Posts tagged with 'Hilzoy'

Weekly Audit: Curbing Decline in 2009

Posted Jan 6, 2009 @ 7:30 am by
Filed under: Economy, Health Care     Bookmark and Share

In 2008, we witnessed the first serious fallout from deep structural flaws in the relationship between the nation’s public and private sectors, a relationship which fell short in every conceivable area from Wall Street regulation to the basic social safety net. The biggest economic stories of 2009 will be about how President-elect Barack Obama’s administration repairs—or fails to repair—that connection.

The first step in rebuilding a government that actually responds to problems before they reach the bailout stage will be Obama’s highly anticipated economic recovery package. As Dean Baker notes for The Huffington Post, the failure to date of Congress to pass meaningful stimulus legislation has been beyond negligent. Several Congressional leaders are cautioning that a bill will not be ready until February, but with more than two weeks to go before Obama’s inauguration, Congress has both the time and the public support necessary to pass a major bill before Obama takes up a chair in the Oval Office, as anyone who remembers the speed of Congressional action moved on the Wall Street bailout can attest.

The content of the legislation will reveal a great deal about Obama’s priorities. No president since Franklin Delano Roosevelt has entered office with an economic mandate as clear as that Obama enjoys, but one early warning sign for progressives is this week’s news that Obama plans to devote as much as 40% of the bill to tax cuts, a number that could go higher in legislative haggling with Congressional Republicans.

In a blog post over at The Washington Monthly, Hilzoy highlights the well-established economic fact that tax cuts are the least efficient method for boosting economic activity. Remember the February 2008 economic stimulus bill? Fat lot of good those $600 tax rebates did.

Public investment in areas like health care, green energy and research into sustainable manufacturing also leaves a stronger economy in its wake, and spending on basic infrastructure projects—roads, bridges, etc.—has been sorely neglected for the past eight years.

What’s more, as Ezra Klein notes for The American Prospect, the U.S. government seems to be in perpetual tax cutting mode, whether economic times are good or bad. While cutting the right taxes amid a severe recession can be justified, President George W. Bush’s decision to take a chainsaw to the IRS code during an economic boom cannot become a permanent facet of U.S. policy.

Imperative services provided by state governments are currently in severe jeopardy amid tax shortfalls prompted by lower housing values. The Public News Service discusses budget problems in Michigan and Missouri in pieces by Tony Bruscato and Laura Thornquist. Michigan faces cutbacks in health care for the poor and college tuition assistance programs, while Missouri needs to fill a $900 million hole by 2010.

State and local governments are likely to be $200 billion underwater next year, according to a piece by Robert Kuttner appearing in Chelsea Green. Even if Obama does not want to tackle major issues like universal health care in his first 100 days in office, he could fund community health clinics and make sure police officers, firefighters and teachers do not lose their jobs.

It has been easy to forget amid the mortgage market news of 2008 that other aspects of the economy have been under intense strain. In a frightening interview with The Real News, Leo Panitch details how a drop-off in working-class wages, fueled by a decades-long decline in the power of organized labor, has forced millions of Americans to turn to expensive consumer debt just to make ends meet.

That surge in credit card debt has been accompanied by a refusal on behalf of the federal government to place meaningful regulations on credit card lending practices. The Federal Reserve finally took steps in December to rein in deceptive credit card lending, but as Mike Lillis demonstrates for The Colorado Independent, the new rules are relatively modest given the scope of credit card-related abuses. Lenders can still do pretty much anything they want to a borrower once they miss a payment, and the Fed’s restrictions do not even go into effect until July 2010.

If low wages and predatory credit cards are not enough to push consumers into financial ruin, consider what is taking place in the student loan industry. The government keeps the student loan market going in two primary ways: by directly lending to students and by guaranteeing loans students take out from private lenders like Sallie Mae, making it cheaper for Sallie Mae to extend loans. The government-assisted private sector loans cost taxpayers significantly more money than loans made through the direct loan program.

When student lenders hit the skids this year amid a Wall Street-induced credit crunch, the government responded by financing student loans made through private companies.

But if the government is not only guaranteeing private-sector loans but financing them as well, the resulting scheme is essentially a less efficient version of the direct loan program, as Cole Robertson explains in a piece for The Nation. Sallie Mae CEO Albert Lord seems to approve of the bailout plan, but has not offered to return one penny of the orgiastic pay he’s accumulated over the past year in return for this taxpayer largess. Lord cashed out over $44 million in stock options in one day during the summer of 2007, and has been targeted by Congressional insider trading investigations for convenient sales of Sallie Mae stock.

A big federal bailout accompanied by outrageous executive compensation. Sounds familiar.

It is truly astonishing to consider how much damage conservatives have done to public attitudes on economic issues over the past 14 years. There is nothing inherently progressive about policy suggestions like like funding emergency health care, paying firefighters and teachers or refusing to allow lenders to arbitrarily change the terms of a contract without borrower consent. This stuff is basic sanity. At least 2009 promises not to be boring. We will either witness a return to said sanity that would have been unthinkable even a year ago or another depression. Happy New Year.

This post features links to the best independent, progressive reporting about the economy. Visit for a complete list of articles on immigration, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out and This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Weekly Audit: A Year of Bad Decisions

Posted Dec 16, 2008 @ 10:33 am by
Filed under: Economy     Bookmark and Share

As Congress finally winds down what House Financial Services Committee Chairman Barney Frank, D-Mass., refers to as “the session that will not die,” most of us have already contracted cases of outrage exhaustion from the barrage of Wall Street-related absurdities that the government has embroiled itself in over the past year.

