Posts tagged with 'stimulus package'
Weekly Audit: More Jobs Please
By Zach Carter, Media Consortium Blogger
One year after President Barack Obama secured passage of his critical economic stimulus package, the U.S. Senate is finally taking anther look at how to create jobs and repair the economy. These issues are more important than ever, but absurd Republican obstructionism and timid Democratic negotiation are once again threatening good public policy.
Not really bipartisan, is it?
As Steve Benen notes for The Washington Monthly, the Senate Finance Committee reached a “bipartisan” agreement to supposedly spur job creation last week. Republicans demanded billions in tax cuts for wealthy people, but kept on caterwauling about the federal budget deficit. In exchange for $80 billion to dedicate to jobs—an extremely modest figure given the state of the labor market—Republicans asked for hundreds of billions in giveaways for the rich. And that’s just to get the bill through the Finance Committee, much less the full Senate. (more…)
Weekly Audit: Attack of the Imaginary Budget Demons
By Zach Carter, Media Consortium Blogger
On Feb. 1, President Barack Obama unveiled his 2011 budget proposal. While conservative pundits reacted with predictable, yet preposterous, wailing about the federal budget deficit, the short-term U.S. budget outlook is just fine. If anything, Obama’s budget doesn’t dedicate nearly enough funding to create jobs.
As John Nichols notes for The Nation, Obama budgets just $100 billion for jobs in fiscal 2011. The amount is nowhere near enough to make a significant dent in the epic unemployment rate. The government’s fiscal 2011 calendar begins in October of this year, and by that time, the stimulus package Obama pushed through in February of 2009 will have been exhausted, leaving the labor market without serious support from the federal government. (more…)
Weekly Audit: Jobs, Jobs, Jobs
By Zach Carter, Media Consortium Blogger
President Barack Obama invited leading economic thinkers to a job creation summit on Thursday to help combat the worst unemployment crisis in decades. The stakes couldn’t be higher: If Obama can’t build momentum for robust legislation that will create jobs, the unemployment rate could remain in double-digits all the way through 2011.
In Salon, Andrew Leonard highlights some positive comments Obama made at the jobs summit. In an exchange with The American Prospect’s Robert Kuttner, Obama said that the long-term budget deficit is an issue, but that the best way to reduce that deficit is to spur economic growth. When the economy is growing, the same tax rates reap greater returns for the government. (more…)
Weekly Audit: Save Jobs, Save the Economy
by Zach Carter, Media Consortium Blogger
Last month, the U.S. unemployment rate surged to 9.8% as 260,000 people lost their jobs. Although the stock market and corporate profits appear to be recovering from last year’s financial catastrophe, work is harder to find. President Barack Obama and Congress need to act now to get people working again and help soften epic unemployment in years to come. (more…)
Weekly Audit: Obama’s Economic Hits and Misses
By Zach Carter, Media Consortium Blogger
Eight months after President Obama was sworn into office, the foreclosure epidemic is even more dire and no laws have been passed to rein in Wall Street. While Obama has helped cushion the nation’s economic fall with a stimulus plan and other proactive measures, much more aggressive action is needed to protect workers and homeowners from reckless financiers.
In an a piece for The Nation, John Nichols dissects Obama’s recent speech on the one-year anniversary of Lehman Brothers’ bankruptcy. Obama praised the Bush administration’s bank bailouts and advocated for regulatory reforms, because after eight months in office, we still haven’t seen any new financial regulations. Quoting a recent New York Times article on the status of the federal budget deficit, Nichols notes:
“It is not programs that care for the children of immigrants or aid to poor countries that emptied the Treasury, and it is not the ‘threat’ of healthcare reform that worries serious economists. The federal government has become ‘the guarantor against risk for investors large and small’ while doing little to restrain CEO greed or to protect the citizens, consumers and communities that have been battered by banksters.”
