The fifth annual conclave of the Netroots Nation (a group of liberal bloggers) took place in Las Vegas last week. Among the stories emerging from that event was the plea that progressive bloggers “quit beating up on Obama”. I found this very amusing. After Obama betrayed his supporters by pushing through a faux healthcare “reform” bill, which lacked the promised “public option” and turned out to be a giveaway to big pharma and the health insurance industry – the new President turned the long-overdue, financial “reform” bill into yet another hoax.
As I pointed out on July 12, Mike Konczal of the Roosevelt Institute documented the extent to which Obama’s Treasury Department undermined the financial reform bill at every step. On the following day, Rich Miller of Bloomberg Newsexamined the results of a Bloomberg National Poll, which measured the public’s reaction to the financial reform bill. Almost eighty percent of those who responded were of the opinion that the new bill would do little or nothing to prevent or mitigate another financial crisis. Beyond that, 47 percent shared the view that the bill would do more to protect the financial industry than consumers. Both healthcare and financial “reform” legislation turned out to be “bait and switch” scams used by the Obama administration against its own supporters. After that double-double-cross, the liberal blogosphere was being told to “pay no attention to that man behind the curtain”.
Despite the partisan efforts by Democrats to blame our nation’s economic decline exclusively on the Bush administration, reading between the lines of a recent essay by Senator Bernie Sanders provides some insight on how the problem he discusses has festered during the Obama administration:
The 400 richest families in America, who saw their wealth increase by some $400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last fifteen years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest-paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record.
Let me get this straight . . . Is Senator Sanders telling us that it took the 400 families the entire eight Bush years just to pick up $400 billion and that once Obama came to the White House, those families were able to pick up another $827 billion in less than two years? In fairness, Senator Sanders made a great argument to reinstate what I call, “the tax on dead millionaires”. He began by discussing the harsh reality experienced by mere mortals:
And while the Great Wall Street Recession has devastated the middle class, the truth is that working families have been experiencing a decline for decades.
Nevertheless, to understand how the middle class has been destroyed by those 400 families, their corporate alter egos and the lobbyists they employ, one need not rely on the words of a Senator, who is an “avowed socialist” (a real one – not just someone called a socialist by partisan blowhards). Consider, for example, a great essay by Phil Davis, avowed capitalist and self-described “serial entrepreneur”. The title of the piece might sound familiar: “It’s the End of the World As We Know It”. Mr. Davis discussed the latest battle in the war against Social Security and the current efforts to raise the retirement age to 70:
So, what is this all about? It’s about forcing 5M people a year who reach the age 65 to remain in the work-force. The top 0.01% have already taken your money, they have already put you in debt, they have already bankrupted the government as well so it has no choice but to do their bidding. Now the top 0.01% want to make even MORE profits by paying American workers even LESS money. If they raise the retirement age to 70 to “balance” Social Security – that will guarantee that another 25M people remain in the workforce (less the ones that drop dead on the job – saving the bother of paying them severance).
Those who believe that President Obama would never let this happen need look no further than a recent posting by Glenn Greenwald (a liberal Constitutional lawyer – just like our President) at Salon.com:
Despite the efforts to characterize Social Security as an “entitlement program” – it’s not. It’s something you have already paid for – as documented by your income tax returns and W-2 forms. Pay close attention and watch how our one-party system, controlled by the Republi-cratic Corporatist Party steals that money away from you. Both Phil Davis and Glenn Greenwald have each just given you a big “heads-up”. What are you going to do about it?
With mid-term elections approaching, politicians are fearful of making any decisions or statements that may offend their wealthy contributors. Accordingly, the prospect of allowing the Bush tax cuts to expire has become a source of outrage among Republicans. In fact, many Democrats are afraid to touch this subject as their number of wealthy benefactors continues to shrink.
On July 11, Chris Wallace posed this question to Arizona Senator John Kyl on Fox News Sunday:
Senator, let me just break in, because I want to pick up on exactly the point that you just brought up, particularly, the Bush tax cuts for the wealthy. That is part of the big Republican growth agenda, let’s keep, not let expire, the Bush tax cuts for the wealthy.
The fact is those would cost $678 billion over 10 years. At a time Republicans are saying that they can’t extend unemployment benefits unless you pay for them, tell me, how are you going to pay that $678 billion to keep those Bush tax cuts for the wealthy?
Kyl responded with: “Chris, that is a loaded question.” Kyl continued to dodge the question, despite persistent follow-up from Wallace. The Senator eventually escaped with this curious response: “. . . you should never raise taxes in order to cut taxes.” The apparent logic behind this statement was that you should never raise taxes on the wealthy in order to cut taxes for the middle class.
Senate Republican leader Mitch McConnell stepped up to reassure his party’s wealthy contributors that there would be a fight to keep those tax cuts in place – even if some of their old heroes thought the cuts were a bad idea. Daniel Enoch of Bloomberg Businessweekput it this way:
U.S. Senate Republican Leader Mitch McConnell spoke out against former Federal Reserve Chairman Alan Greenspan’s call to let tax cuts that were passed during the administration of President George W. Bush expire.
One would expect that since Ronald Reagan has become a patron saint of the Republican Party, the opinions of Reagan’s former budget director, David Stockman, might influence current opinion within the GOP. Nevertheless, in a recent interview with Lloyd Grove of The Daily Beast, Stockman stepped on what has become a “third rail” for Republicans:
Stockman, a nominal tax-cutting supply-sider when he worked for Reagan, has been crusading in recent weeks for President Obama to let George W. Bush’s tax cuts expire — something that will happen automatically absent congressional intervention.
“The only thing Obama needs to do is say, ‘Gentlemen and Ladies of the Congress, don’t send me a tax bill because I don’t want one,’ ” Stockman tells me. “He can take the political hit. That’s his job. That’s change you can believe in. That would put $300 billion back into the coffers, beginning in 2011 and 2012, and it would erase one of the biggest policy blunders in history. The Bush tax cuts never should’ve been passed because, one, we couldn’t afford them, and second, we didn’t earn them… The lower half of American families don’t pay income tax, and they’re the people who ought to be given a break here. By allowing these tax cuts to expire, you’re putting the burden on the top half of the income earners. What is more fair than that? So why does Obama want to extend, as apparently the White House has been saying, the tax cuts for $150,000-a-year families? So the wife can buy her 19th Coach bag?”
