Posts tagged with 'financial crisis'
Weekly Audit: Brown-Nosing Wall Street Reform
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by Zach Carter, Media Consortium blogger
More than two years after the collapse of Bear Stearns, the House and Senate finally ironed out their differences on Wall Street reform in the wee, small hours of Friday morning. The bill now goes back to both the House and Senate for final approval, but it’s fate in the Senate is uncertain following the defection of Tea Party Sen. Scott Brown (R-MA).
The resulting bill has several things going for it, but largely misses the critical structural lessons of the Great Financial Crash of 2008. As Wall Street continues to score epic profits and grotesque bonuses over the coming months, progressives must be committed to continuing the fight for a fair economy. (more…)
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: Wall Street Reform, Financial Fraud, and Foreclosures
by Zach Carter, Media Consortium blogger
Last week, Senate Democrats broke the Republican filibuster on Wall Street reform. This week, Senators are introducing key amendments to strengthen the bill. While the current legislation is not strong enough to seriously curtail Wall Street abuses, all hope is not lost: A mere handful of amendments could make reform a reality. Unwinding the excesses of the Bush-era economy will require tough new rules on the nation’s largest banks. It will also require aggressive prosecution of fraud, and a serious new plan for helping homeowners in distress.
Ending too-big-to-fail
As Sen. Bernie Sanders (I-VT) emphasizes in an interview with GRITtv’s Laura Flanders , the four largest U.S. financial institutions have more than $7 trillion in assets—that’s over half the size of the entire U.S. economy. With that kind of political and economic muscle, banks can influence just about any financial reform that makes it through Congress simply by intimidating the regulators who try to implement them. (more…)
Weekly Audit: Republicans Filibuster Our Financial Future
by Zach Carter, Media Consortium blogger
Last night, Senate Republicans proved beyond any doubt that when it comes to the economy, they stand with Wall Street and against everybody else. Joined by lone Democrat Sen. Ben Nelson (D-NE), Republicans successfully filibustered the procedural technicality of opening debate on Wall Street reform. It’s an unmistakable ploy to kill the bill and collect campaign cash from bigwig bankers. The coming weeks won’t be pretty.
Republicans are going to be battered by this filibuster. Financial reform is popular, and nobody on Capitol Hill wants to be seen as the agents of Wall Street in Washington come November. Republicans are hoping to rhetorically counter Obama’s proposals, negotiate a fatally weakened reform package, and then vote with Democrats for reform-in-name-only before the elections. But the U.S. financial system is broken and voters know it needs strong medicine.
In a speech last week before Cooper Union Hall in New York City, Obama laid out what’s at stake in the reform fight. Our biggest banks don’t fear failure because they know the government will bail them out in a crisis. As a result, they take massive risks that endanger the economy. Our current regulators ignored predatory lending in order to protect Wall Street profits. To top it off, the risky, multi-trillion-dollar market for derivatives—the financial weapons of mass destruction that brought down AIG—remains beyond the scope of regulatory authority altogether. (more…)
Weekly Audit: Congress Must Get Tough On Wall Street
by Zach Carter, Media Consortium blogger
Congress returns from its April recess this week with financial reform at the top of its to-do list. With millions of Americans still 
bearing the brunt of the worst recession in 80 years, Congress needs to start protecting our economy from Wall Street excess, and repair the shredded social safety net that has allowed the Great Recession to exact a devastating human cost.
Big banks are an economic parasite
In an excellent multi-part interview with Paul Jay of The Real News, former bank regulator William Black explains how the financial industry has transformed itself into an economic parasite. Black explains that banks are supposed to serve as a sort of economic catalyst—financing productive businesses and fueling economic growth. This was largely how banks operated for several decades after the Great Depression, because regulations had ensured that banks had incentives to do useful things, and barred them from taking crazy risks.
