Posts tagged with 'Mike Madden'
President Barack Obama rolled out his highly anticipated federal budget proposal on Thursday, and while the plan represents a dramatic departure from the priorities of the Bush administration, its ultimate impact may be crippled by a counterproductive bank bailout.
First, the good news: The budget is awesome.
“Obama would raise taxes on the wealthy to pay for healthcare for the uninsured; cap pollution emissions; put billions more dollars into infrastructure and new technology; … invest in new education programs; and roll back the U.S. troop presence in Iraq,” Mike Madden writes for Salon. “There were proposals to save money by modernizing the healthcare system … and by eliminating federal farm subsidies to the biggest and wealthiest recipients.”
While it’s refreshing to see a set of priorities that put economic stability ahead of entrenched corporate interests, Obama’s call to reduce the federal deficit comes as a bit of a surprise. He has inherited a massive recession and defecit. Over at The American Prospect, Ezra Klein highlights an analysis of spending by Media Consortium alum Brian Beutler. Both bloggers agree that government debt is not a major problem, provided that borrowed funds are used to invest in something meaningful.
“Debt can be good if you expect that spending will offer a greater return than saving,” Klein writes. “And right now, because Treasury bonds are the last safe investment, it’s the cheapest it’s been for the government to borrow money in 50 years.”
Republicans are screaming about the enormous deficit that Obama’s budget requires, but most of that debt was passed down by President George W. Bush. Obama has actually taken cues from Congressional Republicans to find funding for financial shortfalls. Steve Aquino of Mother Jones notes that Obama’s move to raise premiums on Medicare received by wealthy Americans is a longstanding Republican priority. Additionally, Obama’s move to cap the itemized deduction tax subsidy at 28 cents on the dollar would re-establish Reagan-era levels.
But the line items missing from Obama’s budget are just as noteworthy. The Washington Monthly‘s Steve Benen dissects the Republican angst over Obama’s refusal to push for cuts in Social Security benefits. During his speech before Congress last week, Obama breezed right by the alleged Social Security crisis without asking elderly Americans, who have already seen their 401k plans cut in half over the past year, to take further cuts in their retirement income.
That’s a good thing, because as Matthew Rothschild explains for The Progressive, Social Security’s looming implosion is a Republican myth. “Social Security isn’t going bankrupt,” Rothschild writes. “It’s fully funded until 2041, and could remain so for many more years simply by making the wealthiest Americans kick in their share.”
The income limit for Social Security taxes is $105,000 a year, so billionaires pay the same Social Security as those making $105,000 annually. If Social Security ever does run into trouble, it can be easily fixed by charging rich people more for the program.
On to the bad news.
The government bailed out Citigroup and its shareholders for the third time on Friday, converting $25 billion in preferred stock into ordinary, run-of-the-mill, we-own-this-company common stock. But while Citi’s stock market value was hovering around $13 billion at the time, taxpayers only received a 36% stake in return for their largesse.
The Real News has a great interview with economist William Engdahl about the banking lobby’s ability to exercise control over public policy, despite the industry’s self-inflicted collapse. Engdahl argues persuasively that it is time for the government to stop propping up bank shareholders under the hope that “market prices” will magically appear for worthless assets. “Write those assets, those toxic assets, down to zero,” Engdahl says. “Only the state can do that at this point. You don’t find the market price for these things.”
The government has been playing for time for the last 18 months in hopes that the financial crisis could iron itself out. Rather than reward investors who put money into bad companies, Engdahl says Obama needs to wipe out the shareholders of failed banks and kick out the management teams that steered their companies into catastrophe.
Playing for time was the central economic strategy of Henry Paulson’s tenure as Treasury Secretary, but as Lagan Sebert and David Murdoch make clear in the below video for The American News Project, Paulson also managed to slip in major giveaways to big U.S. banks in the process.
The Troubled Asset Relief Program (TARP) allowed the government to inject capital into banks, but Paulson charged them a much lower than market rate of return on the investment. As a result, taxpayers missed out on about $78 billion that they could have expected to receive in interest payments had their money been managed by, say, Warren Buffett instead of Paulson. To put that number in perspective: President Obama’s entire plan to avert foreclosures will cost taxpayers $75 billion.
The U.S. banking system is completely broken and will need an enormous taxpayer commitment to return to any semblance of health. But there are good ways and bad ways to go about doing that. A bailout should be accompanied by control over how a bank is managed.
