One year after President Barack Obama secured passage of his critical economic stimulus package, the U.S. Senate is finally taking anther look at how to create jobs and repair the economy. These issues are more important than ever, but absurd Republican obstructionism and timid Democratic negotiation are once again threatening good public policy.
Not really bipartisan, is it?
As Steve Benen notes for The Washington Monthly, the Senate Finance Committee reached a "bipartisan" agreement to supposedly spur job creation last week. Republicans demanded billions in tax cuts for wealthy people, but kept on caterwauling about the federal budget deficit. In exchange for $80 billion to dedicate to jobs-an extremely modest figure given the state of the labor market-Republicans asked for hundreds of billions in giveaways for the rich. And that's just to get the bill through the Finance Committee, much less the full Senate.
In a piece for Working In These Times, Michelle Chen notes that Senate Majority Leader Harry Reid pulled the plug on the Finance Committee "compromise," but stripped out a critical extension of unemployment benefits for laid-off workers in the process.
The Republican uproar over such modest job figures is an economically preposterous political ploy, and Democratic cave-ins to their demands are both bad politics and bad economics. Chen notes that 70% of Americans support a $100 billion jobs bill. And we know what kinds of programs help spur employment-many of them were passed in the stimulus bill last year and have saved millions of jobs.
Stopping the Bleeding
In an interview with Christopher Hayes of The Nation, Economic Policy Institute Fellow Josh Bivens explains that Obama's economic stimulus package has worked well, effectively stopping the job hemorrhaging that the economy was experiencing immediately before Obama took office. Here's Bivens:
"We haven't returned to growth on employment ... but the rate of contraction has slowed radically. Immediately before the Recovery Act is passed, we're losing on the order of 700,000 jobs per month ... In the past three months, we're now down to something like between 50 and 75,000 jobs lost per month, on average ... it really is a stark before and after."
Racial inequality and the recession
The trouble is, the stimulus was only big enough to prevent the economy from getting much worse. It was not large enough to return the economy to serious job growth. And the brutal effects of the recession are not being shouldered equally. As LinkTV's collaboration with ColorLines illustrates (video below), the Great Recession is hitting people of color much harder, but the story of racial inequality is being lost in stories about statistical economic recovery in the financial sector. The special profiles several families of color struggling to make ends meet in the worst recession since the Great Depression, which features Depression-era unemployment rates for African Americans.
"What we don't see on TV are the [people] who never had a home or a good job to lose in the first place. These are the millions of poor people whose chance to cross the line into middle class has always been cut short by another kind of line, the color line," says host Chris Rabb, founder of Afro-Netizen.
Rabb, ColorLines and LinkTV describe a social safety net that has been shredded by opportunistic politicians. Instead of focusing on ways to guarantee good jobs, politicians since the Reagan era have demonized black single mothers by exploiting racist stereotypes in an effort to justify slashing federal supports for the poor and unemployed. The result is a fundamentally unstable economy. Our society has weak demand for goods and services in good times, and that demand completely falls apart when economic conditions deteriorate. And while these socially destructive initiatives have been described as "pro-business," the truth is, businesses don't like societies where millions of people are impoverished. They don't have any customers.
Predatory lending strikes again
The recession hasn't exactly been a picnic for the middle class, either. In an article for Mother Jones, Andy Kroll profiles the mortgage mess that Ocwen Loan Servicing created for borrower Deanna Walters. Unlike millions of other borrowers dealing with mortgage headaches, Walters wasn't actually behind on her payments. She was making payments regularly, but Ocwen was misplacing them, and charging her thousands of dollars in improper fees. Walters even paid the fees, but Ocwen eventually foreclosed on her home and sold it in an auction without even informing Walters.
As Kroll emphasizes, Ocwen's antics aren't unique. There is an entire class of companies known as mortgage servicers that specialize in deceiving and bullying borrowers out of their money. They often use illegal tactics, and as I note for AlterNet, have been systematically exploiting a badly designed foreclosure relief program from the U.S. Treasury Department.
Funding projects that will put people to work
As prominent economist Dean Baker argues for The American Prospect, there are dozens of productive programs that would put millions of people back to work-if they could just get the funding. The government could quickly and easily provide money to improve public transportation, develop open-source software, fund objective clinical drug trials and (my favorite) support writers and artists, whose work would subsequently be available for the public to enjoy for free.
Taxing financial speculation
The federal government can afford these programs right now, especially without any additional tax revenue. But if we're really worried about the budget deficit, we can always turn to reasonable new sources for taxes. As Sarah Anderson details for Yes!, an obvious place to look is financial speculation. Since excessive and risky trading helped bring down the economy in 2008, a tax discouraging this behavior could make the economy stronger and reap as much as $175 billion a year for the public.
Our economy wouldn't face troubles of the same order as those it must overcome today if so-called conservatives had not spend decades pursuing a radical agenda to shred the social safety net. The stimulus package has not spurred job growth to date because of cuts demanded by Congressional Republicans, nearly all of whom refused to vote for the bill anyway. Our economy needs a jobs bill now. It'd be nice if Republicans would show some interest in governing, but if they continue to refuse, Democrats must act on their own.