Of course, we all know the answer to that question. It’s because Obama is every bit as motivated as his adversaries to tailor his own policies toward generating campaign contributions.
Despite Washington’s festival of self-congratulation, now that the so-called financial “reform” bill is finally becoming law, the public is not being fooled. Rich Miller of Bloomberg Newsreported that almost eighty percent of the public accepts the premise I discussed on June 28 — that the financial “reform” bill is a hoax. Mr. Miller examined the results of a Bloomberg National Poll, which measured the public’s reaction to the financial reform bill and here’s what was revealed:
Almost four out of five Americans surveyed in a Bloomberg National Poll this month say they have just a little or no confidence that the measure being championed by congressional Democrats will prevent or significantly soften a future crisis. More than three-quarters say they don’t have much or any confidence the proposal will make their savings and financial assets more secure.
A plurality — 47 percent — says the bill will do more to protect the financial industry than consumers; 38 percent say consumers would benefit more.
* * *
Skepticism about the financial bill, which may be approved this week, cuts across political party lines. Seven in 10 Democrats have little or no confidence the proposals will avert or significantly lessen the impact of another financial catastrophe; 68 percent doubt it will make their savings more secure.
The Bloomberg poll also revealed that approximately 60 percent of the respondents felt that the $700 billion TARP bailout was a waste of money. This sentiment was bolstered by a recent report from the Congressional Oversight Panel, disclosing that TARP did nothing for the 690 smaller banks, with assets of less than $100 billion each, which received TARP money. Ronald Orol of MarketWatch provided this summary:
The report said “there is little evidence” that the capital injections led small banks to increase lending.
It also said small-bank TARP recipients have a disproportionately larger exposure to commercial real-estate losses than their big bank counterparts. They are also having a difficult time making dividend payments to the government, a requirement of TARP, and this problem will increase over time, the report said.
The bottom line in reports such as these is usually a variation on the theme presented by pollster J. Ann Selzer, president of the firm that conducted the Bloomberg poll on public response to the financial reform bill:
“The mood of the American public is highly skeptical toward government and its ability to do right by the average person . . .”
With the public mood at such a skeptical level about government, now is a good time to face up to the reason why our government has become so dysfunctional: It is systemically corrupt. Legalized graft has become the predominant force behind nearly all political decision-making. If a politician has concerns that a particular compromise could upset his or her constituents, there will always be a helpful lobbyist to buy enough advertising propaganda (in the form of campaign ads) to convince the sheeple that the pol is acting in the public’s best interests.
Eric Alterman recently wrote a great (albeit turgid) article for The Nation, discussing institutionalized sleaziness in Washington. Despite Alterman’s liberal bias, the systemic corruption he discusses should outrage conservative and independent voters as well as liberals. Here are some of Alterman’s important points about ugly realities that the public has been reluctant to face:
Of course when attempting to determine why the people’s will is so frequently frustrated in our system, any author would be remiss if he did not turn first and foremost to the power of money. The nonpartisan Center for Responsive Politics calculated that approximately $3.47 billion was spent lobbying the federal government in 2009, up from $3.3 billion the previous year. By the final quarter of the year, lobbies were handing out $20 million a day. The most generous spreaders of wealth were in the pharmaceutical and health products industries, whose $266.8 million set a record for “the greatest amount ever spent on lobbying efforts by a single industry for one year” according to CRP. At one point, PhRMA employed forty-eight lobbying firms, in addition to in-house lobbyists, with a total of 165 people overall, according to the Sunlight Foundation’s Paul Blumenthal.
Max Baucus (D, Montana), who wrote the original Senate healthcare bill, raised roughly $2 million from the health sector in the past five years, according to opensecrets.org, despite running in a low-cost media market with marginal opposition.
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Financial power need not be justified merely on the basis of the votes it sways. Rather, it can define potential alternatives, invent arguments, inundate with propaganda and threaten with merely hypothetical opposition. Politicians do not need to “switch” their votes to meet the demands of this money. They can bury bills; they can rewrite the language of bills that are presented; they can convince certain Congressmen to be absent on the days certain legislation is discussed; they can confuse debate; they can bankroll primary opposition. The manner and means through which money can operate is almost as infinite as its uses in any bordello, casino or Wall Street brokerage.
The banal, pretexted debates, focused on liberal vs. conservative, left vs. right, etc. are simply smokescreens for the real problem: the disastrous consequences that governmental influence peddling has on society. Political corruption is bipartisan and in Washington it is almost universal. Campaign finance reform is just one battle to be fought in the war against institutionalized government corruption. It’s time for all of the Jack Abramoffs and their elected cronies to be rounded-up and tossed into the slammer. The public needs to face this ugly reality and demand that laws be enforced, loopholes be closed and bribery be stopped. We are just beginning to taste the consequences of ignoring these problems. Failure to take control of this situation now runs a serious risk of unimaginable repercussions.
The recent Gallup Poll, revealing that President Obama’s approval rating has dropped to 38% among independent voters, has resulted in an outpouring of (unsolicited) advice offered to the President by numerous commentators. As I pointed out in my last posting, Matt Miller’s July 8 Washington Postarticle set out a really great plan, which he described as “a radically centrist ‘Jobs Now, Deficits Soon’ package”. Nevertheless, Mr. Miller’s piece was not written as advice to the President, as some of the more recent articles have been. I recently read one of those “advice to Obama” pieces that the President would do well to ignore. It was written by a former Bill Clinton pollster named Douglas Schoen for the New York Daily News. Schoen’s plan focused on this premise:
The independent swing voters who hold the fate of the Democratic Party in their hands are looking for candidates and parties that champion fiscal discipline, limited government, deficit reduction and a free market, pro-growth agenda.