The deregulatory movement of the past thirty years destroyed those incentives, allowing banks to book big profits by essentially devouring other parts of the economy. Instead of fueling productive growth, banks were actively assaulting the broader economy for profit. None of that subprime lending served any economic purpose. Neither do the absurd credit card fees banks charge, or the deceptive overdraft fees they continue to implement.
Weekly Audit: After Health Care, the Economy
By Zach Carter, Media Consortium blogger
Now that health care reform has finally been enacted, a host of critical economic issues are taking center stage, including financial reform, unemployment and deeply rooted economic inequality. But it’s important to note that with its health care vote, the U.S. House of Representatives actually approved a very important, and often overlooked financial reform: Student lending.
Pedro de la Torre III of Campus Progress explains the current student loan nightmare in an interview with The American Prospect’s Rebecca Delaney. For years, the U.S. government has paid massive subsidies to some of the worst-run companies in the country.
Thanks a lot, Sallie Mae
As de la Torre notes, instead of directly making loans to students, the government spent years funneling money to firms like Sallie Mae to actually make the loans. When things went sour, taxpayers covered the lender’s losses from student loans that ultimately went bad.
Taxpayers were also footing the bill for the loans and taking on the risk, while private companies and their executives enjoyed the benefits. The executives made quite a haul. In 2008 alone, Sallie Mae CEO Albert Lord took home an astonishing $46 million. Even among CEOs, that’s a princely sum—more than double what Halliburton CEO David Lesar made the same year. All of that money could have financed a lot of college educations.
Fortunately, the student loan landscape is almost certain to change as a result of the health care vote. The House bill included a provision to end student loan subsidies and boost funding for direct grants from the government to students.
Since the student loan reform and health care were both eligible for reconciliation in the Senate (meaning only 51 votes are needed for passage instead of the 60 to clear a filibuster), House Democrats decided to move on both at the same time. It’s a significant reform, and one that will soon become law with President Barack Obama’s signature.
What would an overhaul of the consumer finance industry entail?
The student loan system is just one aspect of the consumer finance industry that needs a major overhaul. On mortgages, credit cards, overdrafts, and payday loans, the banking status quo is one of outright predation. As Heather McGhee of Demos explains to The Nation’s Christopher Hayes, there’s a reason why federal agencies do a lousy job regulating consumer banking abuses.
Right now there is no agency responsible for consumer protection alone. Every regulator also focuses on making sure banks don’t fail, which generally means that regulators support anything that increases short-term profits. Egregiously predatory practices generally lead to big short-term gains in banking.
A new consumer financial protection bureau
Last week, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced a bill that would create a new bureau of consumer financial protection, with no constraints from bank profitability. It’s a step in the right direction, but as McGhee notes, there are plenty of problems with Dodd’s proposal. Most problematically, the bill gives existing agencies a veto power over any new consumer protection rules. That’s a terrible loophole. Existing regulators have actively opposed consumer protections in the past, and there is every reason to expect that practice to continue.
Rapid tax refunds scam the poor
It’s late March, which means tax season is getting into full swing. All over the country, mascots from Liberty Tax are spilling into the streets wearing goofy costumes, trying to win your business. But millions of Americans don’t realize that Liberty, along with H&R Block, Jackson-Hewitt and hundreds of smaller businesses are engaged in a monstrous scam disguised as a complicated accounting service.
As Alexander Zaitchik emphasizes for AlterNet, these tax preparers have used deceptive advertising and slick salesmanship to con people into taking out “refund anticipation loans,” also known as “rapid refunds” and a handful of other pleasant euphemisms. It’s a simple gimmick: H&R Block does your taxes, and then presents you with your tax refund, right away, no waiting. But the check you receive is not actually your tax refund—it’s your tax refund minus a truckload of fees that you didn’t realize were being deducted. This is the tax-time equivalent of payday lending.
