Posts tagged with 'Ezra Klein'
Weekly Audit: Debt and Taxes
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by Zach Carter, TMC MediaWire Blogger
Earlier this month, President Barack Obama rolled out a new plan to limit the use of offshore tax havens and crack down on corporate abuse of the tax system. These tax havens siphon over $100 billion a year from the government, and have allowed many U.S. banks to duck paying taxes despite receiving massive, taxpayer-funded bailouts. The president’s plan is far from perfect, but comes as a welcome acknowledgment of the unfairness embedded in the current tax code.
Corporate taxes are precisely the type of issue that mainstream media outlets prefer to avoid. Even though the government’s tolerance of corporate tax evasion is a major scandal, it takes time to explain the issue’s intricacies, and it’s easier to resort to pundit-jousting than to provide a detailed report on how companies are cooking the books.
Most discussions of corporate taxes are quickly distorted by focusing on the overall income tax rate for the wealthiest corporations. This rate is 35% in the U.S., which is relatively high when compared to other developed nations with complex economies. But corporate lobbyists have successfully pushed thousands of complex loopholes into the U.S. tax code, making the actual, paid tax rate much lower. In a battle between pundits, a talking head screaming “Thirty-five per cent!” tends to be more persuasive than an academic talking about offshore deferred compensation.
This sheer density of the tax code creates a destructive feedback loop for policymakers. “If the loopholes are very complicated, then the only people who know enough to argue over them will be the lobbyists dedicated to their preservation,” Ezra Klein writes for The American Prospect.
As a result of this information imbalance, lobbyists can convince Congress to gouge ordinary citizens, even when those lobbyists are representing companies dependent on taxpayer largess for their very existence. Financial firms are particularly fond of establishing small sub-corporations in the Caribbean to shield their income from the U.S. Treasury. By registering their headquarters in these tiny nations, companies pay tiny fees to their “home” country and shirk being taxed in the U.S.
Citigroup has received over $45 billion in direct capital injections from taxpayers and billions more in federal insurance, but as Jim Hightower notes, the banking behemoth has a total of 427 sub-corporations scattered around the globe, and they serve no purpose other than avoiding taxes.
It’s not as if these companies have actually moved their employees or their trading houses or their factories to these remote locales. Their existence outside the United States entirely a fiction of paperwork crafted by clever corporate lobbyists. About 400,000 companies are headquartered in the British Virgin Islands, and none actually do any business there.
“All 400,000 companies are located in one gray, two-storey building in the town of Tortola,” Hightower notes.
Similar situations exist in dozens of other tax-haven nations. The Cayman Islands have over 12,000 companies “housed” in a single building. As David Cay Johnston explains in The Nation, the Caymans bar these pseudo-firms from engaging in any business beyond hiding profits.
Corporate tax-dodging has real consequences. “Honest taxpayers have to make up for the revenues lost through this offshore cheating in three ways: we pay more in taxes, we get fewer government services and we incur rising government debt,” Johnston writes.
The practice also helps artificially inflate corporate profits—and fake profit-taking was one of the chief drivers of the current financial crisis. In an illuminating interview with GritTV’s Laura Flanders, former banking regulator William Black explains how top-level executives at major financial institutions used accounting gimmicks to score record bonuses at the expense of the greater economy.
“It was an epidemic of fraud lead by the CEOs, and they were using accounting to commit that fraud,” Black says.
Subprime loans have much higher interest rates than ordinary prime loans. This means subprime loans are actually worth more to banks, provided the borrower can actually pay the loan. An executive with an eye to his own paycheck might urge his company to gobble up massive quantities of subprime loans, according to Black, enabling the bank to book record profits for the few months or years that borrowers could actually keep up with their mortgage payments. Giant profits generate gigantic bonuses for the executives, so even when the company is destroyed by all this subprime binging, the executive walks away rich.
Executives also aligned the pay incentives of employees lower on the corporate food chain with this strategy, ensuring that lenders churned out as many loans as possible, regardless of quality. The result is a devastating chain of fraud starting at the Wall Street CEO and ending at the mortgage broker. In the below video for American News Project, Lagan Sebert outlines the operations subprime mortgage giant Ameriquest and their Wall Street enablers, Citigroup.
Obama deserves some credit for acknowledging that corporate tax-scamming is a problem—Presidents Bill Clinton and George W. Bush were happy to sign-off on laws that made it easier for wealthy companies to evade taxes. But Obama’s crackdown doesn’t go nearly far enough. His plan would only bring in about 10% of the revenue the U.S. Treasury Department thinks it is losing through these scams. If Obama is serious about restoring accountability to Wall Street, that commitment does not end with the tax code. It is equally essential for Obama to secure new regulations on CEO pay that tie compensation to meaningful, long-term profits instead of short-term risk-taking, and to hire financial regulatory officials who will not tolerate endemic fraud.
