Weekly Audit: Banks Get Big Bucks, Consumers Get Bupkis
by Lindsay Beyerstein, Media Consortium blogger
Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.
In the past few decades, the phenomenon of globalization has swept through the world. The world is more open and interconnected than any other time throughout history. Proponents of globalization argue that its effects have lifted hundreds of millions out of poverty, from places as diverse as China to India to South America. Opponents argue that globalization and free trade have led to rising inequality, damage to the environment, and jobs lost for millions of American workers.
Whatever the truth, globalization appears unstoppable. The greatest economic crisis since the Great Depression has barely dented the network; only another world war could truly undo its effects.
The World Cup offers a good illustration of globalization. The history of modern soccer contains a rich tradition in the veins of globalization. For decades, Third World countries have sent their best footballers to play in the First World, especially the great leagues of Europe: Italy's Serie A, La Liga of Spain, and - above all - England's Premier League. In World Cups, these players return to represent their home countries and win the World Cup championship.
Over the past thirty years, Wall Street has waged a steady war against governments around the globe, convincing policymakers of various ideological stripes that whatever raises profits for bankers and traders will be good for the rest of society. It's a very simple and appealing portrait of how the world works. Unfortunately, it's completely wrong.
Profiting from hunger
In an interview with AlterNet's Terrence McNally, economic luminary Raj Patel explains the connection between widespread global poverty and wild Wall Street profits. Markets are defined by a set of rules-if those rules completely disregard social welfare, then the participants in those markets will ignore them as well. When traders can make a quick buck speculating on the price of rice, they will, even if that speculation drives up the price of a basic necessity and makes people go hungry.
We've known this for a long time, but as Patel illustrates, governments have allowed financial bigwigs to rewrite the basic rules of the road so that Wall Street can extract profits from anything-even hunger. That process created several crises in the developing world over the past few decades, and has now ravaged the economies of the United States and Europe. As Patel notes:
By basically gaming the system with regulations -- that they authored -- which encouraged a certain kind of playing fast and loose with the numbers, it was possible through some creative accounting for huge amounts of systematic risk to be kicked off into the future and ignored. And of course when the catastrophic risk was realized, everyone ran for the hills and started demanding public support.
Financial turmoil in Greece
This political sleight-of-hand is demonstrated by the looming fiscal crisis in Greece. As Richard Parker explains for The Nation, Goldman Sachs colluded with prior Greek administrations to hide the nation's fiscal situation from both its own citizens and investors (Parker is an adviser to current Greek Prime Minister George Papandreou). Goldman was not interested in fair play-it was interested in making money off of the Greek government in any way it could. If that meant actively sabotaging the market by hiding important information, well, Goldman didn't care.
First Greece, then ...
Now that this budget façade has been stripped away, Goldman and other investors are now profiting from making things very difficult for Greece. As Matthew Yglesias explains for The American Prospect, the rational, profit-maximizing choices of investors are now actively helping to drive Greece into a default that hurts everyone:
When Greece starts looking shaky, the interest rate it needs to pay on its deficit goes up, which makes the country look even shakier. This cycle can push a vulnerable country into a default situation.
Various Greek administrations clearly bear significant responsibility for the situation. Nobody forced them to get in bed with Goldman Sachs, just as nobody forced U.S. administrations to gut our financial regulatory system. But the problem in Greece is not just a problem for a single Mediterranean nation-there is very real risk that the investor "unease" could spread to Portugal, Ireland, Spain, Italy, and by extension the European Union and the global economy. The bonuses at Goldman Sachs and J.P. Morgan Chase this year were not a sign of renewed strength in the global economy.
Community Security Clubs to the rescue
So if Wall Street can't save us, what can? Our communities could play a significant role, as Andrée Collier Zaleska explains for Yes! Magazine. Zaleska profiles Common Security Clubs in Portland, Boston and Fort Lauderdale to show how people hit hard by the economic downturn are banding together to make ends meet, and organizing for political action.
