Posts tagged with 'Mary Kane'
Weekly Audit: House Bank Bill Fatally Flawed
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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: Unemployment Fueling Political Storm
By Zach Carter, Media Consortium Blogger
Unemployment figures in the U.S. are staggering: The official rate stands at 10.2%, the highest in 26 years. A broader measure that includes people who are involuntarily working part-time or who have given up looking for work is at 17.5%. That’s a full-blown economic emergency.
But, as Joshua Holland explains for AlterNet, President Barack Obama’s response to the unemployment crisis has not matched the urgency of his response to the crisis on Wall Street. This isn’t just unfair, it’s bad economics. (more…)
Weekly Audit: Bigger Than ‘Too Big to Fail’
by Zach Carter, TMC MediaWire Blogger
Now that trillions of taxpayer dollars have been pumped through the financial system, Wall Street giants JPMorgan and Goldman Sachs are reporting record profits—and giving out record bonuses. Goldman is planning to pay out $11.4 billion in compensation “earned” with our money. Even worse, attempts to regulate reckless financiers or empower ordinary workers are still being stymied by influential corporate lobbyists.
How did Goldman score the biggest quarterly profit in its history? Matt Taibbi explains in an interview with GritTV’s Laura Flanders. The $10 billion in direct capital that Goldman received from taxpayers under the Troubled Asset Relief Program (TARP) is actually one of the minor offenses. The company also converted corporate charters to become eligible for guarantees, and issued a whopping $28 billion in debt guaranteed by the government.
Banks were foundering last Fall, and very few investors were willing to supply them with emergency capital. So the FDIC guaranteed their debt, which allowed banks to raise funds at extremely low interest rates. The FDIC guarantee means that taxpayers will get stuck with the bill if the company defaults. If you can raise money at absurdly low rates, its very easy to turn over huge profits, as both Goldman and JPMorgan did.
There are other outrages: We still don’t know how much money the Federal Reserve loaned Goldman through its emergency lending facilities. The government’s bailout of AIG served as a huge windfall for the company, funneling at least $12.9 billion in taxpayer largesse directly to Goldman Sachs.
“AIG owed Goldman about $20 billion, and if AIG had gone through a normal bankruptcy, Goldman probably would have gone out of business. Instead, they got paid 100 cents on the dollar for every dollar that AIG owed them,” says Taibbi, author of a blistering take-down of the investment banking giant in the most recent issue of Rolling Stone.
In Salon, former Clinton Secretary of Labor Robert Reich says that this year’s big bank failures have resulted in a heavier concentration of financial influence in the few surviving firms, namely Goldman Sachs and JPMorgan. We have taken the “too big to fail” problem and made it bigger. JPMorgan acquired rival Bear Stearns for a pittance last March with billions of dollars in government guarantees. The company also picked up national banking giant Washington Mutual last fall. That means more risk in our economy and a greater concentration of lobbying power in our political system.
“We’ve ended up with two giants that now have most of the casino to themselves, are playing with poker chips backed by taxpayers, and have a big say in what the rules of the game are to be,” Reich writes.
Adam Schlesinger of Air America took to Wall Street to compile a hodgepodge of one-on-one interviews with bailout critics and condescending financiers. Schlesinger underscores the absurdity of Goldman’s pending bonuses by posting his own checking account balance ($13.75). The point of this massive bailout was to make the economy function for ordinary people. Instead, we’ve made sure that it benefits extremely wealthy bankers.
The government so completely resists doing anything about this staggering inequality, as Eyal Press writes for The Nation. There are two ways to approach the inequality problem. We can rein in the recklessness at the top by imposing serious regulations, and empower those at the bottom by giving them greater negotiating leverage with their employers (i.e., promoting unionization). While the bonus money flows on Wall Street, the Employee Free Choice Act (EFCA), a key bill to empowering unions, was just stripped of a crucial provision that would have made it easier for workers to organize, as David Moberg reports for In These Times.