Not true. The independent swing voters are disappointed with Obama because the candidate’s promise of “hope and change” turned out to be a “bait and switch” scam to sell the public more cronyism. At this point, it appears as though the entire Democratic Party will suffer the consequences in the 2010 elections.
The shortcomings of the Obama administration were more accurately summed up by Robert Kuttner for The Huffington Post:
But even a dire economic crisis and a Republican blockade of needed remedies have not fundamentally altered the temperament, trajectory, or tactical instincts of this surprisingly aloof president. He has not been willing or able to use his office to move public opinion in a direction that favors more activism. Nor has Obama, for the most part, seized partisan and ideological opportunities that hapless Republicans and clueless corporate executives keep lobbing him like so many high, hanging curve balls.
* * *
But despite our hopes, Barack Obama is unlikely to offer bolder policies or give tougher speeches any time soon, even as threats of a double-dip recession and an electoral blowout in November loom. This is just not who he is. If the worst economic crisis in eight decades were going to change his assumptions about how to govern and how to lead, it would have done so by now.
* * *
I have also watched Obama’s loyal opposition –people like Joseph Stiglitz, Paul Krugman, Elizabeth Warren, Sheila Bair — be proven right by events, again and again. So there are alternative paths, as there always are. But the White House has disdained them.
And I’ve noticed that it is the populists among Democratic elected officials who are best defended against defeat in November. That tells you something, too. Why should the project of rallying the common people against elites in Washington, on Wall Street, and in the media, be ceded to the far right? But that is what this White House is doing.
E. J. Dionne of The Washington Post demonstrated a good understanding of why independent voters have become fed up with Obama and how this has ballooned into a larger issue of anti-Democrat sentiment:
On the one hand, independent voters are turning on them. Democratic House candidates enjoyed a 51 percent to 43 percent advantage over Republicans in 2008. This time, the polls show independents tilting Republican by substantial margins.
But Democrats are also suffering from a lack of enthusiasm among their own supporters. Poll after poll has shown that while Republicans are eager to cast ballots, many Democrats seem inclined to sit out this election.
The apathy of the rank-and-file Democrats and the alienation of the independents is best explained by the Administration’s faux-reform agenda. The so-called healthcare “reform” bill turned out to be a giveaway to big pharma and the health insurance industry. Worse yet, the financial “reform” bill not only turned out to be a hoax – it did nothing to address systemic risk. In other words, if one of those five “untouchable” Wall Street banks fails, it will take the entire financial system down with it — in the absence of another huge, trillion-dollar bailout from the taxpayers.
Mike Konczal of the Roosevelt Institute documented the extent to which Obama’s Treasury Department undermined the financial reform bill at every step:
You can agree or disagree with any number of those items, think they are brilliant or dumb, reasonable or a pipe dream. But what is worth noting is that they always end up leaving their fingerprints on the side of less structural reform and in favor of the status quo on Wall Street.
The Obama administration is apparently operating from the mistaken perspective that the voters are too stupid to see through their antics. Sending Joe Biden to appear on Jay Leno’s Tonight Show to dissuade the public from considering the motives of politicians will not solve the administration’s problem of sinking approval ratings.
Exactly one year ago (on July 7, 2009) I pointed out that it would eventually become necessary for President Obama to propose a second economic stimulus package because he didn’t get it right the first time. As far back as January of 2009, the President was ignoring all of the warnings from economists such as Nobel Laureate Joseph Stiglitz, who forewarned that the proposed $850 billion economic recovery package would be inadequate. Mr. Obama also ignored the Bloomberg News report of February 12, 2009 concerning its survey of 50 economists, which described Obama’s stimulus plan as “insufficient”. Last year, the public and the Congress had the will – not to mention the sense of urgency – to approve a robust stimulus initiative. As we now approach mid-term elections, the politicians whom Barry Ritholtz describes as “deficit chicken hawks” – elected officials with a newfound concern about budget deficits – are resisting any further stimulus efforts. Worse yet, as Ryan Grim reported for the Huffington Post, President Obama is now ignoring his economic advisors and listening, instead, to his political advisors, who are urging him to avoid any further economic rescue initiatives.
Ryan Grim’s article revealed that there has been a misunderstanding of the polling data that has kept politicians running scared on the debt issue. A recent poll revealed that responses to polling questions concerning sovereign debt are frequently interpreted by the respondents as limited to the issue of China’s increasing role as our primary creditor:
The Democrats gathered on Thursday morning to dig into the national poll, which was paid for by the Alliance for American Manufacturing and done by Democrat Mark Mellman and Republican Whit Ayers.
It hints at an answer to why people are so passionate when asked by pollsters about the deficit: It’s about jobs, China and American decline. If the job situation improves, worries about the deficit will dissipate. Asking whether Congress should address the deficit or the jobless crisis, therefore, is the wrong question.
* * *
About 45 percent of respondents said the biggest problem is that “we are too deep in debt to China,” the highest-ranking concern, while 58 percent said the U.S. is no longer the strongest economy, with China being the overwhelming alternative identified by people.
In areas where the government has a significant opportunity for impact, it would be pennywise and pound foolish not to take advantage of our capacity to encourage near-term job creation.
* * *
Consider the package currently under consideration in Congress to extend unemployment and health benefits to those out of work and support to states to avoid budget cuts as a case in point.
It would be an act of fiscal shortsightedness to break from the longstanding practice of extending these provisions at a moment when sustained economic recovery is so crucial to our medium-term fiscal prospects.
Since our President prefers to be a follower rather than a leader, I suggest that he follow the sound advice of The Washington Post’s Matt Miller:
I come before you, in other words, a deficit hawk to the core. But it is the height of economic folly — and socially dangerous, in my view — to elevate deficit reduction as a goal today over boosting jobs and growth. Especially when there are ways to goose the economy while at the same time legislating changes that move us toward fiscal sanity once we’re past this stagnation.
