of abusive subprime credit card lending.
There have been some successes this year in the push for an economy that answers to workers and consumers. Much of the stimulus bill is designed to make sure important jobs don’t disappear during the recession, and Sen. Dodd’s credit card reform bill passed both chambers of Congress by comfortable margins and included some very strong improvements. But we know what caused the economic crisis: stagnant wages and predatory lending. A true recovery will have to empower workers and protect consumers, both of which will require breaking with the corporate status quo.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Curbing Credit Card Abuses
by Zach Carter, TMC MediaWire Blogger
While the bank lobby continues to hold significant clout in Congress, President Barack Obama entered the fray on behalf of consumers Thursday, demanding that lenders put an end to abusive fees and predatory interest rates.
Writing for Air America, former Clinton Labor Secretary Robert Reich highlights parallels between credit card problems, which are just now starting to take a serious toll on bank balance sheets, and the subprime mortgage meltdown that triggered today’s economic crisis. In both cases, Reich notes, banks used a vast array of traps to trick people into high-interest loans they couldn’t afford. Now that credit card loans are also going bad and eating up bank profits, lenders have deployed another set of fine-print gimmickry to gouge borrowers and make up for the losses.
Banks are currently jacking up interest rates on previously accumulated credit card debt and charging outrageous fees for simple mistakes, like exceeding the credit limit. There is no law that says credit card lenders have to charge such fees—when a borrower hits the credit limit, the company could simply deny the transaction.
Lawmakers have protected the unfair credit card playing field for years. In 2008, a House bill to ban retroactive interest rate hikes, limit abusive fees and rein in deceptive marketing techniques passed by an overwhelming margin, but the banking lobby successfully prevented a similar measure from coming to a vote in the Senate. Sadly, as Mike Lillis emphasizes in The Washington Independent, policy observers are experiencing déjà vu on the current round of credit card legislation.
Earlier this year, the Federal Reserve finalized new regulations that would ban many abuses by credit card lenders, but the rules don’t go into effect until July 2010. This absurd delay was the source of much of the initial support for the legislation in Congress: lawmakers had hoped to protect consumers in the middle of a dangerous recession. While versions of the bill have cleared key committees in both the House and Senate, Lillis notes that the bank lobby has already exacted its pound of flesh, convincing members of Congress to delay the effective date of the legislation until—you guessed it—the middle of 2010. Lawmakers insist that the battle isn’t over, but we won’t know the result until the bills actually go to the floor for a vote, if they get voted on at all. No vote on the legislation is currently scheduled in either chamber.
Amid this Congressional stalemate, Obama met with credit card executives last week to emphasize his administration’s support for stronger regulations. Ezra Klein argues that the meeting bodes well for consumers in The American Prospect. The banking lobby routinely fights tighter regulation by claiming that stricter rules will lower profits, which, in turn, will force them to raise interest rates on other loans. If you reign in these abusive practices, the lobbyists say, we’ll have to raise interest rates on other borrowers. No administration in recent memory has bothered to challenge banks on the issue. A reporter raised the question at a press conference following Obama’s meeing with executives, asking whether the president believes there is a trade-off between credit card industry profits and consumer protection. Klein notes that Obama’s answer in the affirmative (“We think that it’s been out of balance.”) is a statement that has enormous implications for the policy debate, especially in the context of the president’s other comments on ensuring the extension of economically productive credit.
“We are confident that we can arrive at something that is commonsensical, something that allows the industry to continue to provide loans and to run a stable business model that’s not dependent on bubbles, that’s not dependent on people getting over-extended or finding themselves in over their heads,” Obama said.
Credit card companies clearly make a lot of money from these tricks and traps, otherwise they wouldn’t deploy them. If lenders could easily replace what they currently rake in with income from responsible loans, then there would be no trade-off between consumer protection and bank profits. But for lenders to argue that they need money earned by conning their customers is to admit that their business is dependent on predatory, economically destructive lending. This is not something that a company dependent on taxpayer support wants to acknowledge.
Obama, who has been very lenient with the banking industry, is essentially saying that banks have to earn their profits by playing a useful role in the economy, acknowledging that they have real obligations not just to their shareholders, but to the general public.