There are some signs of hope, however. Obama’s decision to appoint Daniel Tarullo, a former assistant to President Bill Clinton on international economic policy, to the Federal Reserve Board of Governors appears to be paying off—though its been sorely underreported in the mainstream press. Salon’s Andrew Leonard highlights a Wall Street Journal story indicating that Tarullo is close to securing major restrictions on bank pay practices. That’s extremely good news: blockbuster bonuses don’t just fuel inequality. Bankers “earn” those paydays by taking on huge levels of risk so their companies can book short-term profits. Banks were literally rewarding their top managers and executives for sabotaging the global economy.
Unfortunately, Obama has also appointed deregulatory crisis-causers to major regulatory positions. The most recent outrage, as David Corn and Daniel Schulman detail for Mother Jones, is Republican Scott O’Malia’s appointment as a Commissioner of the Commodity Futures Trading Commission (CFTC). The CFTC oversees a wide array of important trade activities, including much of the oil and energy market. O’Malia has a history of lobbying against regulation in these very markets. He spent years peddling political influence for an electricity company, Mirant, which has a history of stretching the law to profit at the public’s expense. In 2003, the year after O’Malia left the company, Mirant paid about $500 million to settle charges that it illegally ripped off California citizens during the state’s electricity crisis.
Presidents typically allow very few members on top regulatory panels to come from the opposite political party—the idea is to prevent independent regulatory agencies from becoming political hatchet teams. Unfortunately, Obama’s other appointments have been questionable as well.
Obama appointed Gary Gensler Chairman of the CFTC earlier this year, despite his record as a leading advocate against the regulation of complex financial products called derivatives in the 1990s. Gensler won the battle on blocking derivatives regulation, a move which helped drive the global economy into a massive recession in less than a decade. Much of the problem has to do with their complexity. Many people who traded these products did not understand just how risky they were. And as former Lehman Brothers investment banker Sony Kapoor explains in an interview with Paul Jay of The Real News, this confusing complexity was intentional. By making new financial derivatives hard to understand, major Wall Street brokerages like Lehman and Goldman Sachs were able to overcharge for them.
Some derivatives enabled other destructive economic activities. Credit default swaps provided insurance against losses from loans. If a bank was worried that a loan would not be paid back, they could go to AIG and buy insurance. The bank would pay a modest monthly fee to AIG, and if the loan ever went bust, AIG would pay the bank the full value of the loan. The swaps actually encouraged reckless subprime lending. And while plenty of Wall Streeters failed to recognize the risk associated with derivatives, almost everybody knew that subprime lending was a disaster in the making. But since Wall Streeters didn’t want to give up huge short-term profits associated with subprime lending, credit default swaps allowed them to have their cake and eat it too. Banks could book the outsized profits from subprime lending, but insure themselves against the inevitable losses by going to AIG for insurance. In effect, these crazy derivatives were actually fueling the subprime lending boom.
And the foreclosures spawned by exotic mortgages are nowhere near their peak. Laura Flanders of GRITtv interviews Rosemary Williams and Ann Patterson, two Minneapolis homeowners with adjustable-rate mortgages (ARMs) trying to fight off foreclosure. During the housing boom, banks pushed millions of borrowers into ARMs—loans that start with a low interest that resets higher after a few years—without worrying about whether they could afford the higher payments. Those loans are only beginning to reset now, with the vast majority scheduled to pinch pocketbooks over the next two years.
The government’s support for citizens laid off as a result of the recession has not been generous. Obama fought hard to pass his economic stimulus package immediately after entering office, helping create some jobs and providing a very modest expansion of unemployment benefits to laid-off workers (I do mean modest—it’s an extra $25 per week). But while the stimulus package helped slow the economic plunge, the private sector is not likely to start hiring new workers for years, as Roger Bybee notes for In These Times. The social cost of unemployment, Bybee emphasizes, is absolutely enormous. For every 1% increase in the unemployment rate that is sustained over six years, 47,000 people actually die, while prisons and mental hospitals are flooded with inmates and patients.