Mr. Miller presented a fantastic plan, which he described as “a radically centrist ‘Jobs Now, Deficits Soon’ package”. He concluded the piece with this painfully realistic assessment:
The fact that nothing like this will happen, therefore, is both depressing and instructive. Republicans are content to glide toward November slamming Democrats without offering answers of their own. Democrats who now know the first stimulus was too puny feel they’ll be clobbered for trying more in the Tea Party era.
The leadership void brought to us by the Obama Presidency was the subject of yet another great essay by Paul Farrell of MarketWatch. He supported his premise — that President Obama has capitulated to Wall Street’s “Conspiracy of Weasels” — with the perspectives of twelve different commentators.
The damage has already been done. Any hope that our President will experience a sudden conversion to authentic populism is pure fantasy. There will be no more federal efforts to resuscitate the job market, to facilitate the availability of credit to small businesses or to extend benefits to the unemployed. The federal government’s only concern is to preserve the well-being of those five sacred Wall Street banks because if any single one failed – such an event would threaten our entire financial system. Nothing else matters.
Comments Off on Rare Glimpses Of Honesty And Sanity
July 1, 2010
Too many of the commentaries we see these days are either motivated by or calculated to promote hysteria. When someone expresses a rational point of view or an honest look at the skullduggery going on in Washington, it’s as refreshing as a cold beer on a hot, summer day.
With so much panic over sovereign debt and budget deficits afflicting the consensual mood, it’s always great to read a piece by someone willing to analyze the situation from a perspective based on facts instead of fear. Brett Arends wrote a great piece for MarketWatch, dissecting the debt panic and looking at the data to be considered by those implementing public policy on this issue. His essay focused on “the three biggest lies about the economy”: that unemployment is below ten percent, that the markets are panicking about the deficit and that the United States is sliding into socialism. Here is some of what he had to say:
Most people have no idea what’s really going on in the economy. They’re living on spin, myths and downright lies. And if we don’t know the facts, how can we make intelligent decisions?
High unemployment exerts a huge deflationary force on the economy. Beyond that, the income taxes those unemployed citizens used to pay are no longer helping to pick up the tab for our bloated budget. Mr. Arends emphasized the importance of looking at the real unemployment rate – what is referred to as U6 – which includes those people deliberately disregarded when counting the “unemployed”:
For example it counts discouraged job seekers, and those forced to work part-time because they can’t get a full-time job.
That rate right now is 16.6%, just below its recent high and twice the level it was a few years ago.
* * *
Consider, for example, the situation among men of prime working age. An analysis of data at the U.S. Labor Department shows that there are 79 million men in America between the ages of 25 and 65. And nearly 18 million of them, or 22%, are out of work completely. (The rate in the 1950s was less than 10%.) And that doesn’t even count those who are working part-time because they can’t get full-time work. Add those to the mix and about one in four men of prime working age lacks a full-time job.
In exploding the myth about claimed market panic concerning the debt, Arends dug back into his arsenal of common sense, explaining what would happen if the markets were panicked:
. . . the interest rate on government bonds would be skyrocketing. That’s what happens with risky debt: Lenders demand higher and higher interest payments to compensate them for the dangers.
But the rates on U.S. bonds have been plummeting recently. The yield on the 30-year Treasury bond is down to just 4%. By historic standards that’s chickenfeed. Panicked? The bond markets are practically snoring.
The specious claims about domestic socialism don’t really deserve a response, but here is how Arends dealt with that narrative:
Meanwhile, federal spending, about 25% of the economy this year, is expected to fall to about 23% by 2013. In 1983, under Ronald Reagan, it hit 23.5%. In the early 1990s it was around 22%. Some socialism.
Another prevalent false narrative being circulated lately (particularly by President Obama and his administration) concerns the hoax known as the “financial reform” bill. Wisconsin Senator Russ Feingold gave us a rare, disgusted insider’s look at how Wall Street was able to get what it wanted from its lackeys on Capitol Hill:
Since the Senate bill passed, I have had a number of conversations with key members of the administration, Senate leadership and the conference committee that drafted the final bill. Unfortunately, not once has anyone suggested in those conversations the possibility of strengthening the bill to address my concerns and win my support. People want my vote, but they want it for a bill that, while including some positive provisions, has Wall Street’s fingerprints all over it.
In fact, reports indicate that the administration and conference leaders have gone to significant lengths to avoid making the bill stronger.
Lest we forget that the financial crisis of 2008 was caused by the antics of cretins such as “Countrywide Chris” Dodd, Senator Feingold’s essay mentioned that sleazy chapter in Senate history to put this latest disgrace in the proper perspective:
Many of the critical actors who shaped this bill were present at the creation of the financial crisis. They supported the enactment of Gramm-Leach-Bliley, deregulating derivatives, even the massive Interstate Banking bill that helped grease the “too big to fail” skids. It shouldn’t be a surprise to anyone that the final version of the bill looks the way it does, or that I won’t fall in line with their version of “reform.”
As I discussed in “Your Sleazy Government at Work”, the voters will not forget about the Democrats (including President Obama) who undermined financial reform legislation, while pretending to advance it. The Democratic Party has until early 2012 to face up to the fact that their organization would be better off supporting a Presidential candidate with the integrity of Russ Feingold or Maria Cantwell if they expect to maintain control over the Executive branch of our government.
Comments Off on Financial Reform Bill Exposed As Hoax
June 28, 2010
You don’t have to look too far to find damning criticism of the so-called financial “reform” bill. Once the Kaufman-Brown amendment was subverted (thanks to the Obama administration), the efforts to solve the problem of financial institutions’ growth to a state of being “too big to fail” (TBTF) became a lost cause. Dylan Ratigan, who had been fuming for a while about the financial reform charade, had this to say about the product that emerged from reconciliation on Friday morning:
It means that the same people who brought you these horrible changes — rising wealth discrepancy, massive unemployment and a crumbling infrastructure – have now further institutionalized the policies that will keep the causes of these problems firmly in place.