As EFCA is gutted, bills proposing regulations for the financial sector are moving at a snail’s pace—even after two years of economic turmoil. Last week, Congressional leaders from both parties nominated members for a new panel, the Financial Crisis Inquiry Commission, to investigate the causes of the financial crisis. The investigation seems doomed to failure by its very design. Zachary Roth details the committee’s various shortcomings for Talking Points Memo. Of the panelists, six were nominated by the Democratic leadership, while four were nominated by the Republican leadership. If all four Republican nominees vote to block a subpoena, the committee cannot issue it, and without broad subpoena power, the entire exercise is futile.
Roth also emphasizes the excessively political nature of the appointees, particularly on the Republican side, which named former Rep. Bill Thomas, R-Calif., as Vice Chair. The Democratic picks are generally uninspiring, except for Brooksley Born, who fought to regulate derivatives in the 1990s as head of the Commodity Futures Trading Commission. But the Democrats have nobody anywhere near as frightening as Rep. Thomas, a vicious partisan who specialized in ushering money to special interests during his tenure as Chairman of the House Ways and Means Committee.
Mary Kane of The Washington Independent explains the troubling record of another Republican commission appointee, Peter Wallison of the American Enterprise Institute (AEI), a conservative think tank. The various conspiracy theories Wallison peddled include a robustly debunked belief that a decades-old anti-discrimination law is responsible for the mortgage meltdown. The law in question, known as the Community Reinvestment Act (CRA), dates back to 1977, and Wallison’s conspiracy theory has been rejected by nearly everyone in the financial commentariat, including regulators appointed by George W. Bush.
The Community Reinvestment Act requires banks to make loans to communities where they collect deposits. If you accept deposits at a branch in a poor neighborhood, you have to offer responsible loans in the same community. The idea is to expand access to affordable credit in the inner cities, while the subprime crisis is heavily concentrated in the suburbs. CRA loans have to be affordable, which means high-interest subprime loans do not count. CRA does not require banks to lower their lending standards, because any recipients have to be credit-worthy. Only 6% of high-interest mortgages were made by companies subject to CRA regulations, and lest we forget, this law was passed in 1977, while financial crisis erupted in 2007.
Instead of appointing toothless commissions, we should be making sure the financial oligarchs do things that are good for the rest of us. Congress should be writing regulations to curb risk in the financial system as fast as bankers are paying themselves bonuses. They’re our representatives, after all, and it’s our money.
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: 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: Ending the Economic Status Quo
by Zach Carter, TMC MediaWire Blogger
The banking lobby still holds enough sway inside the Beltway to torpedo sensible consumer protection rules, even after releasing a flood of predatory mortgages that kicked off the current economic crisis. On issues ranging from payday loans to subprime mortgages, the banking industry continues to successfully defend itself against new regulations that would protect the consumer. As if that weren’t outrage enough, the finance lobby has also joined other corporate interest groups to fund misinformation campaigns that smear unions and block wage growth.
As Mary Kane explains for The Colorado Independent, the push to rein in predatory mortgage lending appears to be losing steam on Capitol Hill. An extremely complex mortgage reform bill that is conciliatory to the finance lobby passed the House last month, angering consumer advocacy groups. Among the problems: the bill pre-empts many stronger state predatory lending laws and protects the Wall Street investment banks that gorged themselves on mortgage-backed securities.
Consumer protection shortfalls are not limited to messy mortgages. Lagan Sebert and David Murdoch detail the payday loan industry’s continued assault on U.S. consumers for the American News Project. By offering small loans, typically in amounts ranging from a few hundred to a few thousand dollars, payday lenders target consumers who need money for basic necessities, then charge them outrageous interest rates (as in, above 700%).
For years, newspaper editorials have denounced payday lenders for systematically exploiting the most vulnerable members of society, including members of the U.S. military, who are often targeted as a result of their reliable paychecks. The solution to the problem is as simple as the business is repulsive: Capping annual interest rates on all consumer credit products at 36% would make this kind of predation impossible.
Nevertheless, the payday loan industry has been able to escape a regulatory crackdown via an intense and sustained lobbying effort. Senate Banking Committee Chairman Chris Dodd, D-Conn., is now parroting payday lending lobbyists. Since payday loans are supposedly paid back within a matter of weeks, Dodd and the payday lending lobby say that it’s unfair to hold them subject to the same standards as a 30-year mortgage.