Congress would be happy to sweep financial regulation under the rug and pretend the problem has passed. Obama is capable of making good decisions on the economy, but he’ll have to go to the mat for reform if we want any hope of fully recovering from the Bush era.
This post features links to the best independent, progressive reporting about the economy and is free to reprint. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Power to the People’s Republic
by Sara Luckow, TMC MediaWire Blogger
In the past few years, the economic relationship between the United States and China has changed dramatically. As Tim Fernholz writes in the American Prospect: “Chastened U.S. officials who once lectured their counterparts in [China] on financial liberalization are now humbled in front of their largest creditor, reduced to offering promises of fiscal responsibility.” It’s a strange state of affairs. Fernholz rightly argues that:
“The common interest of the peoples, rather than the economic elite, ought to be the driving motivation behind the two countries’ interactions. There is no doubt that economic openness has brought wealth to both countries, and the Obama administration is happy to laud the Chinese for bringing millions out of poverty. But in a relationship between “capitalism with American characteristics” and “socialism with Chinese characteristics,” sometimes the people—whether they be workers losing jobs in the United States or the millions of Chinese living without political freedom or prosperity—have interests other than the elites. Today, we’re in an economic crisis, and pragmatism overrides all else. But as recovery continues, the U.S. will require more thought on the strategic track, and perhaps in a few years our discussions with China, as they should be with all our friends, will be more frank.”
But our current economic relationship with China pre-dates President Obama’s “talk first” style of diplomacy. As Robert Scheer of The Nation writes: “Don’t blame any of this on peacenik liberals. The new conciliatory—nay, deferential—tone toward China precedes the Obama administration, having begun in bilateral talks during the last years of the Bush administration as the U.S. economy began its ignominious downfall. It was George W. Bush’s treasury secretary, Henry Paulson, who set the course when the former Goldman Sachs chairman realized how dependent were his Wall Street buddies on Chinese goodwill.”
Strange relations with China aside, things aren’t going so well at home. Rick Wolff, an economist from the New School, says the stimulus package has big problems in a discussion with The Real News. Wolff also notes that we shouldn’t take Wall Street chatter about an economic upswing too seriously. “I think the first thing to remember is the people who are celebrating where we are now are the same people who could not imagine, did not imagine, did not foresee the problem we had last year,” Wolff says.
But what’s going on with our favorite bailout recipients? Talking Points Memo takes on the case of former Federal Pension Guarantor Charles Millard, who exploited his personal ties with employees at BlackRock Capital and Goldman Sachs while choosing firms to manage the Pension Benefit Guaranty Corporation. At this point, both firms “may have run afoul of federal contracting rules in how they courted Millard.”
Goldman Sachs and BlackRock are also on the lookout for the next big economic bubble. Salon reveals that both firms are diversifying their portfolios to include agriculture, in addition to government contracts. “Food is becoming the new oil,” especially since the world’s population is expected to crest nine billion by 2050. And a lot of land is necessary to grow enough food for nine billion people. Phillipe Heilberg, founder of American investment firm Jarch Capital, is hedging his bets on farmland in distressed countries. “Instead of buying stocks, the former banker is now speculating on the political future of South Sudan, which he insists will be an independent country in 10 years, at which point land will be far more expensive than it is today.”
It’s abundantly clear that we can’t rely on the economic elite to represent the people’s interests. Tomorrow’s economic structure must be drastically different if the United States is going to thrive. Put simply, we’re going to have to seriously reevaluate our economic priorities and decide who calls the shots. Here’s hoping that everyday people have a say.
This post features links to the best independent, progressive reporting about the economy and is free to reprint. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Time for a Second Stimulus
by Zach Carter, TMC MediaWire Blogger
Another stunning reminder of the U.S. economy’s dire condition arrived last Thursday. The nation shed a total of 467,000 jobs in June according to the Department of Labor. That’s 35% more than it lost in May. Despite talk about “green shoots” from Wall Street, a meaningful recovery with full employment and rising incomes is a very long way off. It’s time to start pushing another round of economic stimulus to help those searching for jobs get back on their feet, according to several independent media outlets.
