Posts tagged with 'Fed'
Weekly Audit: Millions of Americans Could Lose Unemployment Benefits
Editor’s Note: Happy Thanksgiving from the Media Consortium! This week, we aren’t stopping The Audit, The Pulse, The Diaspora, or The Mulch, but we are taking a bit of a break. Expect shorter blog posts, and The Diaspora and The Mulch will be posted on Wednesday afternoon, instead of their usual Thursday and Friday postings. We’ll return to our normal schedule next week.
by Lindsay Beyerstein, Media Consortium blogger
According to official statistics, nearly 15 million Americans are unemployed. Between 2 and 4 million of them are expected to exhaust their state unemployment insurance benefits between now and May. Historically, during times of high unemployment, Congress provides extra cash to extend the benefits. Congress has never failed to do so when unemployment is above 7.2%. Today’s unemployment rate is above 9% and the lame duck session of Congress has so far failed to extend the benefits.
Congress has until November 30 to renew two federal programs to extend unemployment benefits, as David Moberg reports for Working In These Times. Last week, a bill to extend benefits for an additional three months failed to garner the two-thirds majority it needed to pass in the House. The House will probably take up the issue again this session, possibly for a one-year extension, but as Moberg notes, it’s unclear how the bill will fare in the Senate. The implications are dire, as Moberg notes:
The result? Not just huge personal and familial hardships that scars the lives of young and old both economically and psychologically for years to come. But failure to renew extended benefits would also slow the recovery, raise unemployment, and deepen the fiscal crises of state and federal governments.
But wait! There’s more:
- The Paycheck Fairness Act died in the Senate last week, as Denise DiStephan reports in The Nation. The bill would have updated the 1963 Equal Pay Act to close loopholes and protect employees against employer retaliation for discussing wages. All Republican senators and Nebraska Democrat Ben Nelson voted not to bring the bill to the floor, killing the legislation for this session of Congress. The House already passed its version of the bill in 2009 and President Barack Obama had pledged to sign it.
- Economist Dean Baker talks with Laura Flanders of GritTV about quantitative easing (a.k.a. the Fed printing more money) and the draft proposal from the co-chairs of the deficit commission. Baker argues that we’re facing an unemployment crisis, not a deficit crisis.
- Charles Ferguson’s documentary “Inside Job” is a must-see, according to Matthew Rothschild of The Progressive. An examination of how Wall Street devastated the U.S. economy, the film details the reckless speculation in housing derivatives, enabled by crooked credit rating schemes, that brought the entire financial system to the brink of collapse. The film is narrated by Brad Pitt and features appearances by former Governor and anti-Wall Street corruption crusader Eliot Spitzer, financier George Soros, and Prof. Nouriel Roubini, the New York University economist who predicted the collapse of the housing bubble.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Weekly Audit: Want Economic Justice? Then it’s Time to Act.
by Zach Carter, Media Consortium blogger
On Thursday, the U.S. Senate passed a financial reform package that includes a handful of important reforms, but it won’t fundamentally change the relationship between banks and society. Wall Street still has a vice grip on our economy, and lawmakers still find it very difficult to stand up to bigwig financiers.
The real fight for our economy will involve future legislative battles with bankers. Winning those battles will require sweeping action by engaged citizens. The good news is, critical progressive mobilization is already happening. Public outcry helped fuel the fire for Senate reform. Rep. Barney Frank (D-MA), has said that the Wall Street reform bill he pushed through the House last year would have been much stronger in today’s atmosphere of outspoken economic unrest. (more…)
Weekly Audit: Time to Audit the Fed
By Zach Carter, Media Consortium Blogger
Two key lawmakers on the House Financial Services Committee, Reps. Alan Grayson (D-FL) and Ron Paul (R-TX), are pushing to authorize a full, comprehensive audit of the Federal Reserve. The plan has sparked fury from both the Fed and the corporate banking industry, but the proposal is so appealing that the controversy is almost laughable.