The argument is insane. No bank would ever get away with charging a 36% interest rate on a mortgage. Even the most predatory subprime mortgages didn’t have interest rates anywhere near that high. But Sebert and Murdoch go further, highlighting a report from the Center for Responsible Lending which found that payday lenders make 90% of their revenue from borrowers who do not pay their loans off on time. The loans are structured to be so expensive that consumers become trapped into making payments for the long-term, often spending thousands of dollars over multiple years to get out from under an initial loan of just a few hundred dollars.
Dodd has received major campaign contributions from the banking industry, but sometimes the lobbying effort is much more subtle. Several major corporate lobby groups have united under the misleading moniker of “Alliance to Save Main Street Jobs” to finance shoddily researched projects that defend the interests of the executive class in economic policy. An Alliance for Main Street Jobs report written by Anne Layne-Farrar has received quite a bit of attention for its claim that the Employee Free Choice Act (EFCA) would kill 600,000 jobs by making it easier for employees to organize. Several major news outlets have cited the allegation, including Fox News, MSNBC, The Wall Street Journal, and CBS News. As Art Levine reveals for In These Times, however, this research relies on completely meaningless statistical trends and disingenuous research design that render its findings utterly hollow.
Corporate executives are not afraid of EFCA because they think it will kill jobs or disenfranchise workers. They are afraid because it will empower workers to fight for living wages and provide safe working conditions—things that leave less money around for big executive bonuses at the end of the year and give workers a greater say in how companies operate.
In some respects, EFCA also represents the other side of the predatory lending problem. It is important to ban abusive loans, but it is just as important to make sure people are paid fairly for their work to ensure they don’t need to seek out shady credit just to make ends meet.
When so many brewing legislative battles relate to the economy, it’s easy to forget about the programs that have already been enacted. Some of the tax cuts included in the economic stimulus package were aimed at fostering investment in low-income and minority neighborhoods—a worthy goal. But as Michelle Chen notes for ColorLines, the program has some significant flaws. Chen highlights a report from the Government Accountability Office (GAO) which found that minority-owned community development entities are largely being excluded from the program, with approval rates about 67% lower than other applicants. The GAO could find no reasonable explanation for why minorities were not making the cut, especially when some recipients of the tax credits have a history of consumer exploitation. Capital One Bank, for instance, is receiving $90 million of these tax credits, despite its long history of abusive subprime credit card lending.
There have been some successes this year in the push for an economy that answers to workers and consumers. Much of the stimulus bill is designed to make sure important jobs don’t disappear during the recession, and Sen. Dodd’s credit card reform bill passed both chambers of Congress by comfortable margins and included some very strong improvements. But we know what caused the economic crisis: stagnant wages and predatory lending. A true recovery will have to empower workers and protect consumers, both of which will require breaking with the corporate status quo.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Why the Current Stimulus Plan Isn’t Enough
by Zach Carter, TMC MediaWire Blogger
The U.S. economy just keeps getting worse. Given the absolute pummeling the job market has taken over the past five months, we’re going to need some much stronger medicine than policymakers are currently proposing. It’s increasingly clear that President Obama’s stimulus plan was devised for a far milder downturn, and this week we received further evidence of the recession’s high human cost.
The U.S. lost another 663,000 jobs in March, according to a report released by the the Labor Department last Friday. Most of us are getting used to seeing big numbers associated with this recession, but those massive layoffs are perhaps the most distressing statistics of all. Jobs matter most to ordinary people right now, as John Nichols notes for The Nation, and the primary measure of success for any economic policy is whether it will get people back to work. Nichol’s argument stands in sharp contrast to what much of the news media is using as its metric of success: the Dow Jones Industrial Average.
Speculators on Wall Street have pointed to the Dow’s recent upward trend as evidence that things are getting better. We’ll see if that uptick continues after the next round of quarterly banking losses comes in, but even if they do, Nichols emphasizes, happy speculators are not the same thing as a happy economy.