The situation is grim, but not hopeless, as Ruth Coniff notes for The Progressive. The stimulus package Obama signed in mid-February was a good start, but it was designed to tackle a much less drastic economic downturn. Looking at the current slate of unemployment figures, Coniff reaches a clear conclusion: “The situation calls for a big new round of government stimulus spending,” she writes. And she’s right.
Steve Benen at The Washington Monthly offers a great, if depressing, translation of the unemployment data. Economists expected job losses to come in at 365,000, but were off by over 27%. June’s payroll declines pushed the unemployment rate to 9.5%, the highest level in 26 years. That would be bad enough on its own. But if you include people who’ve been out of a job for more than a year and the number of people who are working part-time jobs but want to be working full-time, the total number of unemployed climbs makes a whopping 16.5%. That’s the worst figure of its kind on record. If these figures don’t serve as a reality check for policymakers, nothing will.
In a blog post for The American Prospect, Tim Fernholz explains that the ever-rising unemployment rate is worse than it seems, because so many policies are based on rosier economic expectations. Remember the stress tests the government conducted to figure out how much more money banks would need to operate? The unemployment rate has now exceeded the worst-case scenario contemplated by those tests, meaning that banks are going to be strapped for cash for a long time. And cash-strapped banks don’t make loans. They sit on their money and wait for things to get better.
Banks have behaved very badly over the past decade, but they’re an important part of the recovery mechanism. Lending can get productive businesses off the ground and help existing enterprises meet payrolls and buy supplies. Indeed, the size of President Barack Obama’s economic stimulus package relied very heavily on a healthy financial sector actively lending money out into the economy. We’re watching a destructive feedback loop play out: the financial implosion has created massive job losses, and those job losses have made banks reluctant to lend, which forces businesses to lay off more people.
Some major long-term policy trends are playing out in the unemployment numbers, as Leo Hindery Jr. and Leo W. Gerard note for The Nation. The U.S. economy’s manufacturing base was hardest-hit, and has shed 13% of its workforce since the recession began. But we don’t make very much stuff in the U.S. anymore. The manufacturing sector has declined steadily over several administrations, and now represents just 11.5% of our total economy. Unfortunately, there is a limit to the number of service-sector jobs you can create or save when manufacturing is in a death-spiral.
And while Germany, Japan, South Korea and China all work to preserve their manufacturing operations,Hindrey and Gerard argue that the Obama administration hasn’t learned its lesson. The U.S. is fighting bank bailouts, which is deepening a global imbalance that leaves our economy vulnerable. Sure, we bailed out GM and Chrysler, but the bailout money has been devoted to shutting down dozens of factories and outsourcing jobs to other countries, as Mike Fritz and Harry Hanbury demonstrate in a video spot for American News Project. We have to make a dedicated public commitment to making useful stuff. Green energy and infrastructure are the right place to start.
But what do all these dire statistics and structural imbalances actually mean for ordinary people? AlterNet’s Rachel Neumann profiles Luz Guerra, a 52-year-old unemployed mother of a college student. Guerra left her last job to care for a sick family member and started looking for work in 2008. She has over 30 years of experience as an organizer and adult educator, covering topics from multicultural awareness to popular economics. These are skills that have a lot of social value that could help a lot of people in the current economy, if anyone were hiring. After months of searching in every sector from non-profits to retail, the 52-year old is running out of financial rope. She’s been surviving by racking up tremendous credit card debt and selling off her possessions, one by one. Now she faces foreclosure and the prospect of losing her health insurance coverage. This is what unemployment means. It’s not a lazy life for ne’er do wells. It’s a constant process of searching and interviewing, where even hard-working, accomplished people struggle to make ends meet as a result of enormous structural forces beyond their control.