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 Pulse: A Timetable for Reform
Senators Max Baucus (D-Mont.) and Ted Kennedy (D-Mass.) have set a timetable for healthcare reform by this fall–a major step on the road to passing legislation this year. The Senators’ plan, set out in a letter to President Obama, calls for a bill by June, committee markups over the summer, and a final vote in the fall. (Just in time for delayed-action budget reconciliation, should the Republicans prove recalcitrant.)
As Steve Benen of the Washington Monthly notes, timetables matter, politically. Furthermore, as Ezra Klein explains at TAPPED, a pact between Baucus and Kennedy is a big step forward: these two key committee chairs now have a plan to avoid the turf wars that stymied reform in 1994. This time, the two Senators have pledged to work together to write similar bills, instead having their respective committees produce very different legislation, like they did last time.
Experts agree that successful healthcare reform must work on two fronts: Paying for care while simultaneously keeping the cost of care in check. Elsewhere on TAPPED, Klein discusses why American healthcare costs so much compared to other countries. He points to a study by the famous McKinsey consulting company showing that the extra cost is not because we’re sicker, nor because we consume more healthcare:
Marcia Greenberger of the National Women’s Law Center outlines what’s at stake for women in the healthcare reform debate at RH Reality Check. She writes:
Speaking of raw deals, Martha Rosenberg describes how big pharma distorts science to get approval for yet more drugs of questionable safety and efficacy in AlterNet. Rosenberg notes that the Justice Department is cracking down on AstraZeneca and Forest Laboratories for hiding key scientific evidence that called the safety of their products into question.
What pharmaceutical companies aren’t dumping onto the market, they’re dumping into the water supply, according Lauren Kirchner of Air America Radio: 271 million pounds of drugs, from antibiotics to tranquilizers, have been legally dumped into the U.S. water supply over the past 20 years.
The Vatican keeps nixing Barack Obama’s picks for ambassador to Vatican City for being pro-choice, according to the American Forum. Carolyn Kennedy was a front-runner until she was disqualified for being personally pro-choice. I would note that there’s something of a Catch-22 here. Minor ambassadorships are, after all, rewards for big time political backers. The only reason anyone is in line for this job is because they helped the pro-choice Barack Obama get elected. This could take a while.
This post features links to the best independent, progressive reporting about health care. Visit Healthcare.newsladder.net for a complete list of articles on healthcare affordability, healthcare laws, and healthcare controversy. And for the best progressive reporting on the Economy, and Immigration, check out Economy.Newsladder.net and Immigration.Newsladder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and 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: Stop Subsidizing Wall Street
Treasury Secretary Timothy Geithner rolled out his new Wall Street bailout plan on Monday and the progressive verdict is already in: This bailout doesn’t look much better than the last one. In fact, Geithner’s latest plan isn’t much different from several other flawed proposals policymakers have floated over the past year. At its core, Geithner’s program is just another attempt buy up “toxic assets” from banks at inflated prices.
If most major U.S. banks accepted current market prices for the bad, mortgage-related assets on their books, they would be insolvent. Geithner is trying to convince Wall Street that the assets are worth a lot more than everyone thinks they are, rather than deal with the fundamental problems of the assets and their owners. The plan unveiled on Monday involves a smorgasbord of guarantees for Wall Street investors, all part of an effort to sweeten the pot and convince them to buy toxic mortgage-related assets from troubled banks. Unfortunately, Geithner’s revisions create new problems without solving key previous dilemmas inherent in the plan.
In a post for Talking Points Memo, Josh Marshall highlights a clip of Nobel Prize-winning economist Joseph Stiglitz rejecting a very similar plan in early February. Marshall asks “Why are we still at this?”
Under older formulations of the toxic asset purchase model, the government would have purchased the assets directly from banks. Since the assets are hard to value, this approach would have carried the risk that the Treasury would pay too much and provide banks with what amounts to a bailout (inflated price = free money + no strings attached). Geithner’s new plan offers incentives that encourage hedge funds and private equity companies to buy toxic assets from banks. But the incentives do nothing to make sure the funds do not pay too much for those assets. Indeed, Geithner’s plan actually encourages the private sector to pay too much. The troubled banks are still likely to be bailed out, thanks to a strong possibility that investors will pony up artificially high prices for their assets. The result is a set of economically irrational subsidies for both banks and Wall Street investment houses.
As Ezra Klein puts it for The American Prospect: “Imagine an art auction. Now imagine an art auction where Sotheby’s loans money to the participants and promises to pay the losses if the paintings fall in value. Think the pricing will be the same? And who would you say is being protected: Sotheby’s or the private investors?”