When the government sends in your actual, larger tax refund one-to-two weeks later, you won’t see it—it goes straight to H&R Block’s bank partner. Those banks are making big money taking from your tax returns. Here’s Zaitchik:
“In 2008, more than eight million Americans spent nearly a billion dollars paying interest and fees on RALs—often based on misleading or incomplete information—swelling the profits of tax preparers and their partner banks.”
The one break low-income people get under the U.S. tax code is the Earned Income Tax Credit (EITC), the nation’s largest anti-poverty program. Only about 16% of taxpayers qualify for the EITC, but as Zaitchik notes, nearly two-thirds of the people who take out refund anticipation loans receive the credit. Tax preparers are making a concerted effort to prey on the poor, making the EITC program more expensive and less efficient for all taxpayers—not just those who go to H&R Block or Liberty Tax.
More action needed on jobs
Beyond finance, the U.S. economy has a serious jobs problem. Last week, Congress approved an $18 billion jobs package that is simply far too small to make a serious dent in the nearly double-digit unemployment rate. As Art Levine explains for Working In These Times, the package will create 250,000 jobs at best. That number shouldn’t be acceptable to anyone watching the U.S. economy, which has shed about 7 million jobs since the recession began.
There are much stronger options available than the $18 million bill the Senate approved. Rep. George Miller (D-CA) has introduced a bill in the House that would quickly save or create one million jobs, and the House has already passed a separate $154 billion jobs package that would prevent 900,000 lay-offs. If the Senate moved on either one, the result would be a major economic boost.
The link between poor economies and poor health
All of these problems—unemployment, student loan scamming, refund anticipation loan sharking and other forms of financial predation—reinforce economic inequality in the United States, which is at levels unseen since before the Great Depression. That inequality is ultimately actively damaging to public health, as epidemiologist Richard Wilkinson explains in an interview with Brooke Jarvis for Yes! Magazine. Rampant economic inequality in the United States is literally making us sick.
“We looked at life expectancy, mental illness, teen birthrates, violence, the percent of populations in prison, and drug use,” Wilkinson says. “They were all not just a little bit worse, but much worse, in more unequal countries.”
With health care finally finished, Congress and the administration have an opportunity to make serious headway on the economy. They’ve got plenty of work to do.
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: Will Weak Reforms Bring on Another Crisis?
By Zach Carter, Media Consortium blogger
Senate Banking Committee Chairman Chris Dodd (D-CT) unveiled his latest financial reform proposal on Monday, and the stakes for the new legislation couldn’t be higher. After consumer groups raised a major ruckus, Dodd has dropped one of his most egregious concessions to the bank lobby—cutting enforcement authority from the proposed Consumer Financial Protection Agency (CFPA). That’s good news: Without a major regulatory overhaul, the U.S. economy’s destructive boom and bust cycle will start all over again.
We’ve been down this road before. The Enron fiasco should have served as a wake-up call for policymakers, but instead, the weak federal response to Enron’s major fraud helped pave the way for the current economic slump. (more…)
Weekly Audit: The Global Economic Crisis
By Zach Carter, Media Consortium Blogger
Over the past thirty years, Wall Street has waged a steady war against governments around the globe, convincing policymakers of various ideological stripes that whatever raises profits for bankers and traders will be good for the rest of society. It’s a very simple and appealing portrait of how the world works. Unfortunately, it’s completely wrong.
Profiting from hunger
In an interview with AlterNet’s Terrence McNally, economic luminary Raj Patel explains the connection between widespread global poverty and wild Wall Street profits. Markets are defined by a set of rules—if those rules completely disregard social welfare, then the participants in those markets will ignore them as well. When traders can make a quick buck speculating on the price of rice, they will, even if that speculation drives up the price of a basic necessity and makes people go hungry.