"[Jared] Gardner, a busy organizer in Portland, launched four CSCs in his church, two of which were comprised almost entirely of unemployed people. By the time his own group had met five times, they were planning tours of local co-housing projects, organizing to fight locally for progressive taxation, and wondering how to bring the rest of their church into the time bank they had created."
Markets are supposed to serve human needs, not the other way around. But Wall Street isn't going to give up its stranglehold on the U.S. political process for nothing. While community-driven efforts are a good start, we need much larger actions and reform to restore balance to the global economy.
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So the United States lost to Brazil in the final of the FIFA Confederations cup, in that thrilling but painful tale of two halves, with the U.S. up 2-0 only to see Brazil roar back (or rather dance and prance and glide with balletic ferocity) and win 3-2. All I can say is, thank god.
For the past sixty years, the powerhouses of international soccer (a.k.a. football) either have been empires past their prime and on the decline or countries that dream fruitlessly of empire - England, France, Italy, Germany, Argentina, Brazil, and Spain. To bestride the world as a soccer power is to not bestride it as an economic or military power. In its period of global hegemony, the United States was manifestly not a global powerhouse in soccer. It was mighty in everything but the sport that is played by more people in every corner of the world than any other. And so if the United States had magically defied the odds and the gods and beaten Brazil, it would have been the final sign that American is indeed in decline.
So far, swine flu hasn't developed into the deadly global pandemic that many feared. Was it all media hype, as Cervantes argues for AlterNet? Or did all that quarantining and hand-washing actually help? While we'll never know what might have been, perhaps we should consider the relatively mild swine flu as a cheap lesson--a dry run, if you will.
The Wall Street Journal explains why "Buy America" provisions and domestic preferences will likely be integral to making sure the green energy revolution actually happens in our country - and isn't outsourced:
Congress is beginning to fear that the Obama administration's push for renewable energy will produce more jobs in Asia and Europe -- where most wind turbines and solar panels are made -- than in the U.S.
The proposed remedy is a provision in the economic-stimulus bill that offers tax breaks to U.S. producers of the equipment.
Sen. Jeff Bingaman (D., N.M.), chairman of the Energy and Natural Resources Committee, is urging support for a provision in the Senate version giving a 30% tax credit to companies that expand or build U.S. manufacturing facilities geared to renewable energy, clean transportation or electric-system upgrades.
"Several of us have come to recognize that we've outsourced the very things we're going to need to change the nation's energy mix, and this is a way of encouraging more manufacturing here at home," Mr. Bingaman said.
The situation highlights a weak link in U.S. industrial policy: Although tax credits are offered to those building renewable-energy projects, there are no comparable incentives for domestic equipment makers.
Oddly, tax credits for domestic manufacturers - as opposed to Buy America laws - aren't portrayed as "protectionism" even though they are just as much a subsidy as targeted procurement policies. I'm not quite sure why that is.
Well, if you wanted a redux of the 2008 campaign in which John McCain criticized spending taxpayer money here at home, check this out from National Journal:
Defense contractors are among the leaders of a lobbying drive by American companies not singled out for direct aid in the economic stimulus package, pushing back hard against "Buy American" provisions...
Aides said Sen. John McCain, R-Ariz., plans to offer an amendment to the stimulus bill (HR 1) on the Senate floor this week that would strike the Buy American provisions.
In a letter to Senate leaders obtained by Congressional Quarterly, 100 companies and associations warned Tuesday that the provisions "will backfire on the United States." The letter, whose signatories include defense giants such as Lockheed Martin Corp., Northrop Grumman Corp. and United Technologies Corp.,
National elections should have consequences, and campaign promises in key swing states should be fulfilled. Call your senator and tell them to vote against the McCain amendment and stand up for Obama's campaign promises. As Businessweek's cover story indicates, U.S. taxpayer money needs to be spent on the U.S. economy if this stimulus bill has a chance to really lift our economy.