The Federal Reserve is one of the most powerful economic institutions in the world, but most of its operations are conducted in total secrecy. The Fed’s rescue activities have dwarfed the $700 billion Troubled Asset Relief Program, but without any public accounting. Some of these efforts may have been entirely appropriate, but we don’t even know who the Fed is helping. That fact is a major barrier to establishing effective and fair economic policy. (more…)
Weekly Audit: Four More Years of Bailout Ben
By Zach Carter, TMC MediaWire Blogger
After Ben Bernanke allowed an $8 trillion housing bubble to ravage the global economy and nearly destroy the U.S. financial system, President Barack Obama has decided he deserves another term as Chairman of the Federal Reserve. (The UpTake has video of Obama’s announcement here.) As the Fed Chair, Bernanke has more economic power than any other person on the planet. By heading the committee that sets interest rates, he can control the economy’s rate of growth or contraction; as head regulator of the largest banks, Bernanke has more influence over the rules of the economic game than anyone else.
Why is the Bernanke reappointment a mistake? Matthew Rothschild of The Progressive turns to Sen. Bernie Sanders, an independent democratic socialist from Vermont. Put simply, Bernanke is completely culpable for allowing an economic crisis to foment.
“Like the rest of the Bush administration, he was asleep at the wheel during this period and did nothing to move our financial system onto safer grounds,” Sanders said.
Corporate media generally neglects to mention Bernanke’s role at the Fed prior to 2008, and instead credits him with stopping a second Great Depression. It’s true that the Fed has done everything possible to keep Wall Street from imploding, but Bernanke also repeatedly insisted that the subprime mortgage crisis would be “contained” as late as 2007 and made no plans for a situation that might prove worse than his rosy forecasts.
As William Greider explains for The Nation, it’s a bit too soon to celebrate our economic salvation at Bernanke’s hands. Small banks are failing at an alarming rate, job losses remain heavy and households are being squeezed by plummeting property values and growing credit card debt.
Greider emphasizes that Bernanke repeatedly bailed out financial giants without demanding anything in return, which bodes poorly for any future economic crisis. Kenneth Lewis remains Bank of America’s CEO, even though the company has needed $45 billion in taxpayer funds to date, and high-level Fed officials think Lewis may be guilty of securities fraud. On the one bailout where the Fed did assume ownership of the company and discharge it’s top-level management, AIG, the deal was structured to funnel no-strings-attached money to other Wall Street companies. Goldman Sachs raked in $12.9 billion from the arrangement. It’s one thing to funnel money to financial firms in the name of economic necessity. It’s quite another to allow executives at those companies to be paid like princes and subsidize their shareholders.
As economist James K. Galbraith discusses in a piece for The Washington Monthly, it’s not clear if Bernanke and Co. actually saved the economy. Even if the financial system gets back to normal functioning, that stability has been purchased with massive taxpayer support. In order to do just about anything involving finance in the United States, a company now needs a very explicit government seal of approval to convince investors that they’re safe to do business with. Just ask Colonial Bank, which failed earlier this summer after being denied bailout funds under the Troubled Asset Relief Program.
But there has been secret support as well. Bernanke’s Fed committed over $2 trillion in emergency loans to keep the financial system from collapsing during the crisis, and has refused to tell the public who got the money, and on what terms. We don’t know who we saved, or at what the consequences of this massive bank support operation will be. Bernanke always believed that rescuing Wall Street would prevent major damage to the broader economy, but Galbraith questions whether the economy would be stronger if policymakers had focused more on direct aid to workers and homeowners, including an earlier, more robust economic stimulus package.
“Perhaps the right thing would have been less focus on saving banks, and much more on saving jobs, families, and homes.”
