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.
The editors of The Nation break the political debate over banking into three camps:
The first camp is composed of bank lobbyists, Republicans and conservative Democrats and wants to do nothing.
Camp two, endorsed by the White House and influential Rep. Barney Frank (D-MA), would impose tougher regulations on too-big-to-fail banks to keep them from getting out of control.
The third camp wants to go even further: If a bank is too-big-to-fail, it is also too-big-to-regulate. Companies that pose a danger to the economy have to be split up into smaller firms that cannot induce economic ruin.
The Nation editors rightly see the third strategy as the most sensible. While the "break-up-the-banks" policy is being portrayed as a left-wing pipe dream by cable news networks, the policy actually relies on an age-old observation of conservative economists. Regulators make mistakes, and they often get co-opted by the very industries they are supposed to be supervising.
The practical policy is to impose structural limits on what activities banks can participate in and how big they can get. Just look at the list of high-profile supporters: former Federal Reserve Chairman Paul Volcker, former Citigroup Chairman John Reed, Bank of England Governor Mervyn King. I don't remember seeing any of those guys at the Iraq War protests.
Many of the regulatory blind spots that brought down the economy were obvious to some policymakers for years. Back in 1994, Sen. Byron Dorgan (D-ND) wrote an article for The Washington Monthly warning that derivatives trading was putting the economy in grave danger. Commodities Futures Trading Commission Chair Brooksley Born tried to take action on these derivatives, but was overruled by other regulators, including then-Fed Chair Alan Greenspan, and then-Treasury Secretary Lawrence Summers, now the top economic adviser to President Obama. Summers and Greenspan even convinced Congress to pass a law banning the regulation of key derivatives, including credit default swaps, which ultimately brought down insurance giant AIG.
Fifteen years after Dorgan's article first ran, The Washington Monthly is featuring it again, along with a recent speech by Dorgan that details massive failures in Wall Street and Washington.
"We had regulators come to town in recent years and willfully boasted that they wanted to be blind as regulators," Dorgan says.
There are good elements of Obama's plan to deal with too-big-to-fail. It gives policymakers the option of putting a too-big-to-fail institution through a special bankruptcy process administered by the executive branch, thus avoiding the problems created in bankruptcy court when Lehman Brothers failed. But the bad part is really bad: Officials would also have the option to provide unlimited bailouts to Big Finance via loans, guarantees and even asset purchases.
As Mike Lillis notes for The Washington Independent, some responsible Democrats like Rep. Brad Sherman (D-CA) have been objecting to this aspect of the legislation for months. Sherman, in fact, calls it "TARP on steroids," noting that the bank bailout at least came with some meager oversight and a limit on the program's actual size.
The bank lobby is spending money like mad to maintain their stranglehold on the economy. Neither Congress or the administration will change course without intense public pressure. So it was very reassuring last week to see thousands of people protesting the annual meeting of top bank lobby group, the American Bankers Association. David Moberg chronicles the protest in a blog post for Working In These Times that covers speeches by both key union leaders and ordinary people facing foreclosure after watching their tax dollars go to the very bankers who wrecked the economy.
"There was broad agreement on anger at the banks for providing so little, if any, public benefit for the massive bail-out, and for so quickly returning to the greed and abuse that precipitated the crisis," Moberg writes.
Laura Flanders covers the protests for GRITtv, including video of protesters chanting "Bust up big banks!" In a roundtable discussion with Christina Clausen of the United Food & Commercial Workers Union, George Goehl of National People's Action and Rob Robertson of the Right To The City Alliance, Rolling Stone journalist Matt Taibbi explains the overriding impotence of the regulations Congress is about to approve. Regulators will not be able to crack down on abusive derivatives, a full 8,000 of 8,200 banks will be exempt from Consumer Financial Protection Agency oversight, while the same agencies that screwed up heading into this crisis will be charged with preventing the next one.
"They've had sweeping powers to do whatever they wanted," Taibbi says. "They've had this regulatory power all along."