A top Obama economic adviser appeared to question the wisdom of placing a "Buy America" in the massive economic stimulus package winding its way through Congress.
Lawrence Summers, director of the White House National Economic Council, told regional reporters in a briefing at the Old Executive Office Building next to the White House today that the president is examining the provision in both the House-passed and Senate versions of the measure...
Summers added that Obama wants to ensure that the stimulus legislation is not an excuse for America to break existing trade commitments or embrace "any new kind of protectionism." Asked whether that mean Obama really does oppose the "Buy America" section, Summers told The Daily Briefing that he had already answered the question and wouldn't elaborate.
Let's just say you are among the very small minority of people in the world (most of whom were at Davos last week) who believes the whole concept of "protection" is bad, no matter what is being protected - kids, water, air, jobs, etc. Let's just stipulate that, and let's not have a debate about whether your fringe position is moral or just. Let's for a moment ignore the verifiable fact that every economy in the world including ours is protected. Let's even ignore the fact that supposed "free" trade agreements include all sorts of tariff protections for corporate profits (copyrights, patents, etc.) yet are still called "free" trade agreements, while anyone wanting to put minimal tariff protections for the environment or human rights in such agreements is slandered as a "protectionist." Let's just put all that aside for a minute and get to some basic definitions.
If you are one of those people who hates "protection," even you will admit that when it comes to economic policy debates, "protectionism" is a term that has been used for the better part of a century as the word to describe tariffs. Smoot-Hawley tariffs, for instance, were labeled "protectionist," and tariff proposals today have been labeled "protectionist."
But now, suddenly, every corporate lobbyist in Washington, D.C. is claiming that Buy America laws are "protectionist," even though they have absolutely nothing to do with protecting the economy through high tariffs. Buy America laws simply say that American taxpayer dollars - when spent specifically to stimulate the American economy - should be spent on American goods that are made with American labor. How is this "protectionism" in the way that word has been defined for the better part of a century?
The answer is that it's not in any way shape or form.* Indeed, the definition of the term "protectionism" is being changed by the corporate outsourcers that won't get a piece of the pie if Buy America laws are in the stimulus. Why? Because when even Businessweek says that without measures to make sure stimulus money stays in the country, the stimulus will be undermined, corporate outsourcers need to resort to trying to change the definitions of words in order to defend their profits.
* Tellingly, corporate lobbyists - when pressed on this point - resort to conjuring fantastical hypotheticals claiming that basic Buy America laws will prompt tariffs in other countries. But again, these are fantastical hypotheticals based on wild speculative fearmongering - and not rooted in anything resembling fundamental, dollars-and-cents reality. America's economy is the largest in the world, and the dirty little secret is that because of that reality, no country can afford to shut down access to our market, Buy America laws or not.
(AP) Banks collecting billions of dollars in federal bailout money sought government permission to bring thousands of foreign workers to the U.S. for high-paying jobs, according to an Associated Press review of visa applications. The dozen banks receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers...The figures are significant because they show that the bailed-out banks, being kept afloat with U.S. taxpayer money, actively sought to hire foreign workers instead of American workers.
As my book, The Uprising, showed in its examination of efforts to unionize high-tech workers, these companies use the H-1B program to hire workers who will take much lower wages and whose immigration status is effectively determined by their visa-holding employer (read: they can't try to unionize, etc.), thus undercutting American workers. In the case of the banking industry, while "lower wages" still certainly means decent wages, the bottom line is that the importation of foreign workers - at a time when domestic unemployment is rising - is a way to drive down the corporate bottom line. And now, that drive is being subsidized by the very taxpayers who it is hurting.
And yet, in the face of this, we're expected to believe that provisions ensuring taxpayer cash is used to hire American workers is somehow evil "protectionism," while letting taxpayer cash subsidize outsourcing is Enlightened Prgamatism. What a joke.
Dude, com'on. This argument is so silly. If the government can get a better value for their money from buying from foreign firms, why would we want them paying more for "American" made products? Proponents of government spending should take special care to insure that government tax dollars are used as efficiently as possible...