Still worse, all of those subsidies and guarantees for hedge funds mean that taxpayers are on the hook for much more than our private sector “partners,” since buying up assets that nobody wants to buy is an intrinsically risky plan. In a sane investment world, taxpayers would benefit from a greater share of any gains from the investment. But the Geithner plan actually works the opposite way, as David Corn writes for Mother Jones: “The feds are shouldering much more of the risk burden than the private firms. Yet the feds would not get any greater split of the profits—if they ever materialize.”
The government has intentionally created a gamble in which taxpayers bear the brunt of the blow for any losses, but allows Wall Street investors to enjoy a disproportionately large share of any gains. Subsidizing hedge funds and private equity firms serves no real economic function– they do not make loans that help small businesses or consumers. If we are going to bail out troubled banks, we might as well control how our funds are spent and ensure that the mistakes that created this problem are not repeated: wipe out the shareholders who made bad bets on poorly run companies and kick out the management teams who drove those companies into the ground.
Everyone, of course, is still angry about those AIG bonuses. But excessive executive compensation is not only a problem for companies that have been bailed out, as David Moberg explains for In These Times. Outrageous CEO paychecks distort timelines for executives, encouraging them to take short-term risks at the expense of long-term profitability. This is bad not only for individual companies, but for the entire economy. The current financial crisis is a direct result of executives binging on risky securities to score big paydays without worrying about future damages to their companies’ balance sheets.
It’s also easy to forget that corporations are not merely wealth machines for their top executives—they are supposed to serve a useful economic function and fulfill actual social needs. Moberg argues persuasively that we need new rules for corporate accountability that align the interests of companies with the well-being of our society.
Over at Yes!, David Korten emphasizes the risk that important reforms on Wall Street will fall by the wayside if the government continues to focus on short-term emergency bailout plans instead of serious regulatory changes. It’s past time for regulators to impose new rules on the game. The current financial crisis hit in the summer of 2007. Bear Stearns collapsed over a year ago. If the government had devoted more time to restructuring a broken financial system and less time orchestrating short-term bailouts, policymakers would have a much more effective set of tools to combat the crisis with. The most important lesson we have learned so far is that when a bank is considered too big to fail, it has become too big to exist. If lawmakers do not force over-sized financial behemoths to downsize, the entire economy will be jeopardized again when Wall Street’s next speculative bubble bursts.
At present, however, Geithner seems content to simply blow another bubble with a new set of windfalls for Wall Street. If that sounds like a raw deal for taxpayers, that’s because it is.
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: Budget Good, Bailout Bad
President Barack Obama rolled out his highly anticipated federal budget proposal on Thursday, and while the plan represents a dramatic departure from the priorities of the Bush administration, its ultimate impact may be crippled by a counterproductive bank bailout.
First, the good news: The budget is awesome.
“Obama would raise taxes on the wealthy to pay for healthcare for the uninsured; cap pollution emissions; put billions more dollars into infrastructure and new technology; … invest in new education programs; and roll back the U.S. troop presence in Iraq,” Mike Madden writes for Salon. “There were proposals to save money by modernizing the healthcare system … and by eliminating federal farm subsidies to the biggest and wealthiest recipients.”
While it’s refreshing to see a set of priorities that put economic stability ahead of entrenched corporate interests, Obama’s call to reduce the federal deficit comes as a bit of a surprise. He has inherited a massive recession and defecit. Over at The American Prospect, Ezra Klein highlights an analysis of spending by Media Consortium alum Brian Beutler. Both bloggers agree that government debt is not a major problem, provided that borrowed funds are used to invest in something meaningful.
“Debt can be good if you expect that spending will offer a greater return than saving,” Klein writes. “And right now, because Treasury bonds are the last safe investment, it’s the cheapest it’s been for the government to borrow money in 50 years.”
Republicans are screaming about the enormous deficit that Obama’s budget requires, but most of that debt was passed down by President George W. Bush. Obama has actually taken cues from Congressional Republicans to find funding for financial shortfalls. Steve Aquino of Mother Jones notes that Obama’s move to raise premiums on Medicare received by wealthy Americans is a longstanding Republican priority. Additionally, Obama’s move to cap the itemized deduction tax subsidy at 28 cents on the dollar would re-establish Reagan-era levels.
But the line items missing from Obama’s budget are just as noteworthy. The Washington Monthly’s Steve Benen dissects the Republican angst over Obama’s refusal to push for cuts in Social Security benefits. During his speech before Congress last week, Obama breezed right by the alleged Social Security crisis without asking elderly Americans, who have already seen their 401k plans cut in half over the past year, to take further cuts in their retirement income.