What we need are good jobs, and lots of them. Obama's economic stimulus package has made tangible economic progress. It's saved hundreds of thousands of jobs, and is clearly responsible for the turnaround in gross domestic product (GDP) we saw in the third quarter. But a full 17% of the workforce remains unable to find full-time work, as Julianne Malveux explains for The Progressive.
When Wall Street crashed in 1929 and unleashed the Great Depression, the government eventually stepped in as an employer-of-last-resort. The Works Progress Administration (WPA) and Civilian Conservation Corps (CCC). built schools, parks, roads and bridges which still serve our communities today. Both the WPA and the CCC employed literally millions of people-in the 1930s. It's a model that could work very well today.
As the current recession makes clear, ending too-big-to-fail and guaranteeing a good job for everyone in our society who wants one are the two most critical structural reforms our economy needs. Don't let lawmakers forget it.
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About this Investigation Over ten months, the Washington Post analyzed the spending, services, and finances of every specialized AIDS organization funded by D.C.'s HIV/AIDS Administration from 2004-2008, an estimated 90 groups, building a database from tax returns, audits, lawsuits, real estate records, D.C. Council records, and corporate and police reports. The Post also obtained grant agreements, invoices and government correspondence for about 60 of these groups. The newspaper interviewed dozens of people with HIV or AIDS patients, their families and service providers, and visited more than a dozen offices across the city.
The largest possible sum at issue seems to be $25 million, since that's the total sum available to non-profits, where the problems seem to be concentrated.
On Wall Street today, AFL-CIO President Richard Trumka is calling for tough new regulations on the financial industry and a new approach to making the U.S. economy work for working people.
Trumka spoke today at the New York Stock Exchange as part of the new AFL-CIO leadership team's national tour to set out a jobs-focused, progressive vision for the economy-and to fight back against the corporate agenda that left workers behind.
We've let wealth concentrate for too long, Trumka said. The past decade has shown us the folly of building an unfair and unequal economy that only works for a few, while working people pile up debt to get by. We need to be able to protect consumers from abuses by mortgage lenders and credit card companies and hold accountable those whose greed and irresponsibility have undermined the economy, Trumka said:
Banks and other financial institutions must be held accountable for making this mess that required trillions of dollars of our money to clean up. For the pain they've inflicted on families who face financial ruin-unemployment, wiped out pensions, foreclosures and bankruptcy.
I said it the other day, and I feel the need to repeat it: the public does not yet understand that the government is about to order people to buy health insurance, with their own money. Yes, the government is about to order people to cough up hundreds of dollars a month each.
When the Republicans start using their toxic message-machine magic on this, and the public starts to understand that they are being ordered by the government to cough up a huge amount of money every month, Democrats had better have good hiding places, because things are going to get really bad out there.
This is the kind of policy that results when "centrist" Democrats give in to to the demands of Republicans and big corporations and the top 1% of the wealthy. Instead of just taxing the wealthy and corporations at reasonable rates and using the money to provide We, the People with health care -- thereby vastly improving the economy for ... the wealthy and big corporations -- they instead come up with a scheme to order regular people to pay for health insurance because they don't already have it because they can't afford it.
This is how things work in the Post-Reagan era: The corporations and vastly wealthy get tax cuts. We, the People get service cutbacks, increases in the retirement age, jobs outsourced, the infrastructure deteriorates... When huge financial corporations get in trouble because they got too greedy the government salutes and says, "Yes, Sir!" and coughs up trillions in bailouts. But when regular people can't afford insurance, the government as presently constituted comes up with a plan ordering them to buy it.
This fight over health care seems to be exposing the contradictions much more visibly than other policy battles we have had. Against the background of the vast sums spent on the bailouts we have people in power telling us that it wouldn't be fair to insurance company profits to come up with a health care plan that provides great care to the public for a low price.
Who is our economy FOR, anyway? That is the question that my own blog asks. Just asking the question takes your thinking in new directions.