We can’t just sit back and hope the programs the Obama administration has enacted will work. Air America carries a piece by prominent economist Dean Baker, who explains that the economic stimulus package has already doled out most of its support. Even though much of the government spending hasn’t taken place yet, the majority of the stimulus was composed to lower taxes and expanded benefits. This is as good as the first round is going to get.
If we’re serious about fixing the economy, we need to roll out a second stimulus package to promote plenty of manufacturing jobs and bring work to our workers.
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 Accountability Matters
by Zach Carter, Media Consortium MediaWire Blogger
With workers all over the globe trudging through a catastrophic recession, it’s almost a given that governments will be battling the economic slide for a long time. Part of the effort to rebuild must involve new rules and regulations, but meaningful systems for economic accountability will be just as essential. If we do not hold the reckless executives who caused this crisis accountable for their actions, we risk regressing into similar turmoil in the near future.
We all know that times are tough, and almost all of us agree on the cause: A massive Wall Street risk-binge combined with an almost total failure of regulatory oversight. It’s surprising that few meaningful criminal charges have been filed amid what may very well be the worst financial crisis in history. Bernie Madoff will likely spend the rest of his life behind bars, but the subprime mortgage brokers who specialized in predatory loans–and the Wall Street banks that bought them–have yet to face consequences in court.
In The American Prospect, Tim Fernholz details the efforts of some state-level officials to investigate and punish white-collar crime at the nation’s largest financial firms. Much of the problem, Fernholz explains, results from an insane legal landscape at the federal level. Active deregulation of the financial sector, which began in the 1980s, is shielding the irresponsible risk-taking that caused the current crisis from legal penalties.
Despite these obstacles, Massachusetts Attorney General Martha Coakley and other key officials are going after some of the worst offenders, and have successfully taken action against some of the predatory profiteers, including subprime mortgage lender Fremont Investment & Loan and Wall Street icon Goldman Sachs. Coakley secured an injunction against Fremont to prevent the company from foreclosing on its borrowers, and Goldman agreed to modify $50 million in predatory mortgages.
But while Coakley’s investigations may bring some much-needed relief to troubled homeowners, they’re only part of the solution. If executives that approved their companies’ subprime policies go through this crisis unscathed, it will be difficult to deter similar behavior in the future.
Fremont had to be sold off last year at fire-sale prices to avoid bankruptcy, but Goldman has weathered the economic downturn better than many of its Wall Street brethren. Much of the company’s resiliency, however, stems from its ability to secure billions upon billions of dollars of bailout financing from the U.S. government. Over at AlterNet, Jim Hightower blasts Goldman for its multiple avenues of taxpayer support and emphasizes that only the notorious Troubled Asset Relief Program (TARP) comes with any strings attached whatsoever. While Congress attached some very modest restrictions on executive compensation to the TARP bailout, the FDIC and the Federal Reserve have provided big banks with trillions in loans and guarantees completely free of restrictions on how these perks are deployed.
Goldman received $10 billion under TARP, which the company hopes to repay soon to shrug off those CEO pay limits. When the government bailed out AIG, $12 billion of the funds were directed Goldman’s way. But perhaps the greatest and lowest-profile outrage comes in the form of the FDIC’s Temporary Liquidity Guarantee Program. Hightower notes that the FDIC has guaranteed $28 billion of Goldman’s recently issued corporate debt without imposing any restrictions on the Wall Street giant. In short, if Goldman were to default, the government would pay off its investors. This taxpayer guarantee has allowed Goldman and many of its banking peers to secure capital at exceptionally low rates, helping the firms survive during a time when any financing is hard to come by.
Even if Goldman is able to repay its TARP money, the company remains thoroughly dependent on taxpayer assistance. Once the TARP funds are paid off, Goldman will be free to pay its executives whatever it wants—even when that salary is subsidized by American tax dollars. That’s a pretty perverse definition of accountability.