Writing for In These Times, Roger Bybee profiles a new group called Americans for Financial Reform, which is pushing for changes on Wall Street and fighting against business-as-usual at the Fed. The bank lobby is probably the most powerful interest group on Capitol Hill. Unfortunately, there hasn’t been a strong and consistent voice urging lawmakers to protect the entire economy, rather than the banks. The very structure of the Fed makes it more responsive to Wall Street interests than those of the general public. Private-sector banks like Citigroup and Bank of America are shareholders in each of the Fed’s regional branches, while private-sector bank executives sit on the board of directors at each branch. Since the boards get to name the regional presidents, private-sector bank CEOs are given major power to name their own regulators. Regional presidents also rotate through positions on the Fed’s monetary policy board, making decisions to set interest rates.
The Fed’s institutional structure, and its reliance on mainstream economists overly acquiescent to the financial sector has helped fuel the boom-and-bust bubble economy, as the Real News explains in this video piece:
In addition to the turmoil surrounding the Bernanke appointment, the recent budget deficit projections have been receiving a lot of attention lately. By throwing around a lot of big numbers that end in “trillion,” deficit hawks have created the impression of crisis where none exists. The government will have a $1.6 trillion shortfall this year, equal to about 11% of the U.S. economy. That’s the highest such number since the U.S. economy started to soar in the years after World War II, high enough to mobilize CNBC pundits to warn of financial apocalypse and a bankrupt U.S. government.
But as Robert Reich notes for Salon, it’s not really worth getting too worked up over the current deficit projections. In a recession, countries want to run a deficit: the government needs to fill hole created by the drop-off in private-sector economic activity. If the U.S. doesn’t run a big deficit, it will shed millions of additional jobs. And the country is nowhere near losing control of its currency. The federal debt stands at about 54% of our economic output right now, and is projected to reach 68% by 2019. But Reich notes that in 1945, the number was far higher: 120%. This number shrank dramatically over the next few years, not because of draconian cuts to government programs, but because the economy grew so much that the debt burden became less severe. We are nowhere near a crisis with the budget that compares to the current unemployment crisis, so pulling back spending right now doesn’t make much sense.
Bernanke has always argued that the Fed chair’s only duty is to control inflation. But managing the economy means not only attending to inflation, but making sure the true engine of economic growth—financially secure households—isn’t sacrificed to the short-term interests of a few Wall Street elites. Bernanke failed to block that economic predation early in his tenure as Fed Chairman. If Bernanke is going to be with us for another four years, President Obama needs to find other ways to restore our economic balance.
This post features links to the best independent, progressive reporting about the economy and is free to reprint. 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: Unions and Wage Growth Can Fuel Recovery
by Zach Carter, TMC MediaWire blogger
The U.S. economy is in big trouble right now, and the reform process may be missing a key point. When banks ran into severe trouble late last year, the government responded quickly with a massive bailout, but very little has been done to address a major structural flaw that has left our economy so vulnerable: rampant income inequality. In a system based on consumer spending, we have stretched consumers beyond their limit.
Former Labor Secretary Robert Reich argues that we are in for a long period of economic woe over at Talking Points Memo. Consumer spending accounts for about 70% of the U.S. economy, so when consumers go broke, everything shuts down. Ordinary Americans’ wages have been declining for decades, and the collapse of the housing bubble wiped out roughly $14 trillion in household wealth. Simply rebooting in the hopes that our simultaneous assault and dependence on consumer pocketbooks will work again will not be effective.
“This economy can’t get back on track because the track we were on for years—featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere—simply cannot be sustained,” Reich writes.
Strengthening our labor unions is probably the biggest single step the U.S. can take toward economic stability. And the best way to do that would be passing the Employee Free Choice Act, which would make it much easier for unions to organize by circumventing executive intimidation. Empowered workers can demand fair wages, decent benefits and help build a society that values all labor as an important part of collective existence.
In a profile of AFL-CIO leader David Trumka for The Nation, David Moberg presents a vision of an economy in which policymakers and voters are concerned with how much wealth exists and how that wealth is distributed. Widespread prosperity does not inevitably flow from technological or financial innovation if the resulting gains are diverted to a select few.