What can we do about this?We need to fight for meaningful health care subsidies so regular people who do not now have health insurance will not have to pay for health insurance. It is a simple tradeoff, really: every dollar in new taxes on corporations and the top 1% can be applied to a dollar of subsidies covering health care. This will result in a more equitable, prosperous and healthier society -- and happier voters.
We are supposed to be a representative democracy where We, the People are in charge, but we allow these companies and the government agencies propping them up to continue to operate with secrecy, refusing or even to let our own elected representatives know what is being done with our money!
And then I saw this. Just watch.
Alan Grayson: "Which Foreigners Got the Fed's $500,000,000,000?" Bernanke: "I Don't Know."
Sometimes you don't find out who your friends are until the bear in the woods hits the Pope's fan.
In the last year We, the People have been finding out who our friends are and aren't. (Actually mostly just aren't.) We especially have been finding out what the priorities are and where the power lies. And lies and lies.
Since the financial crisis began we have been seeing as clear a display of raw power being used against the interests of the people as I imagine can be seen. We were given hours to put up all of the money we have to bail out a few large financial institutions because they were "too big to fail," but we did nothing about how big they were -- and still are! We allowed the use of our tax money to pay incredibly fat paychecks and bonuses while more and more of the rest of us have been laid off, lost our retirement, houses, etc. We complained about the use in these bailed out companies of private jets by a select few and their families because it "looked bad" but not because of what it was. Who is this "we" anyway? I didn't want those things to happen, but "we" let them happen.
Paul Krugman makes the case that big government deficits saved the world. He says that our economic problems were actually worse than what we encountered in the 1930's, and the reason we haven't spiraled down the drain was that Obama's stimulus package picked up the slack in demand and kept even more people from being laid off, even more companies from going under, even more financial institutions from collapsing.
Aside from the deficits I can't even imagine where we would be today without FDIC insurance on bank accounts, or unemployment benefits. I think everyone with money in a bank would have lost it. And just imagine how it would be for the unemployed. (Well, actually we're on the edge of finding out about that because unemployment is running out for a lot of people...)
President Barack Obama is scheduled to unveil his agenda for revamping financial regulation later this week. As the economy struggles though a recession created by the banking industry, it's crucial that Obama and his advisers craft a set of rules ensuring that the financial sector strengthens our economy instead of destroying it.
by Zach Carter, Media Consortium MediaWire Blogger
It's official: The U.S. economy has been in a recession for a year and a half and many of the economic troubles worrying progressives in 2007 have yet to be addressed. While the Obama administration has taken steps to relieve some problems, a series of counterproductive bailouts, woefully inadequate labor laws and rampant inequality are still in urgent need of attention.
Earlier this month, President Barack Obama rolled out a new plan to limit the use of offshore tax havens and crack down on corporate abuse of the tax system. These tax havens siphon over $100 billion a year from the government, and have allowed many U.S. banks to duck paying taxes despite receiving massive, taxpayer-funded bailouts. The president's plan is far from perfect, but comes as a welcome acknowledgment of the unfairness embedded in the current tax code.
Obama's Thursday "town hall" featuring questions submitted online produced some interesting comments from our president. In response to a question from college students he explained that making student loans directly from the government, without passing them through banks and giving profits to banks from public money, makes more sense. But he claimed that giving far more money than we've ever loaned to students to banks in hopes that they will loan it to businesses is the only way to save our economy.
by Zach Carter, Media Consortium MediaWire Blogger
Treasury Secretary Timothy Geithner rolled out his new Wall Street bailout plan on Monday and the progressive verdict is already in: This bailout doesn't look much better than the last one. In fact, Geithner's latest plan isn't much different from several other flawed proposals policymakers have floated over the past year. At its core, Geithner's program is just another attempt buy up "toxic assets" from banks at inflated prices.
The Federal Reserve said today that it will deploy an additional $1.2 trillion to try to lower interest rates and stimulate the economy, an aggressive move aimed at containing the recession.