The best trashing of this bill came from Tyler Durden at Zero Hedge:
Congrats, middle class, once again you get raped by Wall Street, which is off to the races to yet again rapidly blow itself up courtesy of 30x leverage, unlimited discount window usage, trillions in excess reserves, quadrillions in unregulated derivatives, a TBTF framework that has been untouched and will need a rescue in under a year, non-existent accounting rules, a culture of unmitigated greed, and all of Congress and Senate on its payroll. And, sorry, you can’t even vote some of the idiots that passed this garbage out: after all there is a retiring lame duck in charge of it all. We can only hope his annual Wall Street (i.e. taxpayer funded) annuity will satisfy his conscience for destroying any hope America could have of a credible financial system.
* * *
In other words, the greatest theatrical production of the past few months is now over, it has achieved nothing, it will prevent nothing, and ultimately the financial markets will blow up yet again, but not before the Teleprompter in Chief pummels the idiot public with address after address how he singlehandedly was bribed, pardon, achieved a historic event of being the only president to completely crumble under Wall Street’s pressure on every item that was supposed to reign in the greatest risktaking generation (with Other People’s Money) in history.
Robert Lenzner of Forbes focused his criticism of the bill on the fact that nothing was done to limit the absurd leverage used by the banks to borrow against their capital. After all, at the January 13 hearing of the Financial Crisis Inquiry Commission, Lloyd Bankfiend of Goldman Sachs and JP Morgan’s Dimon Dog admitted that excessive leverage was a key problem in causing the financial crisis. As I discussed in “Lev Is The Drug”:
Lloyd Blankfein repeatedly expressed pride in the fact that Goldman Sachs has always been leveraged to “only” a 23-to-1 ratio. The Dimon Dog’s theme was something like: “We did everything right . . . except that we were overleveraged”.
At Forbes, Robert Lenzner discussed the ugly truth about how the limits on leverage were excised from this bill:
The capitulation on this matter of leverage is extraordinary evidence of Wall Street’s power to influence Congress through its lobbying dollars. It is another example of the public servants serving the agents of finance capitalism. After pumping in gobs of sovereign credit to replace the credit that had been wiped out and replace the supply of credit to the economic system, a weak reform bill will just be an invitation to drum up the leverage that caused the crisis in the first place.
Another victory for the lobbyists came in their sabotage of the prohibition on proprietary trading (when banks trade with their own money, for their own benefit). The bill provides that federal financial regulators shall study the measure, then issue rules implementing it, based on the results of that study. The rules might ultimately ban proprietary trading or they may allow for what Jim Jubak of MSN calls the “de minimus” (trading with minimal amounts) exemption to the ban. Jubak considers the use of the de minimus exemption to the so-called ban as the likely outcome. Many commentators failed to realize how the lobbyists worked their magic here, reporting that the prop trading ban (referred to as the “Volcker rule”) survived reconciliation intact. Jim Jubak exposed the strategy employed by the lobbyists:
But lobbying Congress is only part of the game. Congress writes the laws, but it leaves it up to regulators to write the rules. In a mid-June review of the text of the financial-reform legislation, the Chamber of Commerce counted 399 rule-makings and 47 studies required by lawmakers.
Each one of these, like the proposed de minimus exemption of the Volcker rule, would be settled by regulators operating by and large out of the public eye and with minimal public input. But the financial-industry lobbyists who once worked at the Federal Reserve, the Treasury, the Securities and Exchange Commission, the Commodities Futures Trading Commission or the Federal Deposit Insurance Corp. know how to put in a word with those writing the rules. Need help understanding a complex issue? A regulator has the name of a former colleague now working as a lobbyist in an e-mail address book. Want to share an industry point of view with a rule-maker? Odds are a lobbyist knows whom to call to get a few minutes of face time.
At the Naked Capitalism website, Yves Smith served up some more negative reactions to the bill, along with her own cutting commentary:
I want the word “reform” back. Between health care “reform” and financial services “reform,” Obama, his operatives, and media cheerleaders are trying to depict both initiatives as being far more salutary and far-reaching than they are. This abuse of language is yet another case of the Obama Administration using branding to cover up substantive shortcomings. In the short run it might fool quite a few people, just as BP’s efforts to position itself as an environmentally responsible company did.
* * *
So what does the bill accomplish? It inconveniences banks around the margin while failing to reduce the odds of a recurrence of a major financial crisis.
The only two measures I see as genuine accomplishments, the Audit the Fed provisions, and the creation of a consumer financial product bureau, do not address systemic risks. And the consumer protection authority was substantially watered down. Recall a crucial provision, that banks be required to offer plain vanilla variants of products, was axed early on.
So there you have it. The bill that is supposed to save us from another financial crisis does nothing to accomplish that objective. Once this 2,000-page farce is signed into law, watch for the reactions. It will be interesting to sort out the clear-thinkers from the Kool-Aid drinkers.
They’re at the starting line, getting ready to trash the economy and turn our “great recession” into a full-on Great Depression II (to steal an expression from Paul Farrell). Barry Ritholtz calls them the “deficit chicken hawks”. The Reformed Broker recently wrote a clever piece which incorporated a moniker coined by Mark Thoma, the “Austerians”, in reference to that same (deficit chicken hawk) group. The Reformed Broker described them this way:
. . . this gang has found a sudden (upcoming election-related) pang of concern over deficits and our ability to finance them. Critics say the Austerians’ premature tightness will send the economy off a cliff, a la the 1930’s.
Count me among those who believe that the Austerians are about to send the economy off a cliff – or as I see it: into a Demolition Derby. The first smash-up in this derby was to sabotage any potential recovery in the job market. Economist Scott Brown made this observation at the Seeking Alpha website:
One issue in deficit spending is deciding how much is enough to carry us through. Removing fiscal stimulus too soon risks derailing the recovery. Anti-deficit sentiment has already hampered a push for further stimulus to support job growth. Across the Atlantic, austerity moves threaten to dampen European economic growth in 2011. Long term, deficit reduction is important, but short term, it’s just foolish.