The banking industry is working very hard to portray TARP as something other than a bailout. When Northern Trust, for example, throws decadent parties after receiving taxpayer funds, its executives justified those lavish expenditures by claiming that their company was not “bailed out,” but merely received capital which it is paying for. The pricing of TARP was so favorable to banks and so disadvantageous for taxpayers that this claim cannot be taken seriously. Northern Trust got a bailout, and even if they pay back their TARP funds ahead of time, the interest they are paying is so far below market rates that the company will still be coming out ahead.
Obama’s budget shows that he knows what it takes to turn the economy around, but his financial policy indicates that he lacks the political will to shake off the banking lobby and do what is necessary to save ordinary Americans from disaster.
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President-elect Barack Obama rolled out his highly anticipated priorities for an economic recovery package this weekend, but the current Congress remains focused on bailouts, with the fate of U.S. automobile manufacturers still hanging in the balance.
Mike Madden details the Detroit drama for Salon.com, reporting on how lawmakers who would ordinarily be receptive to a salvage plan have become skeptical in the wake of the Bush administration’s handling of the Wall Street bailout. After being promised that their votes would be used to help fend off foreclosures, members of Congress have responded with outrage as Treasury Secretary Henry Paulson has devoted all of his legislatively allocated funds to the purchase of preferred stock in financial companies.
Josh Marshall offers a compelling analysis of the public reaction to the Big Three’s predicament over at Talking Points Memo, noting that the widespread reluctance to reward bad behavior at the automakers could be tied to the fact that most people actually grasp how car companies work, whereas the average American has no idea what role Citigroup really plays in the economy.
“I do think a big, not very good, and really underappreciated reason for the disjuncture is that the auto makers are structured in a way, are economic entities in a way, that most of us can have some basic understanding on how they operate, what they do,” Marshall writes.
While the Big Three have undeniably been horribly mismanaged for decades, losing even one of them would have major economic aftershocks. General Motors alone employs well over one million workers.
The role of unions in the collapse of the Big Three has also been blown completely out of proportion. Not only have major newspapers grossly overstated union wages for Detroit by factoring in decades of built-up pension costs as labor expenses for current employees, they have recently featured editorials claiming that unions exercise too much power in the current economy. Ezra Klein of The American Prospect takes the Washington Post’s Sebastian Mallaby to task for simultaneously bashing unions and praising economic growth in countries like Sweden and Denmark, which both have union densities of about 80%, compared to 12% in the U.S.
Which is why it is nice to hear that union workers at the Republic Windows and Doors factory in Chicago– who received just three days’ notice that the plant would be shut down– have refused to leave the facility until they are granted severance pay. Check out Ron Ruby’s interview with factory worker Raul Flores live from the sit-in for Air America Radio.
Obama’s new New Deal also gives progressives something to celebrate after several recent centrist selections for cabinet positions. We finally have an economic policy that does not begin and end with the financial sector.
The next president’s proposals include a massive push to boost the energy efficiency of government buildings, repair public schools and provide them with new teaching technologies, and invest in new health care technologies. The plan also includes some of the most basic infrastructure layouts, with a 21st century twist: Obama pledged to rebuild roads and bridges across the country and expand the availability of broadband interenet access.
John Nichols writes for The Nation that Obama’s focus on infrastructure will be particularly helpful for construction workers, who have been hit hard by the recent housing market downturn.
But while the recovery package would be a step in the right direction (the term “recovery” appears to be roughly synonymous with the word “stimulus,” with added hints of AIG, Lehman Brothers and skyrocketing unemployment numbers), it is far from the final word on the nation’s economic troubles. For Obama to carry out his campaign promise to make health insurance available to everyone in the U.S. would not only be good for the nation’s physical well-being, it would also cushion the shock stemming from mounting job losses, as Sarah van Gelder notes for YES! Magazine. An extension of unemployment benefits would also help laid-off workers pay the bills while they search for new work.
Speaking of job cuts, the Labor Department delivered another devastating set of unemployment data last Friday, revealing that the U.S. economy lost 533,000 jobs in the month of November, the largest monthly decline in 34 years.
Carlo Basilone produced nice video spot for The Real News detailing the scope of current U.S. economic difficulties. Although 10.3 million people are now unemployed nationwide, a staggering 10% are living on food stamps, revealing that many of those who still have jobs are not being paid enough to make ends meet.
As Farron Cousins notes in a piece for GoLeft TV, monthly job losses could reach over one million next year and remain at that level for several months.
On the Wall Street front, David Moberg provides an excellent history of recent financial innovation and subsequent financial collapse in a piece for In These Times. Chelsea Green features Woody Tasch’s inquiries into alternative financial structures that are actually tied to communities and the environment rather than unsustainable risk and short-term executive compensation models.
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.