Posts tagged with 'wall street'
Weekly Audit: Doomsday for the CFPA?
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By Alison Hamm, Media Consortium Blogger
Just when the Democrats need to be tougher than ever on financial reform, Senate Banking Committee Chair Sen. Chris Dodd (D-CT), seems to have given up completely and put the proposed Consumer Financial Protection Agency (CFPA) at risk.
Last fall, Dodd called the Federal Reserve’s regulatory efforts an “abysmal failure.” And yet, on March 1, he proposed housing a consumer protection agency within the Fed instead of establishing the CFPA as its own independent entity. This drastic change in strategy has left many Democrats shaking their heads. WTF, Senator Dodd?
A change in focus
As Andy Kroll reports for Mother Jones:
“Dodd appears to have switched his focus from out-reforming the White House to out-compromising just about everyone. As the Senate banking committee prepares to release a draft of a comprehensive reform bill as early as this week, Dodd has repeatedly conceded to his Republican counterparts on key issues, almost guaranteeing that the Senate’s measure will be far more lenient on the banking industry than the legislation the House passed in December… Dodd’s willingness to appease Republicans like Sen. Bob Corker (R-Tenn.), the main GOP negotiating partner, and Sen. Richard Shelby (R-Ala.), the banking committee’s ranking member, has disappointed Dodd’s fellow Democrats and reform advocates who urge a tougher crackdown.” (more…)
Weekly Audit: The Global Economic Crisis
By Zach Carter, Media Consortium Blogger
Over the past thirty years, Wall Street has waged a steady war against governments around the globe, convincing policymakers of various ideological stripes that whatever raises profits for bankers and traders will be good for the rest of society. It’s a very simple and appealing portrait of how the world works. Unfortunately, it’s completely wrong.
Profiting from hunger
In an interview with AlterNet’s Terrence McNally, economic luminary Raj Patel explains the connection between widespread global poverty and wild Wall Street profits. Markets are defined by a set of rules—if those rules completely disregard social welfare, then the participants in those markets will ignore them as well. When traders can make a quick buck speculating on the price of rice, they will, even if that speculation drives up the price of a basic necessity and makes people go hungry.
We’ve known this for a long time, but as Patel illustrates, governments have allowed financial bigwigs to rewrite the basic rules of the road so that Wall Street can extract profits from anything—even hunger. That process created several crises in the developing world over the past few decades, and has now ravaged the economies of the United States and Europe. As Patel notes:
By basically gaming the system with regulations — that they authored — which encouraged a certain kind of playing fast and loose with the numbers, it was possible through some creative accounting for huge amounts of systematic risk to be kicked off into the future and ignored. And of course when the catastrophic risk was realized, everyone ran for the hills and started demanding public support.
Financial turmoil in Greece
This political sleight-of-hand is demonstrated by the looming fiscal crisis in Greece. As Richard Parker explains for The Nation, Goldman Sachs colluded with prior Greek administrations to hide the nation’s fiscal situation from both its own citizens and investors (Parker is an adviser to current Greek Prime Minister George Papandreou). Goldman was not interested in fair play—it was interested in making money off of the Greek government in any way it could. If that meant actively sabotaging the market by hiding important information, well, Goldman didn’t care.
First Greece, then …
Now that this budget façade has been stripped away, Goldman and other investors are now profiting from making things very difficult for Greece. As Matthew Yglesias explains for The American Prospect, the rational, profit-maximizing choices of investors are now actively helping to drive Greece into a default that hurts everyone:
When Greece starts looking shaky, the interest rate it needs to pay on its deficit goes up, which makes the country look even shakier. This cycle can push a vulnerable country into a default situation.
Various Greek administrations clearly bear significant responsibility for the situation. Nobody forced them to get in bed with Goldman Sachs, just as nobody forced U.S. administrations to gut our financial regulatory system. But the problem in Greece is not just a problem for a single Mediterranean nation—there is very real risk that the investor “unease” could spread to Portugal, Ireland, Spain, Italy, and by extension the European Union and the global economy. The bonuses at Goldman Sachs and J.P. Morgan Chase this year were not a sign of renewed strength in the global economy.
Community Security Clubs to the rescue
So if Wall Street can’t save us, what can? Our communities could play a significant role, as Andrée Collier Zaleska explains for Yes! Magazine. Zaleska profiles Common Security Clubs in Portland, Boston and Fort Lauderdale to show how people hit hard by the economic downturn are banding together to make ends meet, and organizing for political action.
“[Jared] Gardner, a busy organizer in Portland, launched four CSCs in his church, two of which were comprised almost entirely of unemployed people. By the time his own group had met five times, they were planning tours of local co-housing projects, organizing to fight locally for progressive taxation, and wondering how to bring the rest of their church into the time bank they had created.”
Markets are supposed to serve human needs, not the other way around. But Wall Street isn’t going to give up its stranglehold on the U.S. political process for nothing. While community-driven efforts are a good start, we need much larger actions and reform to restore balance to the global economy.
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: Just Who is Obama fighting for?
By Zach Carter, Media Consortium Blogger
Progressives have waited a year for President Barack Obama to roll up his sleeves and fight for serious financial reform. Last week, he finally jumped in the ring, telling weak-kneed Senators to stand up to Wall Street and endorsing a critical ban on risky securities trading.