Obama’s sheer popularity will make it harder for members of Congress to water down regulations, but his willingness to play legislative hardball has already score a major victory over another key bank lobby priority: student loan subsidies. As Steve Benen notes for The Washington Monthly, the government has been giving money to private student loan companies for years in hopes that the funds are used to make responsible loans. In reality, the subsidies are squandered on executive compensation and shareholder dividends. As a solution, Obama proposed eliminating the bank handouts and replacing them with direct government loans to students.
The plan hit a temporary roadblock when Sen. Ben Nelson, D-Neb., tried to scuttle the legislation to benefit lenders in his home state. As Benen explains, the student loan proposal wouldn’t have cleared the Senate without Nelson’s support. With 60 votes needed for any proposal to clear a filibuster, Obama usually needs every Democrat he can get. But instead of diluting the plan to win over Nelson, Obama just went around him by forging an agreement with negotiators in the House and Senate. The student lending changes will be pushed through the budget reconciliation process, allowing the measure can pass the Senate with just 51 votes, a situation which all but guarantees passage of any measure.
If Obama can win so easily on student loans, he can win on credit cards, but he has to move quickly. Unemployment call centers are being completely overwhelmed by the volume of laid-off workers seeking relief. As Marty Durlin notes for High Country News, The Colorado Department of Labor and Employment is currently taking more than 10 times the call volume it received during the recession of the early 1990s. As job cuts continue to escalate, people are relying more and more on credit cards to fund necessities. The recession is happening right now. Reform can’t wait.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Bank Execs Looting Consumers, Shareholders and Taxpayers
by Zach Carter, TMC MediaWire Blogger
Some of the largest U.S. banks may be on the ropes these days, but the disparity between the plight of financial executives and ordinary Americans has never been starker. Over the past two decades, the banking system has grown accustomed to scoring massive profits by preying on its own customers, making 2009’s transition to pilfering taxpayer wallets an easy one. After burying the economy under a mountain of unaffordable debt, bank CEOs are now finding ways to subsidize their own paychecks with taxpayer bailout funds.
With over $550 billion in government money already dedicated to shoring up the financial system under the Troubled Asset Relief Program (TARP), it’s easy to wonder just what Wall Street and its highly-compensated executives actually do for the economy. Federal Reserve Chairman Ben Bernanke offered one explanation in a speech last week in Washington, D.C. At its best, Bernanke claimed, Wall Street innovates, creating new financial products that expand access to credit, making it easier to run small businesses and improving living standards for households. Armed with ever-expanding paydays, Wall Street has indeed innovated over the past thirty years, radically altering the economic landscape in the process.
But as Ezra Klein emphasizes for The American Prospect, much of Wall Street’s so-called innovation is sheer gimmickry. Financiers have intentionally designed loan contracts to be mystifying and complex to the ordinary consumer, tricking bank customers into racking up unaffordable levels of debt. From credit cards to credit default swaps, these new products have indeed signaled progress for bank balance sheets, but in many cases, banks have enjoyed outsized profits at the expense of the broader economy.
“Innovations are not always win-win,” Klein emphasizes. “They’re often win-lose.”
Of course, some financial stunts were so convoluted that many of the nation’s most revered financial brands– including AIG, Lehman Brothers, Bear Stearns and Wachovia– crumbled under their complexity. Today, something as simple as mortgage has become a byzantine, hard-to-value security, once Wall Street wizards bundle it together with hundreds of other mortgages and sell it off to dozens of investors. In the below video for American News Project, Lagan Sebert and David Murdock put a human face on Wall Street’s toxic assets, telling the story of Sandra Berrios, a mother of two who was conned into a predatory loan by a deceptive mortgage broker. The broker provided Sandra with documents promising her a 30-year fixed-rate mortgage, but instead sold her an outrageous adjustable-rate mortgage in order to collect a fee from Flagstar Bank, which actually funded the loan.
“We believed the broker . . . but what they were telling us was not the truth,” Berrios says.
Even though Flagstar has received $266 million in government bailout money, the company still refuses to renegotiate Berrios’ loan. While some money from TARP went to healthy banks, but Flagstar was truly desperate for the funding. The company’s stock is trading at around $1.00 per share thanks to fears over its financial stability, and Flagstar recently agreed to be acquired by a private equity company for still less to avoid complete financial ruin. The source of the company’s difficulties? Losses on loans like the one Sandra Berrios is struggling with.