That’s a good thing, because as Matthew Rothschild explains for The Progressive, Social Security’s looming implosion is a Republican myth. “Social Security isn’t going bankrupt,” Rothschild writes. “It’s fully funded until 2041, and could remain so for many more years simply by making the wealthiest Americans kick in their share.”
The income limit for Social Security taxes is $105,000 a year, so billionaires pay the same Social Security as those making $105,000 annually. If Social Security ever does run into trouble, it can be easily fixed by charging rich people more for the program.
On to the bad news.
The government bailed out Citigroup and its shareholders for the third time on Friday, converting $25 billion in preferred stock into ordinary, run-of-the-mill, we-own-this-company common stock. But while Citi’s stock market value was hovering around $13 billion at the time, taxpayers only received a 36% stake in return for their largesse.
The Real News has a great interview with economist William Engdahl about the banking lobby’s ability to exercise control over public policy, despite the industry’s self-inflicted collapse. Engdahl argues persuasively that it is time for the government to stop propping up bank shareholders under the hope that “market prices” will magically appear for worthless assets. “Write those assets, those toxic assets, down to zero,” Engdahl says. “Only the state can do that at this point. You don’t find the market price for these things.”
The government has been playing for time for the last 18 months in hopes that the financial crisis could iron itself out. Rather than reward investors who put money into bad companies, Engdahl says Obama needs to wipe out the shareholders of failed banks and kick out the management teams that steered their companies into catastrophe.
Playing for time was the central economic strategy of Henry Paulson’s tenure as Treasury Secretary, but as Lagan Sebert and David Murdoch make clear in the below video for The American News Project, Paulson also managed to slip in major giveaways to big U.S. banks in the process.
The Troubled Asset Relief Program (TARP) allowed the government to inject capital into banks, but Paulson charged them a much lower than market rate of return on the investment. As a result, taxpayers missed out on about $78 billion that they could have expected to receive in interest payments had their money been managed by, say, Warren Buffett instead of Paulson. To put that number in perspective: President Obama’s entire plan to avert foreclosures will cost taxpayers $75 billion.
The U.S. banking system is completely broken and will need an enormous taxpayer commitment to return to any semblance of health. But there are good ways and bad ways to go about doing that. A bailout should be accompanied by control over how a bank is managed.
The banking industry is working very hard to portray TARP as something other than a bailout. When Northern Trust, for example, throws decadent parties after receiving taxpayer funds, its executives justified those lavish expenditures by claiming that their company was not “bailed out,” but merely received capital which it is paying for. The pricing of TARP was so favorable to banks and so disadvantageous for taxpayers that this claim cannot be taken seriously. Northern Trust got a bailout, and even if they pay back their TARP funds ahead of time, the interest they are paying is so far below market rates that the company will still be coming out ahead.
Obama’s budget shows that he knows what it takes to turn the economy around, but his financial policy indicates that he lacks the political will to shake off the banking lobby and do what is necessary to save ordinary Americans from disaster.
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 Pulse: Czar 44, Where are You?
Weekly Pulse: Czar 44, Where are You?
By Lindsay Beyerstein, TMC MediaWire blogger
The Obama administration may be about to pull the plug on the health czar. The position has gone unfilled since Obama’s appointee-apparent, former Sen. Tom Daschle, withdrew his name from consideration for both czar and Secretary of Health and Human Services (HHS) in early February. Several serious candidates are emerging in the unofficial race to lead HHS, but there’s no corresponding shortlist for health czar.
The czar and his Office of Health Reform were initially touted as proof that Obama was really serious about shepherding a health reform package through Congress. But the Obama team may ultimately decide that the Office of Health Reform is an obstacle instead of an asset without Daschle and ditch it altogether.
As Erza Klein explains in the American Prospect, the position was created especially for Daschle and any other candidate might be worse than nothing as far as passing a healthcare reform package goes. Steve Benen of the Washington Monthly agrees, and says that nixing the health czar doesn’t necessarily indicate that the Obama administration is any less committed to healthcare reform.
The purpose of the health czar was to create a single emissary to represent President Obama’s healthcare agenda to Congress. When the Clintons tried to reform healthcare in 1993, they discovered that various powerful administration officials were claiming to speak for the president.
The health czar was supposed to prevent future confusion as the president’s spokesperson. Many senior healthcare officials are already close to Obama and a similar situation could arise. Daschle would have been a credible health czar because he’s closer to the president than any of them, and a former congressional heavyweight to boot. Gov. Kathleen Sebelius is a front-runner for HHS secretary and she has a very good relationship with Obama. But Gov. Sebelius is a Washington outsider who has never served in the U.S. Congress, which might make her a less compelling candidate for czar.