“In Trumka’s view, the unionism of the 1930s forged a social compact that made possible the middle class prosperity of the 1950s and 1960s,” Moberg writes. “But since the early 1970s, Wall Street and financial interests have dominated American politics, dismantling the compact and increasing inequality, debt and insecurity as workers struggled to keep up.”
It may be surprising for those of us who don’t work on Wall Street, but there is actually an enormously influential school of thought in Washington, D.C. that believes recessions are actually good for the economy. The reasoning goes something like this: When economies gorge themselves, something has to happen to correct the mistake—to “purge the rottenness from the system,” as Herbert Hoover’s Treasury Secretary Andrew Mellon once said. The idea has some level of intuitive appeal, but as Christopher Hayes writes for The American Prospect, it’s also a complete distortion of how recessions actually work.
“Economic contraction feels quite different to a bond trader and an unskilled worker,” Hayes writes. “A spike in unemployment hits those on the margins of the labor market the hardest, while contractions also usher in deflation, which has a strong tendency to make the rich richer.”
In reality, the government almost never makes the perpetrators of an economic collapse pay serious consequences. When the economy gets into trouble, the government usually takes emergency measures to avert a crisis, and then refuses to adopt reforms that would protect those dealt the most harm. It’s been this way for decades.
Not only have workers been neglected, but billions of their tax dollars have bailed out banks that ran themselves into the ground via predatory loans. But even that bailout money is not being used to help strengthen the broader economy. Writing for The Washington Independent, Mary Kane highlights a host of reports that indicate banks are booting people out of their homes, and then refusing to care for the houses once they’re vacant. When homes are overgrown and infested with all kinds of critters, the value of nearby properties plummets. Banks are hurting completely innocent homeowners whose tax dollars helped bail them out.
We don’t even know the full extent of the favors the government has performed for financial firms. In a video for the American News Project, Lagan Sebert, Harry Hanbury and Mike Fritz detail some of the Federal Reserve’s unprecedented actions during the financial crisis. The Fed has lent out over $1 trillion to banks over the course of the financial crisis without disclosing who received the loans or what kind of collateral the Fed received in return.
Much of what we do know about the Fed’s rescue plans is disquieting, as William Greider, an economics journalist with The Nation, explains in the ANP video. When Bear Stearns collapsed in March 2008, the Federal Reserve Bank of New York negotiated a rescue plan in which JPMorgan would acquire the failed Wall Street icon in exchange for $30 billion in loss protection from the Fed. But JPMorgan would have been one of the hardest hit by a Bear Stearns collapse, and JPMorgan CEO Jamie Dimon sits on the board of directors at the New York Fed.
“Tim Geithner, who was then President of the New York Federal Reserve Bank and is now Treasury Secretary, was negotiating with his own board member,” Greider says.
Going back to labor: Hourly workers will get some much-needed relief later this month, when the federal minimum wage increases from $6.55 to $7.25 an hour, as Doug Ramsey explains for Public News Service of Arizona. While executives like to argue that raising the minimum wage is a job-killer, the fact is that no serious study has ever linked the two phenomena. Interestingly, the wage increase was not a response to the economic crisis. It was one of the first legislative victories for the Democratic Party when it won back majorities in the House and Senate in 2006.
Anybody who lives on less than $7.00 an hour can attest that the added income is a welcome improvement over the status quo. But $7.25 an hour is just $15,000 a year—not nearly enough to save for the future or pay for a serious medical procedure. Our economy is suffering because many, many ordinary people are living paycheck to paycheck. We have to create an economy where work and workers are given their fair value.
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 Regulation Overhaul Comes Up Short
by Zach Carter, TMC MediaWire Blogger
President Barack Obama rolled out his plan to overhaul financial regulation last week. While much of the Obama plan relies on the same regulators and structures that led to the current meltdown, there is one key exception. The establishment of an independent Consumer Financial Protection Agency would give ordinary citizens a seat at the financial policy table for the first time and prevent the abuses in credit card and mortgage lending that have wreaked havoc on households all over the country.