We’ve known this for a long time, but as Patel illustrates, governments have allowed financial bigwigs to rewrite the basic rules of the road so that Wall Street can extract profits from anything—even hunger. That process created several crises in the developing world over the past few decades, and has now ravaged the economies of the United States and Europe. As Patel notes:
By basically gaming the system with regulations — that they authored — which encouraged a certain kind of playing fast and loose with the numbers, it was possible through some creative accounting for huge amounts of systematic risk to be kicked off into the future and ignored. And of course when the catastrophic risk was realized, everyone ran for the hills and started demanding public support.
Financial turmoil in Greece
This political sleight-of-hand is demonstrated by the looming fiscal crisis in Greece. As Richard Parker explains for The Nation, Goldman Sachs colluded with prior Greek administrations to hide the nation’s fiscal situation from both its own citizens and investors (Parker is an adviser to current Greek Prime Minister George Papandreou). Goldman was not interested in fair play—it was interested in making money off of the Greek government in any way it could. If that meant actively sabotaging the market by hiding important information, well, Goldman didn’t care.
First Greece, then …
Now that this budget façade has been stripped away, Goldman and other investors are now profiting from making things very difficult for Greece. As Matthew Yglesias explains for The American Prospect, the rational, profit-maximizing choices of investors are now actively helping to drive Greece into a default that hurts everyone:
When Greece starts looking shaky, the interest rate it needs to pay on its deficit goes up, which makes the country look even shakier. This cycle can push a vulnerable country into a default situation.
Various Greek administrations clearly bear significant responsibility for the situation. Nobody forced them to get in bed with Goldman Sachs, just as nobody forced U.S. administrations to gut our financial regulatory system. But the problem in Greece is not just a problem for a single Mediterranean nation—there is very real risk that the investor “unease” could spread to Portugal, Ireland, Spain, Italy, and by extension the European Union and the global economy. The bonuses at Goldman Sachs and J.P. Morgan Chase this year were not a sign of renewed strength in the global economy.
Community Security Clubs to the rescue
So if Wall Street can’t save us, what can? Our communities could play a significant role, as Andrée Collier Zaleska explains for Yes! Magazine. Zaleska profiles Common Security Clubs in Portland, Boston and Fort Lauderdale to show how people hit hard by the economic downturn are banding together to make ends meet, and organizing for political action.
“[Jared] Gardner, a busy organizer in Portland, launched four CSCs in his church, two of which were comprised almost entirely of unemployed people. By the time his own group had met five times, they were planning tours of local co-housing projects, organizing to fight locally for progressive taxation, and wondering how to bring the rest of their church into the time bank they had created.”
Markets are supposed to serve human needs, not the other way around. But Wall Street isn’t going to give up its stranglehold on the U.S. political process for nothing. While community-driven efforts are a good start, we need much larger actions and reform to restore balance to the global economy.
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: House Bank Bill Fatally Flawed
By Zach Carter, Media Consortium Blogger
Last week, the House of Representatives finally approved a financial regulatory overhaul and President Barack Obama announced a new initiative to address the unemployment crisis. Both are a step in the right direction, but neither offer effective solutions to problems that still plague the U.S. economy.
The House bill doesn’t do away with too-big-to-fail banks and that’s a big problem. As John Nichols explains for The Nation, “the big banks aren’t going to get sidelined—let alone broken up—anytime soon.” Instead of splitting large, risky banks into smaller firms that could fail without wreaking economic havoc, the House bill gives regulators more power, including the ability to bail out a faltering bank with billions of taxpayer dollars. When push comes to shove, regulators are not going to risk letting a major bank fail. They’ll just bail the company out. We all saw what happened when Lehman Brothers collapsed last year.
By imposing a tougher set of rules on banks, it’s conceivable that regulators could prevent some future failures. But as Mary Kane notes for The Washington Independent, Congress carved so many loopholes in the new laws that banks will have little trouble skirting them.
