Posts tagged with 'stimulus'
Weekly Audit: Why Accountability Matters
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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: Budget Good, Bailout Bad
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.
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 Pulse: Funding Birth Control? It’s the Economy, Stupid
The $825 billion economic stimulus package is finally taking shape as House committees finalize their contributions to the bill. The good news is that healthcare spending will be a major part of the stimulus: $87 billion has been set aside to help states pay for Medicaid alone.
But one health-related provision was sacrificed to political expediency on Tuesday in an attempt to wrangle Republican support for the stimulus package: Medicaid expansion for birth control.
Medicaid is already the single largest source of public funding for family planning nationwide, according to the Guttmacher Institute. The stimulus provision would have made it easier for states to cover family planning for low-income women who currently make slightly too much to qualify for regular Medicaid.
House Minority Leader John Boehner made political hay out of the provision, claiming that Dems were sneaking in millions for birth control for reasons that had nothing to do with stimulating the economy. He’s dead wrong, as Cory Richards points out at RH Reality Check: Healthcare spending is a tried and true method of economic stimulus and the current bill sets aside billions of dollars for that purpose.
The idea that birth control coverage is less important than any other kind of healthcare spending is absurd. Reproductive rights activists pushed hard for the provision because they believe it would give more women access to family planning.
By law, when states cover birth control through Medicaid, the federal government covers 90% of the cost. The birth control expansion would simply have simply made it easier for states to relax the eligibility criteria to cover more women. Providing more services, to more people, with more money supplied by the federal government is textbook economic stimulus.
On Tuesday, President Barack Obama begged House Energy and Commerce Committee Chair Henry Waxman to strike the birth control proviso. The expansion didn’t have a chance. By late afternoon, TPMDC was reporting that birth control was gone from the House bill and that the Senate Dems had signaled that it wasn’t coming back in their stimulus bill
Jodi Jacobson of RH Reality pegs the political dynamic as a farce in four acts: Democrats use their majorities to advance some popular policy, Republicans freak out, Democrats capitulate, elite pundits congratulate Democrats for shooting themselves in the foot with such grace and aplomb. In the American Prospect, Nick Beaudrot notes that Obama is unlikely to win any Republican votes by striking birth control from the stimulus.
Elsewhere, writers were wrestling with other health-related issues. Simon Maxwell Apter in the Nation argues that the time has come to recognize PTSD as a legitimate combat injury and award Purple Hearts accordingly. But Debra Dickerson of Mother Jones counters that the Purple Heart should be reserved for combat-related injuries. Dickerson’s rejoinder seems to beg the question: If someone gets PTSD from serving in a combat zone, is it a combat injury? And if so, why doesn’t this sacrifice merit a Purple Heart?
In the Nation Sarah Arnold argues that New York’s draconian Rockefeller drug laws are ripe for reform. Arnold argues that a perfect storm for drug reform might be brewing in the Empire State: Democratic governor, Democratic control of both statehouses, and a financial crisis that makes locking up drug offenders prohibitively expensive.
In the American Prospect, public health scholar Harold Pollack examines our society’s worst drug problem: alcoholism. He argues that our society focuses too much attention on treating alcoholism once it sets in and not enough on crafting public policies, such as legal drinking ages and liquor tax rates, to help prevent problem drinking.
The birth control stimulus skirmish marks a new twist in Obama’s relationship with women’s groups and reproductive rights activists. Last week, the new president elated women’s health groups by freezing Bush’s last-minute anti-abortion rules and reversing the Global Gag Order. Yesterday, many of these contingencies were shocked when he made a public show of killing the birth control provision. The costs and benefits of this particular tradeoff are sure to fuel much discussion in the Media Consortium and beyond.
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 Pulse: Bush awarded medal for combating AIDS? And other birth control, drug czar and pharmaceutical news
Monday marked the 20th annual World AIDS Day. And to “commemorate” the occasion, President George W. Bush received a P.E.A.C.E. medal from mega-church Pastor Rick Warren for his work combating the epidemic, reports Mother Jones’ Tay Wiles. In my latest piece in RH Reality Check, I discuss how the newly-minted medals are part of Warren’s campaign to insinuate himself into the mainstream AIDS-fighting movement, nationally and internationally.
President-Elect Barack Obama chose to release his pre-recorded World AIDS Day speech at Warren’s ceremony while George Bush personally accepted the medal. In his pre-recorded remarks, Obama stressed the need for “partnerships” between the government and religious groups in the fight against AIDS. Should we worry if some of our most powerful “partners” oppose key tenets of science-based AIDS control strategy?
Speaking of anti-science propaganda, watch Amanda Marcotte of RH Reality debunking some anti-choice propaganda about condoms.
Birth control in a Frito? Andrew Leonard notes in Salon that a new study purports to show that mice fed for generations on agribusiness giant Monsanto’s genetically modified corn are less fertile. The PR war is in full-swing with Greenpeace sounding the alarm and Monsanto retrenching. Monsanto has a legitimate point, the study–like claims about douching with Diet Coke and doing it standing up–hasn’t been peer reviewed.
In healthcare political news, a huge coalition of progressive and union forces is gearing up for a massive battle over healthcare, Alexander Zaitchik reports for AlterNet. They’re called Health Care for America Now and their goal is to win a “guarantee of quality, affordable health care for all by the end of 2009.”
If you think that plan is a long shot, Dean Baker pushes back in The American Prospect against those who say that healthcare reform is good, but that it’s too expensive right now. Baker contends that healthcare reform spending should be part of the economic stimulus package, where we expect to borrow money now to get the economy going again:
In fact, the government is planning a large-scale stimulus package where it is looking for areas in which it can usefully spend money. If health care reform would require an initial increase in spending, before subsequent savings could be achieved, then it would be an obvious target for the stimulus. The Post should have noted that Grassley’s claim about the lack of money for such an investment is contradicted by the vast majority of economists from both political parties.
There’s an old healthcare saying, “Don’t call a surgeon unless you want an operation.” Maia Szalavitz weighs in on the next Obama nomination front and says don’t call a Drug Czar unless you want a drug war:
Historically, our czars have actively opposed sensible drug policy: They have gone on crusades against medical marijuana, interfered in state initiatives aimed at promoting treatment over punishment, and most notoriously, stopped President Clinton from letting his HHS secretary legalize federal funding for needle exchange when the data was incontrovertible that it helps fight AIDS and doesn’t increase drug use.
Moving on to the legal drugs. The results of ALLHAT, one of the largest comparative studies of high blood pressure drugs in history, are in. ALLHAT was a clinical trial that could have been a reality TV show: $130,000,000, 42,000 patients, 4 drugs. Which would emerge victorious from the ALLHAT Blood Pressure Cage Match of Science?!
The winner was the humble diuretic, one of those old, cheap drugs that make you pee a lot. You’d think think diuretic sales would be booming, now that they’re proven to work better and cost less than the alternative. Yet, as Ezra Klein notes in the Prospect, sales have only gone up a couple points because the manufacturers of the more expensive drugs have already started spinning, cajoling and working the refs to distract from the results of a study that proved their products suck. Says a lot about our profit-driven healthcare system, doesn’t it?
Other news from the world of medicine: A revolutionary new stem cell-based treatment restored a Spanish woman’s windpipe, Jonathan Stein reports in Mother Jones.
And last but not least, in a society where black children don’t necessarily get a lot of positive media attention Sasha and Malia Obama have become national icons, brimming with health and vitality. Juleyka Lantigua of The Progressive hopes that their example will motivate Americans to ensure that every child can be as healthy as the Obama’s beloved daughters.