Ezra Klein, linked above, argues that if nobody can fill Daschle’s shoes, appointing a less compelling czar might just add to the din of executive branch officials vying for the attention of key Congressional leaders.
Maybe it’s a good idea to send as many Obama health officials to Congress as possible. If nothing else, they might cut into time the reps are currently spending with health insurance industry lobbyists, as Talking Points Memo reports.
Speaking of contenders for Secretary of Health and Human Services, Gov. Howard Dean recently published an article on AlterNet defending Obama’s comparative effectiveness research (CER) agenda against right wing critics like Rush Limbaugh. Dean draws on his experience as a doctor and a healthcare policy-maker to argue that CER is a way to put more scientific evidence in the hands of doctors, so they can choose the very best treatment for the money. Right wingers don’t like the idea. They’re literally afraid that if science determines that a treatment is bogus, the government will stop paying for it. Right wingers calls this “rationing.” Taxpayers might call it evidence-based policy. Last we checked, Medicare and Medicaid were not faith-based programs.
As Dean points out, the CER to be funded by the new economic stimulus bill is officially for doctors, not legislators. “Mr. Limbaugh and his cohorts would have you believe that this research will be used to deny needed care to your great Aunt May and be run by the politburo. But the Bill passed by Congress states right up front that the Government can not make coverage decisions based on this research,” Dean wrote. Realistically, though, that’s kind of a hollow assurance. Once the research is done, there’s no way to stop legislators from using publicly available research findings to make healthcare decisions.
In another corner of the healthcare reform-o-sphere, Katrina vanden Heuvel says that time is right to reform New York’s draconian Rockefeller Drug Laws in The Nation. These laws have been on the books 35 years. The laws essentially force judges to send drug possessors to jail based on the weight of the drugs they were caught with, whether the judge thinks imprisonment would be a good idea or not. New York’s budget crisis might be a blessing in disguise for drug reform, vanden Heuvel argues, because policy-makers are sick of paying to keep drug offenders locked up whether they need it or not.
And finally, some good news from RH Reality Check. Many people just wouldn’t feel right stepping out without a spritz of perfume, a blast of breath-freshener, or regrettably, a head-to-toe shellacking with Axe Body Spray. As Joe Veix reports for RH, another spray-on product may one day be added to the essential equipment list: contraceptive. An Australian company is currently testing a hormone spritz for women. The product is applied to the forearm. Like the contraceptive patch, the spray is designed to deliver hormones through the skin. Researchers hope that through-the-skin delivery can produce the same results as pills, but with lower doses of hormones and fewer side effects.
This post features links to the best independent, progressive reporting about health care. Visit
href=”http://healthcare.newsladder.net/” title=”Healthcare.NewsLadder.net” id=”so75″>Healthcare.NewsLadder.net for a complete list of articles on healthcare affordability, healthcare laws, and healthcare controversy. And for the best progressive reporting on the ECONOMY, and IMMIGRATION, check out, <a href=”http://economy.newsladder.net/”>Immigration.NewsLadder.net and Economy.NewsLadder.net.
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Weekly Audit: Welfare, Work and the Bailout Bonanza
The U.S. economy lost nearly 600,000 jobs in January, bringing total losses in the past three months over 1.5 million—more than the entire population of Philadelphia. If there ever was a good time to mend the tattered U.S. social safety net, it’s now. While unemployment benefits and food stamps remain relatively uncontroversial, basic welfare continues to be neglected by the general media and vilified by the right. And as of this moment, a responsible welfare program is needed more than at any point since the 1930s.
Seth Wessler has a great blog on RaceWire about retooling welfare so that it actually provides relief to people in need. The welfare reform Congress passed in 1996 tied benefits to employment, thereby excluding those who most need help, especially in an economy like this. The law’s popularity was fueled by false stereotypes about the disadvantaged.
“The punitive rules established after twenty years of racially coded frenzy to ‘end welfare as we know it’ have left Americans with no safety net during this deepening economic crisis,” Wessler writes, arguing that it is high time for this hateful chapter of American history to be over.
Pointless haggling over the economic stimulus legislation also needs to stop now. In a post for The Nation, John Nichols details the damage Senate Republicans have inflicted on the economic recovery package, and by extension, the economy itself. If the current Senate bill becomes law, Nichols notes, states will get less money to keep public employees on the payrolls, education programs will receive less funding, efforts to create jobs will be less effective and public health initiatives will be stymied. Even conservative French President Nicolas Sarkozy thinks that the changes the Senate has made to the bill are a bad idea.
And what do we get for sacrificing all of these public investments? Tax cuts. As Robert Oak notes in the Economic Populist: “We need income, people!” The government can try to create incentives for people to buy cars and houses and stocks, but without a job, a lower price tag means nothing. If tax cuts are to make any impact, they have to be accompanied by major job creation. And job creation programs mean government spending.