But do not despair! David Sirota penned two pieces this week vindicating progressive critics of the current regime, one for and another for the Campaign for America’s Future, detailing how recent reports from government agencies themselves have revealed the administration’s utter failure to craft a responsible financial rescue package. With the incompetence obvious to everyone, Sirota hopes that, “Maybe, just maybe, our humiliated rulers will start listening,” noting that progressives were right all along about meaningless CEO pay limits and oversight mechanisms in the $700 billion bailout, and overblown rhetoric from Treasury Secretary Henry Paulson.

The oratorical frenzy surrounding too-big-to-fail Wall Street titans and last-ditch government bailouts has also made it easy to forget that the financial sector actually does desperately need some downsizing, as Joshua Holland reports for AlterNet.

Not only is the financial sector burdened with mountains of worthless debt instruments, it has created broader economic inefficiencies over the past decade by gobbling up a disproportionate share of the total economy. Holland presents a host of frightening statistics about the conditions leading up to the current recession, noting an 11% surge in poverty between 2000 and 2007, lower median household incomes and sluggish job growth. Almost everybody except the financiers, it seems, was hurting, and the global economy will not recover from its economic slide until the financial sector owns up to the losses inherent in its chimerical expansion.

But financial policy failures have not been limited to bad rulemaking and pro-Wall Street philosophy. Even basic anti-fraud protections that have been on the books since the 1930s are not being enforced effectively, as evidenced by the massive fraud scheme allegedly perpetrated by fund manager Bernard Madoff. The Securities and Exchange Commission received several warnings about Madoff’s business practices dating back to at least 1999, according to The Wall Street Journal, but chose to ignore them until Madoff’s system finally collapsed on itself this fall. As Truthdig’s Ear to the Ground Blog points out, fallout from the scandal is so broad that many of those hit by the scheme “might not know yet that they’re broke.”

Over at The Nation, Nicholas von Hoffman notes how the risky investment practices that have led investment bankers to the public coffers this year have also dealt a massive blow to funding for U.S. colleges and universities. Harvard University has officially lost $8 billion of its endowment since June, while the University of Virginia—whose president, John Casteen, serves on the board of directors at the collapsed banking giant Wachovia—has hemorrhaged $1 billion. Students obviously did not demand that these funds be spent recklessly, but students will ultimately pay the price.

Of course, there’s another bailout going on, unless Senate Republicans have their way. The faltering Detroit automobile industry is seeking about $14 billion in government funds, or slightly less than 10% of what taxpayers have already poured into insurance icon AIG, which employs few blue-collar workers and mostly produces useless debt insurance for even more useless debt circulating through Wall Street.

Sen. Bob Corker, R-Tenn., led a Republican attack on auto unions, refusing to back a Detroit rescue package last week unless union laborers take a major pay cut. But the assault on the working class seems a little misguided, given the willingness of Congress to hurl $700 billion at U.S. banks without any strings on executive compensation.

“Citigroup’s CEO is being paid $216 million this year, yet Corker made no demand that he take a whack in pay,” Jim Hightower writes, even though Citi alone has accepted bailout funds worth over three times what the entire auto bailout would cost.

The chief difference between Detroit’s labor costs and those of its Japan-headquartered competitors is several decades of built-up pension plans. But as Hilzoy writes in a post for The Washington Monthly that the package was already so acquiescent to Republican demands that no serious conservative negotiators would have demanded further concessions.

Republicans do not have a monopoly on economic insanity. Over at The American Prospect, Ezra Klein highlights a troubling quote from Larry Summers, who will be the head economic advisor in Barack Obama’s White House next year. The passage appears in the new book Creative Capitalism, edited by lefty journalist Michael Kinsley:

“As for [Milton] Friedman — I’m not so sure he looks bad,” Summers says. “What is most screwed up today? GSEs, Citibank, regional banks. What is most regulated? Same list. What is least screwed up? Hedge funds and the like. What is least regulated?”

Summers’ “most screwed up” list only holds up if you exclude unregulated firms who were so completely decimated over the past year that they have become extinct. There are no major independent Wall Street investment banks anymore. Lehman Brothers died, Bear Stearns and Merrill Lynch sold to major commercial banks in emergency mergers and both Goldman Sachs and Morgan Stanley converted to commercial banks to avoid collapse. No regulator has oversight of the entire investment banking corporate structure, and the mega i-banks have simply disappeared.

Same goes for the private subprime mortgage firms like Ameriquest and NovaStar. Wondering why those logos disappeared from NASCAR hoods about a year ago? Those subprime lenders were completely unregulated and they all went bankrupt.

Sadly, the economy is well past the point where government action could fend off a severe recession. At this point, it’s all damage control. The downturn is already hitting demand so hard that even recycling programs are on the ropes, as Air America Media’s Ron Kuby discusses in a radio interview with recycling organizer Meghan McCutcheon. Cash-strapped producers are well aware of consumer pocketbook pressures, and are bunkering down to ride out the recession with as few costs as possible—including cuts in raw materials, recycled or otherwise.

This post features links to the best independent, progressive reporting about the economy. Visit for a complete list of articles on immigration, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out and This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.