The national unemployment rate currently stands at 8.5% and, without a dramatic increase in government support, will likely be mired in double digits for years to come. Nobel-Prize-winning economist Joseph Stiglitz puts it succinctly in an interview at Salon: “This model no longer works. The Americans are completely over-indebted. They can’t increase their consumption, instead they have to save.”
The recession’s growing severity underscores a host of long-brewing economic problems, not the least of which is access to a college education. The cost of tuition has been steadily soaring for decades, but with the life savings of many families decimated by the housing bust, even relatively inexpensive state schools are out of financial reach, as Andy Kroll illustrates for Mother Jones.
“Simply to ensure that a child attends a four-year public university, a family in the country’s lowest-income bracket now has to pay, on average, 55% of [their] total income,” Kroll writes. That’s not 55% of disposable income, that’s 55% of what the family is taking in, period. President Obama has proposed some solid remedies for this issue—increasing federal grants for low-income students and replacing overpriced private-sector student loans with cheaper government loans, to name a few. But Kroll notes that it’s also important to divert more federal stimulus funds to states to increase the flow of need-based financial aid at public universities.
For many younger students, attending college takes a backseat to making sure they have a roof over their heads. One out of every 50 children in the United States is homeless. This problem will not go away on its own, Randy Jurado Ertll writes for The Progressive. Ending homelessness for children would cost just a fraction of what we’re paying to bailout the nation’s largest banks—there is no excuse for ignoring the issue in the next round of recovery funding.
The housing collapse continues to deepen, but some policies designed to help families keep their homes are quietly expiring. In a story for The Colorado Independent, Mary Kane points out that the moratorium on foreclosures imposed by mortgage giants Fannie Mae and Freddie Mac expired at the end of March. Foreclosure-related evictions are set to resume. Just as depressing: none of the mainstream media seems to have noticed.
As foreclosures escalate, one policy option that would keep families with a roof over their heads is being generally ignored by both the government and the banking world: renting. If, Kane notes, banks rented foreclosed properties to the borrowers who can no longer afford them, the most devastating impact of the foreclosure crisis could be averted.
But instead of dealing with actual problems, some Senators remain more focused on throwing money at rich people. The estate tax has actually surfaced in the recent haggling over the federal budget, Steven Benen notes for The Washington Monthly, a tax that only applies to the richest 0.2% of American families.
We’ve seen enough giveaways to wealthy people in the recent bank bailouts, and we know that they have extremely limited economic benefits. Steering the economy toward recovery will require a much more aggressive investment in the livelihood of ordinary Americans.
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.
The Battle for Wall Street Begins
“I’m not talking about a budget deficit. I’m not talking about a trade deficit. I’m not talking about a deficit of good ideas or new plans. I’m talking about a moral deficit . . . . We have a deficit when CEOs are making more in ten minutes than some workers make in ten months; when families lose their homes so that lenders make a profit; when mothers can’t afford a doctor when their children get sick.”
-Sen. Barack Obama, Ebenezer Baptist Church, Atlanta, Jan. 20, 2008
We can drop the “elect” from his title. President Obama is official. Everyone take a deep breath. Let it out slowly. And now let’s focus on the work.
Even before he was sworn in this afternoon, parts of President Obama’s economic platform were already moving through Congress. Overall, the general public remained largely in the dark about his plans for rebuilding the decimated financial system. What needs to be considered as the economic stimulus plan moves forward?
The $350 billion public investment in banks and other finance firms has not spurred banks to make loans that can foster economic recovery, nor has it encouraged them to face up to the huge unrealized losses embedded in their balance sheets. Over at The Washington Independent, Mike Lillis
demonstrates how the current bailout program fails to offer meaningful incentives for banks to direct their public money toward the public good, much less require it.
Moreover, the rescue plan attempts to address a symptom of the U.S. economic malaise—financial turmoil—without directly fixing the bad mortgages that caused the disease. Last week, the Senate gave President Obama the all-clear to deploy another $350 billion for financial rescue purposes, again with no strings attached. Obama and the new National Economic Council Director Larry Summers have pledged to spend up to $100 billion in Troubled Asset Relief Program (TARP) money to avert foreclosures. We should know very soon if they plan to live up to that promise.