The second event in the Demolition Derby is to deny the extension of unemployment benefits. Because the unemployed don’t have any money to bribe legislators, they make a great target. David Herszenhorn of The New York Times discussed the despair expressed by Senator Patty Murray of Washington after the Senate’s failure to pass legislation extending unemployment compensation:
“This is a critical piece of legislation for thousands of families in our country, who want to know whether their United States Senate and Congress is on their side or is going to turn their back on them, right at a critical time when our economy is just starting to get around the corner,” Mrs. Murray said.
The deficit chicken hawk group isn’t just from the Republican side of the aisle. You can count Democrat Ben Nelson of Nebraska and Joe “The Tool” Lieberman among their ranks.
David Leonhardt of The New York Times lamented Fed chairman Ben Bernanke’s preference for maintaining “the markets’ confidence in Washington” at the expense of the unemployed:
Look around at the American economy today. Unemployment is 9.7 percent. Inflation in recent months has been zero. States are cutting their budgets. Congress is balking at spending the money to prevent state layoffs. The Fed is standing pat, too. Bond investors, fickle as they may be, show no signs of panicking.
Which seems to be the greater risk: too much action or too little?
The Demolition Derby is not limited to exacerbating the unemployment crisis. It involves sabotaging the economic recovery as well. In my last posting, I discussed a recent report by Comstock Partners, highlighting ten reasons why the so-called economic rebound from the financial crisis has been quite weak. The report’s conclusion emphasized the necessity of additional fiscal stimulus:
The data cited here cover the major indicators of economic activity, and they paint a picture of an economy that has moved up, but only from extremely depressed numbers to a point where they are less depressed. And keep in mind that this is the result of the most massive monetary and fiscal stimulus ever applied to a major economy. In our view the ability of the economy to undergo a sustained recovery without continued massive help is still questionable.
In a recent essay, John Mauldin provided a detailed explanation of how premature deficit reduction efforts can impair economic recovery:
In the US, we must start to get our fiscal house in order. But if we cut the deficit by 2% of GDP a year, that is going to be a drag on growth in what I think is going to be a slow growth environment to begin with. If you raise taxes by 1% combined with 1% cuts (of GDP) that will have a minimum effect of reducing GDP by around 2% initially. And when you combine those cuts at the national level with tax increases and spending cuts of more than 1% of GDP at state and local levels you have even further drags on growth.
Those who accept Robert Prechter’s Elliott Wave Theory for analyzing stock market charts to make predictions of long-term financial trends, already see it coming: a cataclysmic crash. As Peter Brimelow recently discussed at MarketWatch, Prechter expects to see the Dow Jones Industrial Average to drop below 1,000:
The clearest statement comes from the Elliott Wave Theorist, discussing a numerological technical theory with which it supplements the Wave Theory’s complex patterns: “The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016.”
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There will be a short-term rally at some point, thinks Prechter, but it will be a trap: “The 7.25-year and 20-year cycles are both scheduled to top in 2012, suggesting that 2012 will mark the last vestiges of self-destructive hope. Then the final years of decline will usher in capitulation and finally despair.”
So it is written. The Demolition Derby shall end in disaster.
I’m quite surprised by the fact that people continue to pay serious attention to the musings of Alan Greenspan. On June 18, The Wall Street Journal saw fit to publish an opinion piece by the man referred to as “The Maestro” (although – these days – that expression is commonly used in sarcasm). The former Fed chairman expounded that recent attempts to rein in the federal budget are coming “none too soon”. Near the end of the article, Greenspan made the statement that will earn him a nomination for TheCenterLane.com’s Jackass of the Year Award:
I believe the fears of budget contraction inducing a renewed decline of economic activity are misplaced.
John Mauldin recently provided us with a thorough explanation of why Greenspan’s statement is wrong:
There are loud calls in the US and elsewhere for more fiscal constraints. I am part of that call. Fiscal deficits of 10% of GDP is a prescription for disaster. As we have discussed in previous letters, the book by Rogoff and Reinhart (This Time is Different) clearly shows that at some point, bond investors start to ask for higher rates and then the interest rate becomes a spiral. Think of Greece. So, not dealing with the deficit is simply creating a future crisis even worse than the one we just had.
But cutting the deficit too fast could also throw the country back in a recession. There has to be a balance.
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That deficit reduction will also reduce GDP. That means you collect less taxes which makes the deficits worse which means you have to make more cuts than planned which means lower tax receipts which means etc. Ireland is working hard to reduce its deficits but their GDP has dropped by almost 20%! Latvia and Estonia have seen their nominal GDP drop by almost 30%! That can only be characterized as a depression for them.
Robert Reich’s refutation of Greenspan’s article was right on target:
Contrary to Greenspan, today’s debt is not being driven by new spending initiatives. It’s being driven by policies that Greenspan himself bears major responsibility for.
Greenspan supported George W. Bush’s gigantic tax cut in 2001 (that went mostly to the rich), and uttered no warnings about W’s subsequent spending frenzy on the military and a Medicare drug benefit (corporate welfare for Big Pharma) — all of which contributed massively to today’s debt. Greenspan also lowered short-term interest rates to zero in 2002 but refused to monitor what Wall Street was doing with all this free money. Years before that, he urged Congress to repeal the Glass-Steagall Act and he opposed oversight of derivative trading. All this contributed to Wall Street’s implosion in 2008 that led to massive bailout, and a huge contraction of the economy that required the stimulus package. These account for most of the rest of today’s debt.
If there’s a single American more responsible for today’s “federal debt explosion” than Alan Greenspan, I don’t know him.
But we can manage the Greenspan Debt if we get the U.S. economy growing again. The only way to do that when consumers can’t and won’t spend and when corporations won’t invest is for the federal government to pick up the slack.
This brings us back to my initial question of why anyone would still take Alan Greenspan seriously. As far back as April of 2008 – five months before the financial crisis hit the “meltdown” stage — Bernd Debusmann had this to say about The Maestro for Reuters, in a piece entitled, “Alan Greenspan, dented American idol”:
Instead of the fawning praise heaped on Greenspan when the economy was booming, there are now websites portraying him in dark colors. One site is called The Mess That Greenspan Made, another Greenspan’s Body Count. Greenspan’s memoirs, The Age of Turbulence, prompted hedge fund manager William Fleckenstein to write a book entitled Greenspan’s Bubbles, the Age of Ignorance at the Federal Reserve. It’s in its fourth printing.