Has everybody forgotten that Democrats just won back-to-back elections? Trickle-down economic policies were rejected by voters across the nation last November. Republicans lost seats in Idaho and Virginia, of all places! When a party suffers such complete losses, it means that voters don’t put much stock in its ideological toolkit—and they probably don’t want the winning party to do so either.
“There’s been a sort of embarrassment at the prospect of aggressively using the Democratic mandate, and there shouldn’t be,” Ezra Klein writes for The American Prospect.
Of course, the U.S. government plans to do more than provide more tax cuts for rich people. It’s also going to bail out the shareholders and executives of huge multinational corporations that wounded the economy in the first place, creating a new welfare program for the wealthy. We will need some kind of financial sector to support economic recovery, and freshly sworn-in Treasury Secretary Timothy Geithner could take one of two reasonable routes to economic salvation: The Treasury could nationalize the major “too-big-to-fail” banks outright, or simply let them die and have the Federal Reserve fill the credit-shaped hole in the economy. Unfortunately, the Obama team appears ready to pump money into the banks and shield shareholders from losses that stem from some of the worst management decisions in business history.
If Geithner and Co. orchestrate another bank bailout, however, we lose an opportunity to rebuild the U.S. economy that actually addresses the needs of individuals in an environmentally sustainable way. As David Korten argues in Yes! Magazine, the Wall Street-driven economy has created huge sums of money, but done almost nothing to meet any serious social challenge. To build a better economy, we need to transcend Wall Street. “Trying to solve the crisis with the same tools that caused it is the definition of insanity,” Korten writes.
Beyond Wall Street, the Obama administration has inherited a decimated manufacturing sector. It’s currently propped up by a deeply flawed loan the Treasury Department extended to General Motors and Chrysler in December. Below is a segment from a four-part series on the auto bailout from The Real News. In it, Host Paul Jay notes that unions are being asked to take pay cuts as part of the effort to retool the Detroit car makers, even as decades of dreadful management decisions and poor environmental policy are being shut out of the public discussion.
It’s important to note that autoworkers’ union could be helping cement the false perception that workers are responsible for Detroit’s problems by agreeing to accept pay cuts as part of the bailout plan. Acquiescing to the demands of incompetent executives and opportunistic lawmakers also sets a terrible precedent for other stand-offs between CEOs and their employees. The millionaire managers who created the mess should be held accountable for the clean-up, not the factory workers who had the audacity to ask for health insurance.
Something is terribly amiss when the most neglected members of society can’t ask for help paying the bills, while even those protected by union contracts can’t expect to have their health care costs covered. The U.S. economy will be losing at least half a million jobs for the foreseeable future. We cannot abide by a system that punishes those who are already being hit hardest by the economic downturn.
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: Stimulus Stagnation
Despite a lofty launch last week, the good ship Bipartisan is sunk, at least so far as the economic stimulus is concerned. President Barack Obama and House Democrats bent over backwards to appease the GOP by including several tax breaks and excluding a major anti-foreclosure measure from the package, but when it came time to vote, zero House Republican backed the bill. Lawmakers who actually care about the fate of the U.S. economy are furious. Every day spent haggling with obstinate Republicans means heavier economic damage. What’s more, many of the tax breaks the GOP insisted on are simply terrible policies, whatever the economic climate.
“Not surprisingly, some Democrats who did deal with the GOP as if they were reasonable want to reverse the concessions they gave up,” Steven Benen writes for The Washington Monthly.
Even some conservative economists want to strip out the Republican provisions. On this week’s Stimulus Plan NewsLadder, many reporters and bloggers respond to Martin Feldstein’s newfound opposition to the stimulus package, as revealed in a Washington Post op-ed. Feldstein, who was chief economic adviser to President Ronald Reagan, initially came out in support of the package but recently reversed his opinion, but on surprising grounds. While progressives have noted that some of Feldstein’s criticisms of the House bill are off-base, they have also emphasized that his take on several stimulus plan tax cuts, actually come from the ideological left. As blogger Dylan Matthews put it in a guest blog for Ezra Klein at The American Prospect: “You know when your stimulus package is too cautious? When Marty Feldstein is attacking it from the left.”
One of Feldstein and the left’s major problems with the package: the corporate “net operating loss carryback” (NOL) giveaway. The NOL carryback works like this: companies who lost money in 2008 will get an immediate refund for taxes paid on previous, profitable years. Right now, the carryback limit is two years. The stimulus bill would change the law to refund companies every penny they paid in taxes for the past five years, so long as the company lost more than that five-year sum in 2008.