For now, the financial system remains perilously close to where it was in September 2008, when a cascade of gigantic firms failed, inciting panic among investors and policymakers alike. The word “nationalization” has been mysteriously sidelined in the U.S. debate over what to do with our Wall Street financiers, despite a major taxpayer commitment of resources. If we want to change bank behavior, the best way to do it is through straightforward government takeovers, as William Greider explains in a piece for The Nation.
“Without such a move, the taxpayers will essentially be financing the slow death of failed institutions while getting nothing in return,” Greider writes.
Greider invokes problems at Citigroup, which inked an agreement to receive an additional $7 billion in taxpayer funds last week, on top of $45 billion it accepted in 2008. Based on the $3.50 closing price of Citi’s stock on January 16, the stock market values the entire company at roughly $19 billion. If any company is too big to fail, Citigroup certainly qualifies, but it is increasingly clear that Citi cannot keep pace with its losses– more than $8 billion in the fourth quarter alone. If we’re on the hook for the company’s collapse anyway, we might as well nationalize them to make sure they go down the right way, and end its predatory lending practices in the process.
Beyond matters of sheer practicality, it’s important to remember that these companies are being bailed out because they completely screwed up. Their errors were not restricted to bad bets on home values, either. Huge U.S. institutions undertook systematic efforts to fleece consumers for every penny they were worth on everything from credit cards to home purchases. In this video spot, Brave New Films details some of the abuses at Bank of America, which received another bailout of its own on Friday.
The Bush administration itself continued to encourage predatory, anti-borrower policies through to its final day in office, thanks to an almost surreal caveat for loan work-outs administered through mortgage giants Fannie Mae and Freddie Mac. This fall, Treasury Secretary Henry Paulson rolled out a loan modification effort at Fannie and Freddie, touting the plan as a major new effort to curb foreclosures. What he didn’t advertise was the fact that borrowers have to sign away all of their legal rights to contest any aspect of their mortgage to be eligible for lower monthly payments.
“In plain English, the waivers mean a borrower can’t sue the lender that originated the mortgage if the loan modification goes bad, or for any other lending abuses concerning their loan,” Mary Kane writes for The Colorado Independent, highlighting Congressional testimony on the program from Julia Gordon of the Center for Responsible Lending.
This legal absurdity is beyond reckless, given that Paulson was trying to solve a problem created by gouging consumers for the benefit of big finance companies.
But even if Obama rights the Bush administration’s bizarre programs and enforces corporate responsibility on Wall Street, a mountain of equally important economic work will still face Team Obama. Writing for AlterNet, Charlie Cray emphasizes that TARP and other salvage plans will not fix imbalances in the drastically insufficient financial regulatory structure. A sweeping overhaul of the nation’s regulatory architecture is absolutely necessary, but will face much stiffer opposition from the bank lobby than, say, a $350 billion giveaway.
While Obama’s economic stimulus proposal enjoys broad public support and will likely be enacted—Steve Benen presents some persuasive statistics on that topic at The Washington Monthly—it will be harder to garner up public support for technical and complex regulatory issues. When was the last time you heard anybody get riled up about how the Federal Reserve is funded?
Fortunately, the stimulus package offers a major opportunity to enact other badly neglected, longer-term projects to update the U.S. economy. OneWorld.net highlights analyses from leading think-tanks revealing that investments in renewable energy create far more jobs than pouring money into environmentally destructive coal-fired power plants, and leave future generations with a stronger social infrastructure.
There is room for hope. Amid a barrage of increasingly grim economic figures, Obama appears to understand what needs to be fixed and how much is at stake. He is certainly aware of the dangers posed by drastic economic inequality. Danny Schechter’s News Dissector blog features a post of Obama’s speech one year ago on Dr. Martin Luther King Jr. and the quest for economic justice. It’s inspirational stuff, particularly on the day the first black U.S. president is being sworn into office.
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.
Weekly Audit: It’s a recession, stupid (and what that means)
The gurus at the National Bureau of Economic Research have finally acknowledged the obvious: the U.S. economy is in a recession, and has been since December 2007. With Wall Street still on life support and unemployment statistics reaching levels unseen since the heyday of Ronald Reagan, the news was far from shocking, as Truthdig’s Ear to the Ground notes, but still enough to help push the Dow Jones Industrial Average down nearly 700 points on Monday.