Obama had hoped to create a new Consumer Financial Protection Agency (CFPA) to crack down on predatory lending, but a coalition of bank-friendly Democrats pushed through amendments that significantly weaken it. Obama wanted states to have the power to enforce stronger rules on predatory lending. Under a loophole that Rep. Melissa Bean (D-IL) pressed into the House bill, states are prevented from writing or enforcing rules that limit interest rates charged by credit card companies and payday lenders. That’s a really destructive move, Kane notes, since it was state regulators, not federal regulators, who cracked down on abusive lending over the past decade.
Obama also hoped to require that risky derivatives transactions would be conducted via exchange like ordinary stock trades. Derivatives are the type of trades that brought down AIG. But the House bill exempts a huge portion of transactions from this requirement and changes the definition of “exchange” to include private, unregulated derivatives trades, as Nick Baumann explains for Mother Jones. This is a fatal flaw in the regulatory overhaul. Derivatives are the primary technique that banks use to make themselves too-big-to-fail. Over 95% of the $290 trillion derivatives market is housed at just five banks. These derivatives tie the bank to other financial firms in a complicated web of risk that is impossible for regulators to navigate. If one of those five banks goes down, there’s no way a regulator can predict the consequences.
The only hope for meaningful reform right now rests in the Senate, which is considering a much tougher bill than what the House approved. But the Senate has yet to even conduct mark-up hearings on its legislation and the pressure from the banking lobby is going to be enormous. Progressives have to keep pushing for a better bill if we want to protect our economy from the abuses that brought on the current recession.
And while huge federal bailouts for banking giants like Citigroup and Bank of America have helped the financial sector recover, the broader economy is battling the highest unemployment levels since the early Reagan era. Things are poised to get a lot worse. As Daniela Perdomo emphasizes for AlterNet, a full 3.2 million workers will lose their unemployment benefits by the end of March 2010. Even if the unemployment rate stays where it is—and Perdomo notes that a vast majority of experts think its going to go higher—the impact on ordinary people is going to be even more severe than today’s nightmare.
In a blog post for Working In These Times, Roger Bybee highlights a piece by Harvard University Law School Professor Elizabeth Warren, who emphasizes the hardships faced by ordinary families. The statistics are grim—one-eighth of Americans are on food stamps, one-eighth cannot pay their mortgages and 120,000 families are filing for bankruptcy every month.
We need to take serious steps to get people back to work. Mass unemployment means that consumers don’t spend money, which means that companies don’t sell as much, which makes companies lay off more workers to cut costs. It’s a self-reinforcing cycle. The market can’t fix unemployment without help.
So Obama’s Dec. 8 speech announcing a new job-creation plan was a welcome event. But the concrete aspects of Obama’s plan are not effective. All the tax cuts in the world won’t necessarily put people back to work. Obama did endorse a public jobs plan which involved the government hiring people to improve the nation’s infrastructure and clean up communities ravaged by the economic crisis, but he shied away from any specific numbers.
As David Roberts explains for Grist, Obama’s willingness to sign off on a $23 billion program for environmentally friendly home renovations is a step in the right direction. The plan is being referred to as “cash-for-caulkers” and is modeled on the very successful cash-for-clunkers program. The government will pay people to increase the energy efficiency of their homes, helping people cut down on utility bills and increasing the demand for construction labor and products like new windows and doors. It’s a good idea. But if all we get are tax cuts and $23 billion for greener homes, the jobs bill is not going to assuage the unemployment crisis.
There is no reason to be concerned about the cost of a thorough jobs program. Taxpayers committed trillions of dollars to help the financial sector weather the economic storm. Anybody who is worked up about the prospect of spending money on jobs should read Amitabh Pal’s piece for The Progressive. A modest tax on speculative trades of stock and derivatives could easily raise $150 billion a year to finance a robust jobs program.
At this point in the economic downturn, the government needs to take much stronger steps to rein in Wall Street and create jobs. We know what needs to be done to protect the economy from risky banking and we can afford to fix the unemployment crisis. All we need is the political will.
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: 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…)