The day after Greenspan’s essay appeared in The Wall Street Journal, Howard Gold provided us with this recap of Greenspan’s Fed chairmanship in an article for MarketWatch:
The Fed chairman’s hands-off stance helped the housing bubble morph into a full-blown financial crisis when hundreds of billions of dollars’ worth of collateralized debt obligations, credit default swaps, and other unregulated derivatives — backed by subprime mortgages and other dubious instruments — went up in smoke.
Highly leveraged banks that bet on those vehicles soon were insolvent, too, and the Fed, the U.S. Treasury and, of course, taxpayers had to foot the bill. We’re still paying.
But this was not just a case of unregulated markets run amok. Government policies clearly made things much worse — and here, too, Greenspan was the culprit.
The Fed’s manipulation of interest rates in the middle of the last decade laid the groundwork for the most fevered stage of the housing bubble. To this day, Greenspan, using heavy-duty statistical analysis, disputes the role his super-low federal funds rate played in encouraging risky behavior in housing and capital markets.
Among the harsh critiques of Greenspan’s career at the Fed, was Frederick Sheehan’s book, Panderer to Power. Ryan McMaken’s review of the book recently appeared at the LewRockwell.com website – with the title, “The Real Legacy of Alan Greenspan”. Here is some of what McMacken had to say:
. . . Panderer to Power is the story of an economist whose primary skill was self-promotion, and who in the end became increasingly divorced from economic reality. Even as early as April 2008 (before the bust was obvious to all), the L.A. Times, observing Greenspan’s post-retirement speaking tour, noted that “the unseemly, globe-trotting, money-grabbing, legacy-spinning, responsibility-denying tour of Alan Greenspan continues, as relentless as a bad toothache.”
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Although Greenspan had always had a terrible record on perceiving trends in the economy, Sheehan’s story shows a Greenspan who becomes increasingly out to lunch with each passing year as he spun more and more outlandish theories about hidden profits and productivity in the economy that no one else could see. He spoke incessantly on topics like oil and technology while the bubbles grew larger and larger. And finally, in the end, he retired to the lecture circuit where he was forced to defend his tarnished record.
The ugly truth is that America has been in a bear market economy since 2000 (when “The Maestro” was still Fed chair). In stark contrast to what you’ve been hearing from the people on TV, the folks at Comstock Partners put together a list of ten compelling reasons why “the stock market is in a secular (long-term) downtrend that began in early 2000 and still has some time to go.” This essay is a “must read”. Further undermining Greenspan’s recent opinion piece was the conclusion reached in the Comstock article:
The data cited here cover the major indicators of economic activity, and they paint a picture of an economy that has moved up, but only from extremely depressed numbers to a point where they are less depressed. And keep in mind that this is the result of the most massive monetary and fiscal stimulus ever applied to a major economy. In our view the ability of the economy to undergo a sustained recovery without continued massive help is still questionable.
As always, Alan Greenspan is still wrong. Unfortunately, there are still too many people taking him seriously.
The predominant criticism of the so-called “financial reform” bill is its failure to address the problems caused by the existence of financial institutions considered “too big to fail”. In an essay entitled, “Creating the Next Crisis” economist Simon Johnson discussed the consequences of this legislative let-down:
On the critical dimension of excessive bank size and what it implies for systemic risk, there was a concerted effort by Senators Ted Kaufman and Sherrod Brown to impose a size cap on the largest banks – very much in accordance with the spirit of the original “Volcker Rule” proposed in January 2010 by Obama himself. In an almost unbelievable volte face, for reasons that remain somewhat mysterious, Obama’s administration itself shot down this approach. “If enacted, Brown-Kaufman would have broken up the six biggest banks in America,” a senior Treasury official said. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”
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The US financial sector received an unconditional bailout – and is not now facing any kind of meaningful re-regulation. We are setting ourselves up, without question, for another boom based on excessive and reckless risk-taking at the heart of the world’s financial system. This can end only one way: badly.
One would assume that an important lesson learned from the 2008 financial crisis was the idea that a corporation shouldn’t be permitted to blackmail the country with threats that its own financial collapse would have such a dire impact on society-at-large that the corporation should be bailed out by the taxpayers. The resulting problem is called “moral hazard” because such businesses are encouraged to act irresponsibly by virtue of the certainty that they will be bailed out if their activities prove self-destructive.
Gonzalo Lira wrote a piece for the Naked Capitalism blog, explaining how the moral hazard resulting from the “too big to fail” doctrine is facilitating a state of corporate anarchy:
In a nutshell, in this era of corporate anarchy, corporations do not have to abide by any rules — none at all. Legal, moral, ethical, even financial rules are irrelevant. They have all been rescinded in the pursuit of profit — literally nothing else matters.
As a result, corporations currently exist in a state of almost pure anarchy — but an anarchy directly related to their size: The larger the corporation, the greater its absolute freedom to do and act as it pleases. That’s why so many medium-sized corporations are hell-bent on growth over profits: The biggest of them all, like BP and Goldman Sachs, live in a positively Hobbesian State of Nature, free to do as they please, with nary a consequence.
Good-old British Petroleum – the latest beneficiary of the “too big to fail doctrine” — can rely on its size to avoid any sanctions it considers unacceptable because too many “small people” might lose their jobs if BP can’t stay fat and happy. Gonzalo Lira’s analysis went a step further:
Worst of all, BP realizes that, if it finally cannot get a handle on the oil spill disaster, they can simply fob it off on the U.S. Government — in other words, the people of the United States will wind up cleaning BP’s mess. BP knows that no one will hold it accountable — BP knows that it will get away with it.