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.
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.
Feinberg's new salary limits only apply to executives at Citigroup, Bank of America, AIG, GM, Chrysler, GMAC and Chrysler Financial. But while these new rules are an effort to reduce the incentive for executives to take big risks for short-term gains, the rules of the game for non-bailout barons haven't changed at all. Risky securities trading and unenforced consumer protection regulations still allow financiers to make a killing by gambling on mortgages and credit cards.
As Greg Kaufmann explains for The Nation, Feinberg has been barred from altering some of the most egregious bonus arrangements at even the biggest fund recipients, as the employment contracts were signed prior to the government's bailout. AIG plans to pay out $198 million in bonuses in March 2010, and none of Feinberg's recent rulings will change that. As Kaufmann also notes, back in March, AIG agreed to pay pack $45 million of the bonuses it shelled out early this year. After over seven months, just $19 million has been repaid.
The government's hands-off approach to AIG employment contracts is a rather flagrant display of deference to executives. Nothing stopped the government from renegotiating contracts for union laborers when it bailed out Chrysler and GM, as Dean Baker notes for The American Prospect.
Lest we forget, the government literally owns AIG, and would own both Citigroup and Bank of America had it demanded a market rate of return for its investment. Taxpayers injected several times the stock market values of both Citi and BofA into the troubled banks, but settled for a 36% stake in Citi and preferred stock in BofA. As Mike Madden emphasizes for Salon, Feinberg is still letting executives make several times the median household income in cash alone-nevermind stock-and it's unlikely that his move will spark changes among bankers outside the handful of companies ordered to make changes.
"Executives are still taking home paychecks that dwarf what the average American earns. And it's not clear whether any other companies will get on board with the Treasury plan unless they're forced to," Madden writes.
Congress hasn't taken any significant steps to curb Wall Street paydays since the crisis broke, but lawmakers did take two other important steps toward banking reform this week. Two different House committees passed bills to rein in the wild world of derivatives trading and establish a new Consumer Financial Protection Agency (CFPA). In a video piece for the Huffington Post Investigative Fund, Amanda Zamora and Lagan Sebert detail the legislative battle to create a CFPA, which has faced an enormous lobbying push from both banks and the top lobby group for the corporate executive class, the U.S. Chamber of Commerce.
Zamora and Sebert note that top bank lobbyist Ed Yingling is arguing that if regulators simply enforced the existing consumer protection laws, all of the major abuses in mortgage lending and credit cards would have been prevented. Even for a corporate lobbyist, Yingling's disingenuousness is absolutely breathtaking. He acknowledges that existing regulators are not enforcing consumer protection laws, says he wants the laws enforced, and then says it would be a bad idea to create a new agency to enforce those laws.
The CFPA won't have any mysterious new powers. It will have the same authorities on credit cards and mortgages that existing federal regulators have. But the current regulators are focused primarily on bank profits, which often run directly contrary to fair play with consumers. Yingling and Wall Street are really afraid of a serious regulator who will stand up for consumers. They're terrified that the CFPA will actually enforce consumer protection rules against powerful banks-but are talking as if all they want is effective enforcement. It's a lie, pure and simple.
On Monday and Tuesday, thousands took to the streets in Chicago to protest a meeting of Yingling's lobby group, the American Bankers Association (ABA). Esther Kaplan details the protests in a piece for The Nation, complete with video footage. The ABA retaliated against Kaplan's reporting by revoking her press credentials, but it appears to have been worth it, as her piece describes everything from citizen outrage to police intimidation and awkward banker solidarity. As Democracy Now! explains, the ABA has spent decades lobbying against rules to strengthen the economy and prevent banker abuses, and is now at the heart of an effort to use taxpayer bailout money to lobby Congress against financial reforms.
So far, their efforts seem to be paying off. Last week, one of the CFPA's chief advocates, Rep. Brad Miller (D-NC), co-authored an amendment significantly restricting the agency's enforcement powers. As Sebert and Zamora note, Miller agreed to exempt banks with $10 billion or less in assets from regulatory examinations by the CFPA-roughly 98% of all banks. The existing, corrupted regulators who didn't lift a finger to prevent the subprime mortgage crisis will be the people actually going to the banks and reviewing their books. While the CFPA could send along one of its own regulators to participate in the exam, the new agency can't tax the bank to pay for it, which would make it very difficult for the CFPA to keep an eye on smaller banks.
Even worse, there is nothing to prevent a giant bank like Bank of America from moving all of its most egregiously predatory activities into a series of small corporate subsidiaries. By exploiting this loophole, 100% of U.S. banks could be exempt from CFPA enforcement, including the giant banks most heavily involved in subprime mortgage abuses.