The central bank will increase its purchases of mortgage-backed securities by $750 billion, on top of a previously announced $500 billion. It also will double its purchases of debt in Fannie Mae and Freddie Mac to $200 billion. Those steps are intended to lower mortgage rates. The announcement of the previous purchases pushed mortgage rates down a full percentage point.
The Fed also said it will buy $300 billion in long-term Treasury bonds, a step it had previously considered but had been reluctant to act on.
I have no problem with the bond purchases, and I don't mind more money for Fannie Mae and Freddie Max now that they are publicly owned. However, I do have a problem with a $750 billion investment in toxic assets that more than doubles the size of TARP, and which took place without congressional approval.
Keep in mind that the Obama administration has included $250 billion in projected losses on the purchase of $750 billion in toxic assets in the budget:
The $250 billion in funds, should the administration seek it out, would support $750 billion in asset purchases as part of a public-private partnership fund the administration has yet to roll out, according to a budget blueprint document.
I always thought it was strange that they were only budgeting in the losses without asking Congress for more money. Kind of makes me wonder if they coordinated this move with the Federal Reserve, so that they could sink another $750 billion into toxic assets without actually having to ask Congress for they money. The numbers match up strikingly well.
Or, the situation could be even worse, and the $750 billion from the Fed is on top of the $750 billion in the public-private partnership plan. So, that is now $1.5 trillion in bad assets, or more than 10% of our GDP. Awesome.
As angry as the president is at the news about A.I.G., which he learned Thursday, Mr. Emanuel said, "his main priority is getting the financial system stabilized, and he believes this is a big distraction in that effort."
I disagree. The bonuses are not a distraction, because they are putting the bailouts back in the spotlight. The $165 million in bonuses to AIG are a hook allowing the country to refocus on the main act of kleptocracy that took place last fall and early this year: funneling hundreds of billions of dollars to the financial institutions that wrecked the economy in the first place. If it weren't for the bonuses, we wouldn't be talking about bailouts right now. As such, rather than a distraction, it is a move toward properly refocusing our attention.
The bonuses are also revealing that the bailout, no matter how well intentioned by lawmakers and the Obama administration, is actually being used by the financial institutions receiving bailout money only to enrich themselves. The people running these companies don't care about saving their firms, or saving the economy. We know this, because massive personal enrichment is emerging as a necessary condition for decision-makers at financial institutions to participate in the bailout program:
Officials at the Federal Reserve and the Treasury Department are increasingly worried that the controversy could discourage investors from joining a new government effort to revive consumer lending as well as a separate plan that relies on private money to buy toxic assets from banks, sources familiar with the matter said.(...)
A senior executive at one of the nation's largest banks said he had heard from several hedge funds that they would not partner with the government for fear that lawmakers would impose retroactive conditions on their participation, such as limits on compensation or disclosure requirements.
That's right: no matter the shape their company is in, and no matter the shape the economy is in, financial institutions will only take the government money if they can use it to give themselves huge compensation packages. For the people running these companies, the compensation packages are the necessary condition for their participation, not the state of the economy or of financial institutions. The people running the financial firms don't care whether or not their firms actually need the money, and whether or not the Obama administration's bailout program will actually work in turning the country around. If their bonuses or compensation packages are touched in any way, then they won't participate, no matter if doing so will save their firm or the economy.
The details of AIG's bonuses are pretty appalling: 73 employees took home at least $1 million, while one person got a whopping $6.4 million. What's more, NY Attorney General Andrew Cuomo proved AIG's excuse about needing these "retention" bonuses to keep employees at its Financial Products subsidiary was (believe it or not) complete and utter bullshit, since 11 of these bonus recipients have since left the company.
Now, Congress can try to rectify this situation by putting a 100% surtax on these bonuses. They can impose stricter limitations on the subsequent $30 billion bailout for AIG--if you can believe AIG is even getting another bailout! Still, this news is too infuriating to just sit back and wait for Congress to check Wall Street's ridiculous hubris.