Writing for The Nation, Christopher Hayes highlights a letter from a reader who questions malfeasance on the part of Goldman Sachs, which received $10 billion in taxpayer funds under the Troubled Asset Relief Program. Executives at Goldman recently decided to pay back the government before it paid off the investment from billionaire Warren Buffett, even though Buffett is reaping double the interest rate that the government is receiving from Goldman.
The scenario speaks volumes about just how lousy a deal taxpayers got under the bank bailout. Paying Buffett back first would clearly be the better deal for shareholders of the Wall Street titan, as it would save them years of payments at higher interest rates. But Buffett’s plan does not involve the same restrictions on executive compensation that are included under TARP. By prioritizing the TARP repayment, Goldman’s top brass are screwing their own shareholders to guarantee a bigger payday.
Exorbitant CEO compensation, especially on Wall Street, has played a major role in deepening income inequality in the United States. But even the onset of the worst recession since the Great Depression was cause for little alarm for top executives at American corporations last year, as Laura Flanders explains for GritTV.
“While wages and benefits have been going down for most Americans, more U.S. chief executives got pay raises than had their pay cut in 2008,” Flanders said, noting that “CEO’s weren’t just making more, they were making more while laying their workers off.”
Flanders notes that Citigroup CEO Vikram Pandit slashed 74,000 jobs at his company in 2008, but did not object to paying himself a whopping $38 million salary. The outrage is compounded by the fact that Pandit allowed his company to collapse last year, ultimately tapping taxpayers for multiple bailouts that have reached $45 billion in scope, an amount nearly three times Citigroup’s current stock market value.
The financial system doesn’t have to be a contest between citizens and executives. There is no good reason why responsible regulations cannot be enacted to rein in CEO pay, ban socially destructive lending practices and reduce the influence of banking behemoths on public policy. We’d all be better off with that kind of innovation.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Time to Shake Off the Bank Lobby
Filed under: Economy, Health Care, Immigration, Live From Main Street, Syndicated Reporting Project, Uncategorized
by Zach Carter, TMC MediaWire Blogger
While the national economy struggles under the weight of a massive bank bailout effort, the banking lobby’s ability to influence public policy is more problematic than ever. The too-big-to-fail bankers may be dependent on U.S. taxpayers for their survival, but corporate lobbyists still have members of Congress, the Treasury Department and the Federal Reserve asking the banks’ permission to bring the Big Finance behemoths under control. The relationship between Wall Street and the government is so out of whack that it’s difficult to distinguish the political players from the panhandlers.
In Mother Jones, Daniel Schulman and Jonathan Stein detail the ease with which important congressional staff switch careers and move into the banking sector. In recent years, dozens of key staffers for powerful Senators have left the political arena to work for as lobbyists for the financial sector, and policy gurus from both sides of the aisle are jumping ship for lucrative careers as influence peddlers on Wall Street.
“Financial firms seeking big bucks and favorable terms from Congress and the White House are deploying Capitol Hill aides turned lobbyists to win favorable treatment from the congressional lawmakers,” Schulman and Stein write. Many lawmakers, including Senate Banking Committee Chairman Chris Dodd, D-Conn., are refusing to disclose whether they’ve had contact with former staff who now work for Wall Street. Small surprise, then, that so many of the recent bailout packages have allowed failed bank CEOs to stay in power and saved their shareholders from bad investments in inept, even predatory, companies.
Sometimes these reinvented bank defenders are even former Senators. Susan Douglas of In These Times highlights the career of former Sen. Phil Gramm, R-Texas, who is currently a lobbyist for UBS. The Swiss banking giant has been plagued by a seemingly endless stream of scandals over the past year, for everything from diamond smuggling to tax fraud. And Gramm helped push for looser predatory lending laws—including those pertaining to the now-decimated mortgage sector—while he on the UBS payroll.