The new agency is the brainchild of Harvard University Law School Professor Elizabeth Warren. As chair of a key oversight panel for the Treasury Department’s bank bailout program, Warren has uncovered major deficiencies in the government’s handling of the plan, including nearly $80 billion in overpayments to bailed-out banks. American News Project features footage of an interview with Warren, who explains why we need a separate agency to regulate on behalf of consumers.
Several bank regulatory agencies, the Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision are already charged with writing and enforcing consumer protection rules for credit cards and mortgages, but have generally abandoned these duties to act as cheerleaders for their banks.The current structure’s problems are two-fold. First, the current regulators are funded by fees levied on the very banks they regulate. When there are several different bank regulators, regulators compete to offer the weakest oversight and attract more banks, and, in turn, more funding. The process quickly becomes a race to the bottom. When the subprime mortgage boom was surging in 2003, the OCC, a federal bank regulator, went to court to ensure that the state of Georgia’s tough predatory lending laws could not be enforced.
Second, the regulatory agencies tend to look at the health of the bank, rather than the quality of the loans it makes. If a commercial bank like Citigroup makes a really outrageous predatory loan, then sells that loan to an unregulated investment bank like Goldman Sachs, Citi’s regulator doesn’t particularly care. A new regulatory agency that answers exclusively to consumers rather than banks would be a very meaningful change for the financial system.
The rest of the overhaul is a little frightening. As William Greider explains for The Nation, instead of crafting explicit rules to curb obvious abuses, Obama’s plan relies very heavily on ceding power to the Federal Reserve. Under the new framework, the Fed would both oversee “systemic risk” in the financial architecture and regulate the banks that have become “too big to fail.” This, Greider emphasizes, is a very bad idea. The Fed has repeatedly proven itself to be uninterested in regulating banks. Citi needed $45 billion in direct cash infusions from the U.S. taxpayer and hundreds of billions of dollars in other guarantees to stay afloat, as Nomi Prins writes for Mother Jones. Who was charged with regulating the company and making sure such an outrage never occurred? The Fed.
In a video spot for GritTV, former senior banking regulator William Black argues that it makes little sense to allow banks to become too big to fail at all. Sturdier regulations are better than nothing, but the real solution is to break them up. “Why would we allow banks to be so big that they threaten the global economy?” Black asks.
Going back to Prins in Mother Jones: Elsewhere, the regulatory revamp is simply too vague to be helpful. Regarding derivatives—the financial weapons of mass destruction that destroyed AIG—it’s not clear if Obama wants to regulate the entire industry, or a small, meaningless fraction. Obama’s plan is to require that “standardized” derivatives are traded on exchanges and allow “customized” derivatives to escape investor scrutiny. But the Treasury never explains what the difference is between these “standard” and “custom” products, or how it will make sure banks don’t game the system.
Lest we forget, this crazy finance system brought us the worst economic calamity since the Great Depression. The unemployment rate, by conservative measures, is at 9.4% and rising. You may have noticed the stories about “green shoots” signaling the first inklings of economic recovery circulating through the media. But these signs are only promising, AlterNet’s Joshua Holland explains, if you take them completely out of context and ignore all of the other terrible news. The economy is in great shape … except for the millions of foreclosures that will take place this year, the skyrocketing unemployment rate, the decimated retirement funds, and the mountains of credit card debt weighing down the average U.S. consumer.
Serious consumer protections are nothing to scoff at, especially after watching an outbreak of predatory mortgage lending spawn an economic collapse. It comes as no surprise then, as Tim Fernholz notes for The American Prospect, that the bank lobby is already working to water down the new consumer protection agency’s powers. But even if a regulator for consumers makes the final legislative cut, with so many drastic problems in the current financial regulatory structure, the Obama plan simply does not do what is necessary to fend off another crisis.
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.
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