This Thursday, March 19, SEIU and a slew of other organizations will be holding demonstrations at bailed-out banks and corporations in over 100 cities across the country, demanding fiscal repsonsibility. Sign up at TakeBacktheEconomy.org and join a demonstration in your community for a national day of protest. No more sitting around yelling at the TV screen when Obama's Press Secretary pretends like we should have any sort of confidence whatsoever in Geithner as Treasury Secretary. Enough is enough, it's time to take back the economy!
It seems that another bank on the public dole is using its taxpayer-subsidized time and resources to lobby against the Employee Free Choice Act.
Today, Sam Stein of the Huffington Post reports that Citigroup hosted a private conference call yesterday to bolster opposition to the Employee Free Choice Act that included a senior executive at the U.S. Chamber of Commerce, a business lobbying group that has put tens of millions of dollars into the anti-Employee Free Choice disinformation campaign. Jane Hamsher at Firedoglake notes that the Citi stock analyst who downgraded Wal-Mart over fears of the Employee Free Choice Act passing was on the call, too.
by Zach Carter, Media Consortium MediaWire blogger
As Congress finally winds down what House Financial Services Committee Chairman Barney Frank, D-Mass., refers to as "the session that will not die," most of us have already contracted cases of outrage exhaustion from the barrage of Wall Street-related absurdities that the government has embroiled itself in over the past year.
First, Josh Orton points out that if the Bush Administration steps in and uses TARP funds, it will be a big victory for Senate Democrats. After all, Senate Democrats originally just wanted to use already approved TARP money to pay for the auto industry loan, but the Bush administration refused. If the auto industry loan is paid for by TARP then, among other things, the punitive measures against the unions don't apply, money is taken away from Wall Street, and the fund to promote fuel efficient vehicles remains intact. In other words, as Josh notes, Harry Reid and Senate Democrats will have actually won a game of chicken with Senate Republicans, not the other way around. Clearly, it helps a whole lot to have the White House on your side. Hopefully, this is a harbinger of legislative fights to come.
Second, Joseph Stiglitz points out that Wall Street is actually to blame for the demise of the Big three, not unions or even executives:
The debate about whether or not to bail out the Big Three carmakers has been mischaracterised. It has been described as a package to help the undeserving dinosaurs of Detroit. In fact, a plan to bail out the carmakers would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem.
Financial markets are supposed to allocate capital and monitor that it is used to good effect. They are supposed to be rewarded when they do that job well, but bear the consequences when they fail. The markets failed. Wall Street's focus on quarterly returns encouraged the short-sighted behaviour that contributed to their own demise and that of America's manufacturing, including the automotive industry. Today, they are asking to escape accountability. We should not allow it.
In the rest of the article, Stiglitz goes on to call for a Chapter 11 restructuring of the Big Three.
It is refreshing to see these different perspectives. Any more good auto industry thoughts out there?
I'm pretty disappointed at the outcome over the Homeland Security and Governmental Affairs leadership fight. Denying Lieberman the chair would have been a sign that the Senate Democratic caucus was willing to stand up for itself over the next two years, but instead we were given another sign that the legislative branch no longer matters that much in the United States.
However, given the focus on how this vote means that "the left has been foiled again," I want to push back against the idea that the last two weeks has not somehow been a string of defeats for progressives. There have been setbacks, such as today's Lieberman vote, but there have also been real victories. In the extended entry, I accentuate the positive.
Long discussions in the previous two threads. Here is a new one.
I feel satisfied. Polls show Biden won, and there won't be any republican whambulance. Then again, an unexpected political benefit of the financial "crisis" is that I don't think Republican faux outrage over dubious interpretations of Democratic comments would fly right now. Such coordinated fits of hyperventilation would appear trivial beyond belief (I mean, you know, even more trivial).
The bailout vote tomorrow. It will almost certainly pass.
Closing thought: it really sucks for the Cubs. I'm not a fan, but this is unfortunate.