Tax cuts can be economically helpful when they create incentives for people to act in socially beneficial ways. For example, offering a company a deduction for starting a windfarm creates jobs and establishes an environmentally friendly power plant. Giving away billions of dollars to companies simply because they lost money, by contrast, encourages nothing. What’s more, many businesses lost money in 2008 because they were in bloated sectors that needed to get smaller. The U.S. has too many banks and too many homebuilders—that’s one of the reasons why so many banks and homebuilders are struggling right now. A lump-sum payment will not fix the underlying problem.
Not all of Feldstein’s recommendations are good ideas– Josh Marshall of Talking Points Memo offers a particularly good rejection of his push for increased military spending—but Feldstein’s argument nevertheless makes the Republican leadership look like a total farce. “His critique is nothing like the Republican claptrap we’ve been hearing over recent days,” Marshall writes. “In fact, in some respects it’s like stuff I’ve been hearing from Democrats.”
House Democratic concessions on the stimulus involved more than new tax cuts—they also excluded several important provisions to keep the GOP happy. Republican leaders successfully lobbied Obama to bar mortgage bankruptcy reform from the bill, blocking the most important legal step necessary to reduce foreclosures. It is the second time Obama has urged Democrats to abandon the bankruptcy rule change to garner Republican support for a major bill—the first was the Wall Street bailout bill that passed in October. Even if the bankruptcy legislation passes at some point in the future, many borrowers in trouble now will lose their homes before the law changes.
“That stance has piqued some Democrats, who are beginning to wonder if the push for bipartisan agreement is worth the cost of waiting,” Mike Lillis writes for The Colorado Independent. “For each day that Congress dallies, these lawmakers say, thousands of Americans lose their homes to foreclosure.”
According to the Center for Responsible Lending, we will see 6,000 foreclosures every day this year on subprime mortgages alone.
Let’s conceptualize how the bill could change the mortgage landscape. Imagine that you get laid off and start working a job with lower pay, rendering your mortgage payments unaffordable. In many circumstances, your bank would want to modify your loan so that you owe them less money, because the alternative—foreclosure—creates an even bigger loss for the bank. The trouble is, banks frequently do not have the ability to alter loans, because they sell them to a third party investment bank. The investment bank packages the loan into a security with a hundred or so other mortgages and then sells it to dozens of investors. Now, hundreds of signatures are required to modify your mortgage—and not all of the investors have your interests at heart. Some would rather see you default on your mortgage, because they know the decreased value of the security will hurt their competitors more than it will hurt them.
But if bankruptcy courts could compel loan modifications, all of this investor warfare would be avoided. You file for bankruptcy and the court will “cram down” the amount you owe on your mortgage and banks or investors simply eat the difference as a loss. No taxpayer-funded bailout necessary.
Obama’s economic work will not stop with the stimulus legislation. Major regulatory reform is needed on a variety of financial fronts, not the least of which is preventing borrowers from getting stuck with predatory mortgages in the first place. As Stephanie Mencimer of Mother Jones notes, the Federal Reserve appears to be softening its long-time anti-regulatory stance. The steps are small, but significant. While the Fed’s new rules barring some abusive credit card billing practices didn’t go far enough, they mark the first time the Fed has acknowledged that common lender practices are straightforwardly unfair. The central bank has even hired a consumer activist as a policy adviser.
For all its faults, however, Obama’s stimulus gets several important policies right. In a piece for The Nation, Robert Pollin notes the dramatic new shift in tone regarding the compatibility of environmental sustainability and economic justice. After decades of debate that pitted the plight of workers against saving the environment, people are finally waking up to the idea that we might create good paying jobs to fight global warming.
For now, the recession continues to grind on, with strange and depressing surprises appearing everywhere—even grocery store shelves. Jim Hightower unveils a new trend among producers to shrink product sizes while maintaining their prices, effectively raising the cost to consumers. The shrink-ray tactic has been deployed on toilet paper, cereal, peanut butter and who knows what else. Thanks to tricky marketing and packaging, you might not even realize when you’ve been ripped off.
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: Obama’s Stimulus Plan Signals End of Era
Since the U.S. is officially in a recession, and the Congressional Budget Office has predicted the worst economic downturn since the Great Depression, just about everybody acknowledges that times are tough. Everybody, that is, except the National Republican Congressional Committee. Talking Points Memo’s David Kurtz caught the Republican fundraising operation spouting some embarrassing doubletalk on their website earlier this week, including the proud declaration that “the U.S. economy is robust and job creation is strong.”
In fact, job creation is non-existent. The U.S. economy is losing over half a million jobs every month and even optimistic Wall Street economists expect unemployment to keep rising for at least another year.