Two very easy points that debunk this line of argument:
The development of a global corporate economy has further strengthened the executive branch and weakened the legislative. This process started long before the second Bush administration and cuts across political parties. It began in the 1980s, when the current globalization phase took off, and has continued since...
In fact, economic globalization has had its own autonomous effect in sharpening executive power and in weakening the legislature. This is separate from questions of national security and abuses of executive privilege. It will take more to stop this consolidation of power than having an administration that does not abuse its executive power and that would eliminate the Patriot Act, though this would certainly make a difference...
A new president genuinely willing to respect the balance of power and willing to cancel the Patriot Act will still be in a structural position of growing power in today’s liberal state. A hollowed-out Congress confined to domestic matters weakens the political capacity of citizens to demand accountability from an increasingly powerful and globally oriented executive. Today, the liberal state produces its own democratic deficit.
There is an ironic possibility in all of this. Can a president intent on fighting for a better and more just democracy actually use that expanded executive power to do this?
Also, for those of you interested in some good book recommendations, check out my essay on David Rothkopf, Ha-Joon Chang and Mark Engler's latest over at the Dissent website. The conclusion seems appropriate for this week of change:
THIS OCTOBER, the International Monetary Fund (IMF) and World Bank meetings came to Washington, and, as they do every year, an impassioned bunch of activists mounted protests, decrying the neoliberal agenda that has deregulated markets, pitted worker against worker, and devastated local communities and the environment.
The difference this time around was that, in the wake of the most significant financial meltdown of our times, the bankers were echoing the protestors’ calls for re-regulation. Indeed, as the number of people protesting the global institutions has shrunk since September 11, 2001, the mainstream acceptance of their basic critiques has swelled...
As economic conditions worsen, there will be a bevy of rich individuals and governments attempting to claim the reform mantle as their own. The WTO, IMF, and World Bank are already attempting to reposition themselves as the ideal brokers for solutions to the climate, finance, and food-price crises—despite their role in creating or exacerbating them. Decades of political marginalization have left too many progressives too timid to lay out their alternative visions in a meaningful policy form. If they fail to do so now, the current “told you so” moment will be sweet but short.
Originally posted on The Economic Populist - A Community Site for Economics Freaks and Geeks - Come Visit!
Corporations. $2.5 trillion in sales. Tax liability, zero
brought to you by your tax code at work
Sounds like a slogan to do business in the US doesn't it? Yet assuredly that is not what is happening when corporations line up like the Oklahoma land rush to move to China and India.
Yet, maybe that multinational corporate land rush has something to do with these results?
The broad sweep of economic history for the past century has been a tug of war between unrestrained capitalists and constrained capitalists. It may surprise some that liberals used to be the former and are now the latter, and conservatives were the latter but are now the former.
More importantly, the constrained capitalists are losing and the consequences of that are severe.
Today Public Citizen released a new report "Santa's Sweatshop 'Made in DC' by Bad Trade Deals". According to the report toy safety problems have skyrocketed as major U.S. toy corporations relocated their production overseas to exploit sweatshop wages in countries where they cannot ensure the safety of the products. Thankfully the good folks at Public Citizen's Global Trade Watch has put together a easy to use petition to the presidental candidates that simply says this:
Our current imported toy safety crisis is a symptom of race-to-the-bottom globalization. We need new trade policies that protect our kids and support strong consumer safety protections - not trade deals like NAFTA and WTO that promote the relocation of toy production overseas to venues where safety cannot be ensured.
The U.S. President has the power to ensure U.S. trade policy doesn't undermine the safety of children at play. Urge the candidates to oppose provisions in trade deals that provide special benefits and protections for manufacturers to produce goods in other countries and limit U.S. border inspection and imported product safety standards. Also urge the candidates to provide greater funding for domestic agencies responsible for product safety.
That sound sensible to you? Join me below the fold to learn more about the issue and how to take action.
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