The other big piece of Obama-backed financial legislation to make its way through Committee last week had to do with derivatives, also known as the wild Wall Street securities that brought down AIG. The best way to fix the derivatives mess is to require that derivatives be traded on an exchange the same way stocks are, so that companies can't make crazy bets without regulatory and market scrutiny. But Obama only wants "standardized" derivatives to be processed through a central clearinghouse-like an exchange, except without any public pricing information. And so long as a derivative contract can be deemed "customized," it would be totally exempt from even this limited reform.
But as Art Levine notes for AlterNet, the derivatives bill actually got worse in committee. Plenty of non-financial businesses use derivatives to legitimately hedge real risks: Airlines try to insure themselves against swings in oil prices, for instance. Lawmakers agreed to exempt any contract with these companies, termed "end-users" in the financial jargon, from central clearing requirements. The trouble is, big Wall Street hedge funds and private equity firms can be classified as "end-users," opening a fatal loophole in the legislation. The five banks who control 95% of the derivatives market will just conduct all of their most reckless trades with hedge funds and avoid oversight entirely.
A modest reform on paychecks for bailout recipients is nowhere near sufficient to protect our economy from banker excess. If Wall Street is going to serve any productive economic function, it has to be subject to serious consumer protection rules, and its derivatives casino has to be dismantled.
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.
Blaming sub-prime borrowers is a common mistake being made by most media reporting and the pundits. On the Friday, Oct. 10th, edition of NPR's All Things Considered, David Brooks was commenting on what the presidential candidates' were blaming as the cause of the economic meltdown, and he said, "They totally excuse the American people as if these sub-prime mortgages were forced upon people."
What I have been learning is that the titans of finance who created and traded unregulated securities of debt instruments and derivatives called Credit Default Swaps involving some $62 trillion are much more likely culprits in the worldwide financial collapse. Common sense tells me that bad mortgage loans, even in large numbers, could not be responsible for the tremendous losses required to affect the entire world markets, including bankrupting the country of Iceland. The Credit Default Swap market, however, was large enough to have this effect when that house of cards crumbled.
On behalf of sub-prime borrowers who must be feeling the guilt of causing the next great depression, I wrote the following letter to Mr. Brooks at the New York Times and to All Things Considered. A sub-prime borrower's apology for causing the crash.
Dear Mr. Brooks:
I heard you say on National Public Radio All Things Considered that sub-prime borrowers should take their share of the blame for the economic crash. At first, I thought things wouldn't get so bad, but now it seems that the entire world economy is collapsing. Frankly, I was just going to keep quite and hope no one would notice that I am one of the sub-prime borrowers. But listening to your explanation of the cause of this crisis has made me feel ashamed of what my wife and I have done. I want to come clean.
As part of conservativism's campaign to avoid any blame for this mess falling on its vaunted pillars of deregulation, naked greed and bubblenomics, they have gone back to some golden oldies and are trying to blame uppity minorities for creating the mortgage crisis with all their crazy shiftless dreams of living in a house they own. This week, the National Review published an editorial on this, and another item from Mark Krikorian. Today we have Glenn noting that NR is blaming minorities for WaMu's failure. Paul previously attacked NR in a lengthy but righteous quick hit but this needs more light.
I'd just like to quote the National Review from an editorial published 1957 and remind them to think twice before opening their filthy racist sewer mouths again:
The Central question that emerges--and it is not a parliamentary question or a question that is answered by merely consulting a catalog of the rights of American citizens, born Equal is whether the White community in the South is entitle to take such measures as are necessary to prevail, politically and culturally, in areas in which it does not predominate numerically? The sobering answer is Yes--the White community is so entitled because, for the time being, it is the advanced race...
National Review believes that the South's premises are correct. If the majority wills what is socially atavistic, then to thwart the majority may be, though undemocratic, enlightened. It is more important for any community, anywhere in the world, to afirm and live by civilized standards, than to bow to the demands of the numerical majority. Sometimes it becomes impossible to assert the will of a minority, in which case it must give way, and the society will regress; sometimes the numerical minority cannot prevail except by violence: then it must determine whether the prevalence of its will is worth the terrible price of violence.
National Review, Editorial, August 24, 1957 - as quoted in p103 of Conscience of a Liberal by Paul Krugman
I was going to bold the worst parts of the second paragraph, but it's all despicable. And with the possible exception of overt statements of racism, none of this has changed. NR still believes the enlightened minority should prevail over the "atavistic" majority, and violence is an acceptable solution to make that happen.
Does a candidate's policy proposals reveal the kind of president he/she would be? Paul Krugman today in the NYT suggests that policy proposals have revealed the kind of leadership that past presidential candidates. He points out that Bush proposed big tax cuts for the rich and followed through on them, making life harder for the rest of us.
The moral is that it's important to take a hard look at what candidates say about policy..... policy proposals offer a window into candidates' political souls - a much better window, if you ask me, than a bunch of supposedly revealing anecdotes and out-of-context quotes.
The current issue that McCain, Clinton and Obama have responded to is the mortgage crisis. Krugman analyzes the three responses and I found his analysis interesting and to be troubling for progressives.