This would be a shameful legacy for any former public servant, but for Gramm, Douglas notes, this behavior is particularly disgraceful: his two chief legislative “accomplishments” helped create and intensify the current financial crisis. Gramm co-authored the Gramm-Leach-Bliley Act of 1999, which compounded the financial world’s too-big-to-fail problem by letting traditional commercial lenders like Bank of America and Citigroup buy up riskier, unregulated investment banks like Merrill Lynch. Gramm then pushed the Commodity Futures Modernization Act of 2000 through in a midnight budget amendment, a tactic which made sure that “credit default swaps” were not subject to either securities regulations or gambling laws. Just eight years later, credit default swap gambling destroyed insurance giant AIG, to the dismay of taxpayers everywhere.
When lawmakers stop cowing to the bank lobby and start answering to their constituents, the result is a big boost for the entire economy. Last week, committees in both the House and Senate dealt the credit card industry a rare defeat by approving bills that crack down on abusive credit card billing practices. Even though Sen. Dodd insists keeping his lobbying contacts a mystery, he is capable of crafting responsible legislation. The bills were introduced by Dodd and Rep. Carolyn Maloney, D-N.Y., but still face major uphill battles clearing the full House and Senate.
As Harry Hanbury details for the American News Project, conservative lawmakers and bank lobbyists are already hard at work watering down the legislative language to ensure that it will not actually curb any abuses if enacted. Take a look:
The bills would ban dozens of billing gimmicks that are as outrageous as they are common, including raising interest rates on credit card debt after it has been accumulated and hiking rates due to completely unrelated activity, like returning a library book late. The banking industry deploys a lot of clever words to mask the predation inherent in the tactics, and most common of all are the terms “price according to risk” and “risk-based pricing.” These phrases make it sound as if all the poor little credit card companies want to do is set interest rates at levels appropriate for a borrower’s credit profile. Of course, that’s not what’s actually happening: lenders are radically changing the terms of loan agreements for no other purpose than to gouge borrowers, and give borrowers no say in what happens.
It’s crazy that banks are legally permitted to raise interest rates on cardholders after they have charged debt to their credit card. If you pay full price for anything else—a shirt, a bag of groceries, a guitar—it would be laughable if the shop clerk demanded more money from you months later.
Banker apologists insist that banning these practices will restrict the flow of credit. But more credit cards will not fix a problem caused by massively over-indebted consumers. We need higher wages, not a fresh flood of predatory, high-interest debt.
But if taxpayers can win on credit cards, we can win on the bailout, too. Yes! Executive Editor Sarah van Gelder posted an open letter to President Barack Obama this week, citing half a dozen economic experts and urging him to change his bailout strategy before it’s too late. “Watching your appointees’ latest bank bailout makes me wonder if all your administration’s good work on health care, education, and jobs will be swept away by the extraordinary giveaway of trillions in taxpayer money to a group of powerful Wall Street operatives,” van Gelder writes.
And indeed, in other arenas of economic policy, the president has made significant steps in the right direction. While Obama’s proposed federal budget is less than perfect, it moves away from some of the worst trends of the past eight years. GritTV’s Laura Flanders details some of this progress in a roundtable discussion with Irasema Garza, President of Legal Momentum, former New York Times reporter David Cay Johnston, and New York City Coalition Against Hunger Director Joel Berg. By implementing robust job creation plans and a massive increase in anti-hunger and nutrition programs, Obama has signaled that the plight of those hardest hit by the recession cannot simply be ignored.
But these positive budget strides do not involve the banking lobby, which still maintains a stranglehold on any realm of U.S. public policy it can loot for a profit. Obama standing up to the financiers is not an improbable pipe dream, it’s a prerequisite for economic recovery and a necessary step toward rebuilding the integrity of our democracy.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Curbing Decline in 2009
In 2008, we witnessed the first serious fallout from deep structural flaws in the relationship between the nation’s public and private sectors, a relationship which fell short in every conceivable area from Wall Street regulation to the basic social safety net. The biggest economic stories of 2009 will be about how President-elect Barack Obama’s administration repairs—or fails to repair—that connection.
The first step in rebuilding a government that actually responds to problems before they reach the bailout stage will be Obama’s highly anticipated economic recovery package. As Dean Baker notes for The Huffington Post, the failure to date of Congress to pass meaningful stimulus legislation has been beyond negligent. Several Congressional leaders are cautioning that a bill will not be ready until February, but with more than two weeks to go before Obama’s inauguration, Congress has both the time and the public support necessary to pass a major bill before Obama takes up a chair in the Oval Office, as anyone who remembers the speed of Congressional action moved on the Wall Street bailout can attest.