More frightening than the belated use of the r-word– Kevin Drum of Mother Jones called the December start-date all the way back in February in a piece for the Washington Monthly– is the fact that drastic government action to right the nation’s faltering economic ship does not appear to be working. The current crisis has delivered a blow not just to investors and homeowners, but to the work of economist Milton Friedman, a thinker granted almost sacred status in conservative circles. Over at Salon.com, Andrew Leonard highlights a New York Times column by economist Paul Krugman on how Friedman’s monetarist economic theory has taken a hit over the past year. Friedman’s doctrine calls for restricting government relief in times of economic strain to the arena of monetary policy—that is, central banks should increase the supply of money in the economy, but governments should not directly undertake spending initiatives to boost demand.
But while the Federal Reserve has pumped liquidity into the financial sector at every conceivable opportunity over the past year, but the crisis has continued to grind on, spreading from one troubled sector to another. We are clearly out of options that match up with Friedman’s monetarism, indicating that public policy has nowhere left to turn except direct government spending on economic support, as Ezra Klein argues for The American Prospect.
President-elect Barack Obama has vowed to deliver a major fiscal stimulus package as soon as possible after taking up his new job on January 20. Joshua Holland notes for AlterNet that Obama does not have to radically overhaul the economy to implement short-term stimulus that will have long-term economic benefits. Rebuilding our infrastructure with sustainable designs and materials and revitalizing our outdated health care system would both create jobs quickly and prevent other problems looming down the road.
The past week, of course, included the Thanksgiving holiday, and no coverage of the U.S. economy for the period would be complete without a discussion of Black Friday. It appears that the retail sector is about to follow Wall Street and the auto industry into disaster over the next month, as consumer confidence remains at dismally low levels. In a report for The Colorado Independent, Mary Kane explains how the massive loss of housing wealth over the past two years and decades of expensive consumer debt have made people much less eager to pull out the plastic for holiday gifts.
But while one industry after another steadily succumbs to economic reality, some of the people hardest hit by the downturn are not involved in any industry at all. With retirement savings devastated by the financial earthquake, many elderly retired people are now going back to work just to make ends meet, as Leslie Casimir details in a harrowing report for New America Media.
One of the most striking public policy disparities over the past year has been the rabid push from global governments to salvage financial institutions without devoting any serious attention to ordinary people, particularly the poor. The Bush administration has repeatedly argued that allowing major firms to fail would cause significant harm to vulnerable individuals well outside the financial system, but has done almost nothing to directly address the concerns of those people, who do not simply stop being poor once Citigroup gets its groove back. Oneworld.net notes an analysis from the Institute for Policy Studies that reveals the U.S. and Europe have dedicated $4.1 trillion to rescue the financial industry—roughly 40 times what they have spent to fight climate and poverty in the developing world.
The incongruity is reflected not only in the sheer size of the bailout packages compared to the poverty programs, but in the speed of implementation. Literally hundreds of millions of people have been unable to afford to eat for literally decades, but when Bear Stearns hits a liquidity logjam, a solution is in place by the end of the weekend.
Part of this is probably due to the U.S. psychological obsession with both Wall Street and homeownership. Writing for The Nation, Max Fraser discusses the development of pervasive and fundamentally irrational beliefs among bankers and borrowers alike over the past decade, beliefs that have ultimately eroded access to affordable housing despite an explosion in lending between 2004 and 2007. The current crisis proves that we cannot rely on private-sector initiatives or pseudo-public entities like Fannie Mae and Freddie Mac to responsibly expand access to homeownership.
Until the government steps in with a meaningful commitment to affordable housing, check out the tips Jane Goetze offers at High Country News on how to survive by living out of your car.
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. And for the best progressive reporting on critical immigration and healthcare issues, check out Immigration.NewsLadder.net and Healthcare.NewsLadder.net.
This is a project of The Media Consortium, a network of 50 leading independent media outlets, and created by NewsLadder.