Of course, botched bailouts are not unique to the financial sector. As John Nichols explains in The Nation, the terms of automaker Chrysler’s bankruptcy proceeding include plans to close down manufacturing plants across the Midwest, a strategy that undermines the entire economic justification for bailout: Sparing investors pain in order to save jobs.
“Tens of billions of taxpayer dollars are being poured into Chrysler and General Motors, ostensibly to ’save’ the U.S. auto industry,” Nichols writes. “Yet, the companies have acknowledged that they plan to use the money to shutter factories, lay-off tens of thousands of factory workers and dramatically downsize dealership networks–at the cost of as many as 100,000 additional jobs.”
Still worse, it appears that both Chrysler executives and officials from the Obama administration mislead Congress on the implications of the bankruptcy. Nichols cites a letter from Rep. Dennis Kucinich, D-Ohio, in which the lawmaker says Congress was told there would be no permanent job losses a result of the Chrysler bankruptcy filing. The very next day, plant closings were announced in Michigan, Missouri, Wisconsin, and Ohio.
Even the economic stimulus package rewarded companies with a history of recklessness. In a piece for Salon, ProPublica journalists Michael Grabell and David Epstein reveal how contractors that have paid substantial fines for violating environmental regulations, federal safety rules and laws against racism have been able to score new business with the federal government. The worst offender? A contractor known as CACI International, which has been awarded three contracts worth $1.5 million under the stimulus package, despite ties to abuses at Abu Ghraib prison in Iraq.
CACI helped hire interrogators at Abu Ghraib, but an Army investigation found that the contractor ended up employing people with “little or no interrogator experience.” Abuses committed by CACI employees included dragging a handcuffed prisoner on the ground, placing a prisoner in an “unauthorized stress position,” dressing a prisoner in women’s underwear and lying to investigators about using dogs in interrogations, according to Grabell and Epstein.
If the government relies on criminals to build the recovery, the public is not going to get the results it needs. But the recovery is only part of the solution to the current economic crisis. If we fail to prosecute executives whose active scheming and criminal negligence brought down the global economy, we are inviting more of the same behavior in the future.
Weekly Audit: Time to Shake Off the Bank Lobby
Filed under: Economy, Health Care, Immigration, Live From Main Street, Syndicated Reporting Project, Uncategorized
by Zach Carter, TMC MediaWire Blogger
While the national economy struggles under the weight of a massive bank bailout effort, the banking lobby’s ability to influence public policy is more problematic than ever. The too-big-to-fail bankers may be dependent on U.S. taxpayers for their survival, but corporate lobbyists still have members of Congress, the Treasury Department and the Federal Reserve asking the banks’ permission to bring the Big Finance behemoths under control. The relationship between Wall Street and the government is so out of whack that it’s difficult to distinguish the political players from the panhandlers.
In Mother Jones, Daniel Schulman and Jonathan Stein detail the ease with which important congressional staff switch careers and move into the banking sector. In recent years, dozens of key staffers for powerful Senators have left the political arena to work for as lobbyists for the financial sector, and policy gurus from both sides of the aisle are jumping ship for lucrative careers as influence peddlers on Wall Street.
“Financial firms seeking big bucks and favorable terms from Congress and the White House are deploying Capitol Hill aides turned lobbyists to win favorable treatment from the congressional lawmakers,” Schulman and Stein write. Many lawmakers, including Senate Banking Committee Chairman Chris Dodd, D-Conn., are refusing to disclose whether they’ve had contact with former staff who now work for Wall Street. Small surprise, then, that so many of the recent bailout packages have allowed failed bank CEOs to stay in power and saved their shareholders from bad investments in inept, even predatory, companies.
Sometimes these reinvented bank defenders are even former Senators. Susan Douglas of In These Times highlights the career of former Sen. Phil Gramm, R-Texas, who is currently a lobbyist for UBS. The Swiss banking giant has been plagued by a seemingly endless stream of scandals over the past year, for everything from diamond smuggling to tax fraud. And Gramm helped push for looser predatory lending laws—including those pertaining to the now-decimated mortgage sector—while he on the UBS payroll.