* * *
This era of corporate anarchy is reaching a crisis point — we can all sense it. Yet the leadership in the United States and Europe is making no effort to solve the root problem. Perhaps they don’t see the problem. Perhaps they are beholden to corporate masters. Whatever the case, in his speech, President Obama made ridiculous references to “clean energy” while ignoring the cause of the BP oil spill disaster, the cause of the financial crisis, the cause of the spiralling health-care costs — the corporate anarchy that underlines them all.
This era of corporate anarchy is wrecking the world — literally, if you’ve been tuning in to images of the oil billowing out a mile down in the Gulf of Mexico.
Mr. Lira discussed how a leadership void has been helping corporate anarchy overtake democratic capitalism:
Obama is a corporatist — he’s one of Them. So there’ll be more bullshit talk about “clean energy” and “energy independence”, while the root cause — corporate anarchy — is left undisturbed.
The failure of President Obama to take advantage of the opportunity to address this “root cause” in his Oval Office address concerning the Deepwater Horizon disaster, inspired Robert Reich to make this comment:
Whether it’s Wall Street or health insurers or oil companies, we are approaching a turning point. The top executives of powerful corporations are pursuing profits in ways that menace the nation. We have not seen the likes not since the late nineteenth century when the “robber barons” of finance, oil, and the giant trusts ran roughshod over America. Now, as then, they are using their wealth and influence to buy off legislators and intimidate the regions that depend on them for jobs. Now, as then, they are threatening the safety and security of our people.
One of my favorite commentators, Paul Farrell of MarketWatch, recently warned us about the consequences of allowing corporate anarchy to destroy democratic capitalism:
The rise of uncontrolled corporate greed killed the “Invisible Hand,” the “soul” of capitalism that Adam Smith saw in 1776 as a divine force serving “the common good.” Today the system has no moral compass. Wall Street’s insatiable greed has destroyed capitalism from within, turning America’s economy into a soulless zombie.
The “Invisible Hand” Adam Smith saw as essential to capitalism in “The Theory of Moral Sentiments” died in endless battles fought by 261,000 lobbyists each wanting a bigger piece of the $1.7 trillion federal budget pie plus favorable laws protecting, vesting and increasing the power and wealth of their special interest clients. Future historians will call this ideological battle replacing democracy the new “American Capitalists Anarchy.”
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As a New York Times reviewer put it: Nations like “China and Russia are using what he calls ‘state capitalism’ to advance the interests of their companies at the expense of their American rivals.” Global pandemic?
Unfortunately while America wastes trillions to bail out inefficient too-stupid-to-fail banks, our competition is bankrolling healthy state-controlled corporations to destroy us . . .
If we ever reach the point when the watered-down “financial reform” bill finally becomes law, the taxpayers should insist that their government move on to address the “root cause” of corporate anarchy by taking up campaign finance reform. That should be one hell of a fight!
TheCenterLane.com offers opinion, news and commentary on politics, the economy, finance and other random events that either find their way into the news or are ignored by the news reporting business. As the name suggests, our focus will be on what seems to be happening in The Center Lane of American politics and what the view from the Center reveals about the events in the left and right lanes. Your Host, John T. Burke, Jr., earned his Bachelor of Arts degree from Boston College with a double major in Speech Communications and Philosophy. He earned his law degree (Juris Doctor) from the Illinois Institute of Technology / Chicago-Kent College of Law.
The War On YOU
July 26, 2010
The fifth annual conclave of the Netroots Nation (a group of liberal bloggers) took place in Las Vegas last week. Among the stories emerging from that event was the plea that progressive bloggers “quit beating up on Obama”. I found this very amusing. After Obama betrayed his supporters by pushing through a faux healthcare “reform” bill, which lacked the promised “public option” and turned out to be a giveaway to big pharma and the health insurance industry – the new President turned the long-overdue, financial “reform” bill into yet another hoax.
As I pointed out on July 12, Mike Konczal of the Roosevelt Institute documented the extent to which Obama’s Treasury Department undermined the financial reform bill at every step. On the following day, Rich Miller of Bloomberg News examined the results of a Bloomberg National Poll, which measured the public’s reaction to the financial reform bill. Almost eighty percent of those who responded were of the opinion that the new bill would do little or nothing to prevent or mitigate another financial crisis. Beyond that, 47 percent shared the view that the bill would do more to protect the financial industry than consumers. Both healthcare and financial “reform” legislation turned out to be “bait and switch” scams used by the Obama administration against its own supporters. After that double-double-cross, the liberal blogosphere was being told to “pay no attention to that man behind the curtain”.
Despite the partisan efforts by Democrats to blame our nation’s economic decline exclusively on the Bush administration, reading between the lines of a recent essay by Senator Bernie Sanders provides some insight on how the problem he discusses has festered during the Obama administration:
Let me get this straight . . . Is Senator Sanders telling us that it took the 400 families the entire eight Bush years just to pick up $400 billion and that once Obama came to the White House, those families were able to pick up another $827 billion in less than two years? In fairness, Senator Sanders made a great argument to reinstate what I call, “the tax on dead millionaires”. He began by discussing the harsh reality experienced by mere mortals:
Nevertheless, to understand how the middle class has been destroyed by those 400 families, their corporate alter egos and the lobbyists they employ, one need not rely on the words of a Senator, who is an “avowed socialist” (a real one – not just someone called a socialist by partisan blowhards). Consider, for example, a great essay by Phil Davis, avowed capitalist and self-described “serial entrepreneur”. The title of the piece might sound familiar: “It’s the End of the World As We Know It”. Mr. Davis discussed the latest battle in the war against Social Security and the current efforts to raise the retirement age to 70:
Those who believe that President Obama would never let this happen need look no further than a recent posting by Glenn Greenwald (a liberal Constitutional lawyer – just like our President) at Salon.com:
Despite the efforts to characterize Social Security as an “entitlement program” – it’s not. It’s something you have already paid for – as documented by your income tax returns and W-2 forms. Pay close attention and watch how our one-party system, controlled by the Republi-cratic Corporatist Party steals that money away from you. Both Phil Davis and Glenn Greenwald have each just given you a big “heads-up”. What are you going to do about it?
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