The content of the legislation will reveal a great deal about Obama’s priorities. No president since Franklin Delano Roosevelt has entered office with an economic mandate as clear as that Obama enjoys, but one early warning sign for progressives is this week’s news that Obama plans to devote as much as 40% of the bill to tax cuts, a number that could go higher in legislative haggling with Congressional Republicans.
In a blog post over at The Washington Monthly, Hilzoy highlights the well-established economic fact that tax cuts are the least efficient method for boosting economic activity. Remember the February 2008 economic stimulus bill? Fat lot of good those $600 tax rebates did.
Public investment in areas like health care, green energy and research into sustainable manufacturing also leaves a stronger economy in its wake, and spending on basic infrastructure projects—roads, bridges, etc.—has been sorely neglected for the past eight years.
What’s more, as Ezra Klein notes for The American Prospect, the U.S. government seems to be in perpetual tax cutting mode, whether economic times are good or bad. While cutting the right taxes amid a severe recession can be justified, President George W. Bush’s decision to take a chainsaw to the IRS code during an economic boom cannot become a permanent facet of U.S. policy.
Imperative services provided by state governments are currently in severe jeopardy amid tax shortfalls prompted by lower housing values. The Public News Service discusses budget problems in Michigan and Missouri in pieces by Tony Bruscato and Laura Thornquist. Michigan faces cutbacks in health care for the poor and college tuition assistance programs, while Missouri needs to fill a $900 million hole by 2010.
State and local governments are likely to be $200 billion underwater next year, according to a piece by Robert Kuttner appearing in Chelsea Green. Even if Obama does not want to tackle major issues like universal health care in his first 100 days in office, he could fund community health clinics and make sure police officers, firefighters and teachers do not lose their jobs.
It has been easy to forget amid the mortgage market news of 2008 that other aspects of the economy have been under intense strain. In a frightening interview with The Real News, Leo Panitch details how a drop-off in working-class wages, fueled by a decades-long decline in the power of organized labor, has forced millions of Americans to turn to expensive consumer debt just to make ends meet.
That surge in credit card debt has been accompanied by a refusal on behalf of the federal government to place meaningful regulations on credit card lending practices. The Federal Reserve finally took steps in December to rein in deceptive credit card lending, but as Mike Lillis demonstrates for The Colorado Independent, the new rules are relatively modest given the scope of credit card-related abuses. Lenders can still do pretty much anything they want to a borrower once they miss a payment, and the Fed’s restrictions do not even go into effect until July 2010.
If low wages and predatory credit cards are not enough to push consumers into financial ruin, consider what is taking place in the student loan industry. The government keeps the student loan market going in two primary ways: by directly lending to students and by guaranteeing loans students take out from private lenders like Sallie Mae, making it cheaper for Sallie Mae to extend loans. The government-assisted private sector loans cost taxpayers significantly more money than loans made through the direct loan program.
When student lenders hit the skids this year amid a Wall Street-induced credit crunch, the government responded by financing student loans made through private companies.
But if the government is not only guaranteeing private-sector loans but financing them as well, the resulting scheme is essentially a less efficient version of the direct loan program, as Cole Robertson explains in a piece for The Nation. Sallie Mae CEO Albert Lord seems to approve of the bailout plan, but has not offered to return one penny of the orgiastic pay he’s accumulated over the past year in return for this taxpayer largess. Lord cashed out over $44 million in stock options in one day during the summer of 2007, and has been targeted by Congressional insider trading investigations for convenient sales of Sallie Mae stock.
A big federal bailout accompanied by outrageous executive compensation. Sounds familiar.
It is truly astonishing to consider how much damage conservatives have done to public attitudes on economic issues over the past 14 years. There is nothing inherently progressive about policy suggestions like like funding emergency health care, paying firefighters and teachers or refusing to allow lenders to arbitrarily change the terms of a contract without borrower consent. This stuff is basic sanity. At least 2009 promises not to be boring. We will either witness a return to said sanity that would have been unthinkable even a year ago or another depression. Happy New Year.
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