But while it was good to see Obama start throwing financial punches against the banks, this week he also started throwing them at workers. His recent rhetoric on implementing a spending freeze to reduce the deficit is an economic catastrophe in the making. It indicates that Obama is willing to sacrifice jobs to try and win over Republicans. (more…)
Weekly Audit: Stop Wall Street’s Economic Rampage
By Zach Carter, TMC Blogger
Over the past year, Wall Street’s excess has helped push the unemployment rate to epic levels and created millions of foreclosures. Yet the rules of the financial road remain unchanged. As 2009 draws to a close, it’s astonishing that so little progress towards financial reform has been made.
President Obama, Congress and federal regulators have not been tough enough on the nation’s financial elite. As Monika Bauerlein and Clara Jeffery emphasize for Mother Jones, the government has committed about $14 trillion in bailout funds to save the banking system without demanding much of anything in return. Goldman Sachs and other big banks are now planning to pay giant bonuses that come straight from taxpayer giveaways rather than invest that money in socially constructive banking.
“Bankers aren’t being rewarded for pulling the economy out of the doldrums,” Bauerlein and Jeffery write. “Nope, they’re simply skimming from the trillions we’ve shoveled at them.”
The major banks are even spending our bailout money to lobby against reform. When President Obama called a meeting for leaders of the nation’s largest banks to scold them for their lobbying, the heads of Morgan Stanley, Goldman Sachs and Citigroup didn’t even bother to show up, as Matthew Rothschild describes in a podcast for The Progressive.
It’s easy to see why the bank execs are so indifferent, Rothschild argues, even to the president. Now that almost all of these banks have repaid the loans they received under the Troubled Asset Relief Program (TARP), Obama has no negotiating leverage and the bankers know it. Even though it represents just a tiny fraction of the $14 trillion bailout, TARP was the only program that attached any strings to that money. Prior to those TARP repayments, Obama could have demanded that banks do more lending to help the economy, work harder to keep troubled borrowers in their homes—or face executive compensation restrictions or other penalties.
And many of the same regulators who helped bring about today’s economic disaster are still in power. As Sen. Bernie Sanders (I-VT) explains for Brave New Films (video below), Federal Reserve Chairman Ben Bernanke blew just about every major policy decision he faced in the years leading up to the crisis. Bernanke, who was recently named person of the year by Time magazine, failed to rein in reckless mortgage speculation, predatory lending or excessive compensation packages. Nevertheless, President Obama has appointed him to another term.
“This recession was precipitated by the greed, recklessness and illegal behavior on Wall Street,” Sanders says. “One of the key responsibilities of the Fed is to maintain the safety and soundness of our financial institutions … The Fed was asleep at the wheel, Bernanke did not do the job.”
Sanders notes that even Bernanke’s financial clean-up operations have been deeply flawed. Bernanke has helped make today’s too-big-to-fail banks even bigger. If we want to stop the lobbying and policy deference that politicians grant to Wall Street, we have to break up the biggest banks into smaller firms that do not endanger the economy if they fail.
Bernanke is not the only holdover from the Bush administration that wields significant economic power under Obama. As I note in a piece for The Nation, John Dugan, the top bank regulator appointed by President George W. Bush, remains in office today, despite failing to ensure the financial health of our largest banks and actively working to undermine consumer protection.
Campaign contributions from the bank lobby will not be enough to counter the voter outrage that President Obama and members of Congress are facing, nor should they. If our leaders want a serious shot at re-election, they need to recognize the need for significant change on Wall Street. That means breaking up the big banks and setting economic policy that helps all of our citizens, not just financiers.
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: House Bank Bill Fatally Flawed
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: Saying ‘No’ to Corporate America
By Zach Carter, Media Consortium Blogger
By proposing financial reforms that won’t curb Wall Street excess, U.S. policymakers have offered an unacceptably weak response to our enormous financial crisis. If voters don’t demand that their elected representatives help workers and consumers instead of simply boosting corporate profits, the economic downturn will last for several more years and leave the economy vulnerable to another bank-induced meltdown. (more…)
Weekly Audit: Too Big to Fail is Just Too Big
by Zach Carter, Media Consortium Blogger
Last week, President Barack Obama released key legislation designed to fight the banking industry’s too-big-to-fail problem. But Obama’s plan doesn’t actually address too-big-to-fail at all. It reinforces a broken system in which economically dangerous companies are bailed out whenever they drive themselves to the brink of failure.
If we want the economy to support all people, we have to break up the big banks and start treating the creation of good jobs as an economic priority on par with Wall Street rescues. (more…)
Weekly Audit: Dismantling the Wall Street Casino
By Zach Carter, Media Consortium Blogger
Bailout pay czar Ken Feinberg raised a ruckus last week when he announced plans to slash cash payouts to executives at seven companies that have received massive levels of taxpayer support. While better oversight of the bailout barons is helpful, the best way to change Wall Street pay practices is to adopt a set of tough, comprehensive regulations that cover everything from the executive suite to the loan department. As is, many of the executives Feinberg cracked down on will still make millions this year from stocks and other perks, while the very banks that depend the most on bailout money are spending like mad to lobby against reform. (more…)
Weekly Audit: A Tale of Two Economies
By Zach Carter, Media Consortium Blogger
The U.S. economy has diverged: Wall Street is living high on the hog while everyone else is struggling. The Dow Jones Industrial Average eclipsed 10,000 for the first time since last October this week, even as unemployment continues to spiral out of control. And while President Barack Obama has taken some very real steps to help ordinary people, his administration’s efforts to save Wall Street have far outstripped their support of workers. (more…)