Tough times call for unity, and President Barack Obama dedicated much of his inauguration speech to working together to usher in a “new era of responsibility.” Obama’s sentiment is essential—there is no way we can limit the damage of this recession without a massive collective commitment. The problem is, we all know how we got here, as Jose Garcia points out at The Progressive. Reckless bank lending, lax government oversight and insufficient social safety nets combined to saddle consumers with unaffordable levels of debt and directed family savings into completely irrational home values.
“Yes, we all need to pitch in, but above all the private sector and government regulators need to act responsibly,” Garcia writes. The surge in U.S. consumer debt over the past twenty-five years has been accompanied by stagnant wages and deceptive loan contracts. People often rely on credit to meet basic needs, Garcia notes, and bankers routinely do not disclose how much those loans will cost borrowers. Banks rewarded loan officers and mortgage brokers for pushing unaffordable loans, and a recent study by the Center for Responsible Lending revealed that most people do not understand the fine print on their credit cards.
Let’s be clear, then: Collective responsibility means overhauling Wall Street regulations and not holding the plight of working Americans hostage to banker bonuses.
Collective responsibility also means making sure that everyone has an affordable place to live. The Bush administration supported unregulated subprime mortgages and a totally disregarded rental housing programs. That approach was misguided. Renting is the only realistic housing option for the least well-off swath of the U.S. population, and affordable housing is supposed to help that demographic. Inattention to the rental market has created serious imbalances for low-income Americans. Adam Doster highlights some frightening statistics in a piece for The Nation, noting that a full-time worker would have to earn $17.32 an hour to afford the average rent on a two-bedroom apartment, well over double the minimum wage.
But there is evidence that Obama’s economic recovery package signals an end to an era of neglect. Fresh from being named one of the 25 most influential liberal voices in U.S. media by Forbes Magazine (read: the bad guys are afraid of him), Kevin Drum emphasizes the important health care provisions and expanded unemployment benefits in stimulus bill in a blog for Mother Jones. Key measures in the plan include an immediate $450 increase in benefits for the blind, disabled and elderly, along with expanded Medicaid funding and more food stamps for the 30 million Americans currently receiving them.
“With this plan, the new government confirms that it has some responsibility for providing a safety net for its poor and disabled, its children and elderly,” Drum writes.
For those of you interested in tracking the stimulus plan as it develops, make sure to check out StimulusPlan.NewsLadder.Net, which features the best independent reporting and analysis of this bill.
Over at The American Prospect, Ezra Klein–another blogger whose name strikes terror in the hearts of Forbes editors everywhere–offers some insight on bank nationalization. Nationalization is a major step, but the terms of former Treasury Secretary Henry Paulson’s bailout operation are actually more suspect. Paulson’s plan only nationalized private-sector losses, while allowing bank shareholders to enjoy any profits stemming from public help. The result? Backward incentives for bank executives and a waste of taxpayer dollars.
Once the government allows banks—or any companies—to become too big to fail, incentives for excessive risk-taking become standard fare. Does anybody seriously believe that Bank of America would have gobbled up Merrill Lynch in weekend merger negotiation if it did not think that government support would always be available, even in a worst-case-scenario? If taxpayer largess is always on the table, then meaningful consequences should accompany it. If a bank would not be viable without the collective support of taxpayer, and it remains in the collective interest to keep the bank in operation, then the government should nationalize it, kick out the management team and wipe out the shareholders. Going halfway and simply nationalizing the losses does nothing to discourage bad management behavior.
Unfortunately, however good Obama’s recovery package may be, both his administration and Congressional leaders are sending signals that we will not see anything resembling reasonable financial policy in the near future. Truthdig posts some comments from Vice President Joe Biden and House Speaker Nancy Pelosi indicating that much more money than the original $700 billion bailout outlay could be coming down the pipe.
It is more important than ever to have a strong voice heading the Labor Department to make sure the administration does not lose focus on the nonfinancial economy. Hilda Solis, President Obama’s nomination for Labor Secretary, is just such a voice, as Kim Bobo argues in an op-ed for In These Times. She has been a staunch defender of organized labor throughout her political career. Senate Republicans are stalling her nomination citing her support for the Employee Free Choice Act, a bill that would allow workers to unionize once a majority of employees at a workplace agree. The business exec lobby is already spending big bucks to spread misleading information about the legislation, saying it would mean an end to “secret ballots” in union elections, when in fact the bill would simply allow workers to enter a union without first holding an election.
Those elections are frequently subject to intimidation from employers. We are not taking collective responsibility when we allow our workers to be threatened by their bosses when they ask for decent pay and benefits.
This post features links to the best independent, progressive reporting about the economy. Visit Economy.NewsLadder.net for a complete list 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.