This would be a shameful legacy for any former public servant, but for Gramm, Douglas notes, this behavior is particularly disgraceful: his two chief legislative “accomplishments” helped create and intensify the current financial crisis. Gramm co-authored the Gramm-Leach-Bliley Act of 1999, which compounded the financial world’s too-big-to-fail problem by letting traditional commercial lenders like Bank of America and Citigroup buy up riskier, unregulated investment banks like Merrill Lynch. Gramm then pushed the Commodity Futures Modernization Act of 2000 through in a midnight budget amendment, a tactic which made sure that “credit default swaps” were not subject to either securities regulations or gambling laws. Just eight years later, credit default swap gambling destroyed insurance giant AIG, to the dismay of taxpayers everywhere.
When lawmakers stop cowing to the bank lobby and start answering to their constituents, the result is a big boost for the entire economy. Last week, committees in both the House and Senate dealt the credit card industry a rare defeat by approving bills that crack down on abusive credit card billing practices. Even though Sen. Dodd insists keeping his lobbying contacts a mystery, he is capable of crafting responsible legislation. The bills were introduced by Dodd and Rep. Carolyn Maloney, D-N.Y., but still face major uphill battles clearing the full House and Senate.
As Harry Hanbury details for the American News Project, conservative lawmakers and bank lobbyists are already hard at work watering down the legislative language to ensure that it will not actually curb any abuses if enacted. Take a look:
The bills would ban dozens of billing gimmicks that are as outrageous as they are common, including raising interest rates on credit card debt after it has been accumulated and hiking rates due to completely unrelated activity, like returning a library book late. The banking industry deploys a lot of clever words to mask the predation inherent in the tactics, and most common of all are the terms “price according to risk” and “risk-based pricing.” These phrases make it sound as if all the poor little credit card companies want to do is set interest rates at levels appropriate for a borrower’s credit profile. Of course, that’s not what’s actually happening: lenders are radically changing the terms of loan agreements for no other purpose than to gouge borrowers, and give borrowers no say in what happens.
It’s crazy that banks are legally permitted to raise interest rates on cardholders after they have charged debt to their credit card. If you pay full price for anything else—a shirt, a bag of groceries, a guitar—it would be laughable if the shop clerk demanded more money from you months later.
Banker apologists insist that banning these practices will restrict the flow of credit. But more credit cards will not fix a problem caused by massively over-indebted consumers. We need higher wages, not a fresh flood of predatory, high-interest debt.
But if taxpayers can win on credit cards, we can win on the bailout, too. Yes! Executive Editor Sarah van Gelder posted an open letter to President Barack Obama this week, citing half a dozen economic experts and urging him to change his bailout strategy before it’s too late. “Watching your appointees’ latest bank bailout makes me wonder if all your administration’s good work on health care, education, and jobs will be swept away by the extraordinary giveaway of trillions in taxpayer money to a group of powerful Wall Street operatives,” van Gelder writes.
And indeed, in other arenas of economic policy, the president has made significant steps in the right direction. While Obama’s proposed federal budget is less than perfect, it moves away from some of the worst trends of the past eight years. GritTV’s Laura Flanders details some of this progress in a roundtable discussion with Irasema Garza, President of Legal Momentum, former New York Times reporter David Cay Johnston, and New York City Coalition Against Hunger Director Joel Berg. By implementing robust job creation plans and a massive increase in anti-hunger and nutrition programs, Obama has signaled that the plight of those hardest hit by the recession cannot simply be ignored.
But these positive budget strides do not involve the banking lobby, which still maintains a stranglehold on any realm of U.S. public policy it can loot for a profit. Obama standing up to the financiers is not an improbable pipe dream, it’s a prerequisite for economic recovery and a necessary step toward rebuilding the integrity of our democracy.
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