America's economy is in a bad way. The economic recovery has turned out to be disturbingly weak, and joblessness rates are still actually rising. Investment is down, Americans are depressed and angry, and there are even worries about a double-dip recession.
There has not been much analysis of the causes behind today's economic stagnation. Most experts talk about how weak recoveries generally follow financial crises. Politically, Republicans blame Democrats, and Democrats are generally too busy trying to fix the problem than to think about what caused it.
Yet there is indeed something that did badly damage the recovery - an event very few nowadays link to America's economic woes.
Yesterday's Clusterstock's "Chart of the Day" immediately struck me as highly misleading, with the implication of a strong economic recovery completely contrary to everything else you've heard. This came in even as I was writing my diary "Austerity narratives from real economists debunked ", and struck me as something in a similar vein. Take a look:
CHART OF THE DAY: Wait, Is That A "V"?
Joe Weisenthal | Dec. 14, 2010, 12:07 PM
But weren't consumers supposed to be dead? Yeah, you thought so, and that's the sound of your pre-conceived notions being blown up.
(Note that we're almost past the peak, all-time month for sales).
Now, I'm not an economist, I'm a journalist, and so when covering economic news, I always feel most comfortable when I can check things with an economist. If it's going over ground I've covered before, I may not want to bother anyone to tell me what I've already learned from them in the past, but this sort of falls between the cracks. First off, intuitively I know that retail sales is not the main problem, as the economy as a whole is no longer in recession--but that hardly means that it's anything close to a normal recovery, with sky-high unemployment, record foreclosures, etc. The great example here is the Great Depression, where FDR got the GDP turned around within a year in office, but didn't get unemployment licked until mobilization for WWII a good 7 years later or so.
In short, I know that the core problem we face is employment, that "jobs are a lagging indicator", so much so that even with the GDP-based "official" end of the recession well behind us, economists are talking about it taking years, perhaps as much as a decade for employment to recover. So even without questioning anything about these numbers, I'd want to look at what's happening to jobs in that sector. Only problem is, I have know for certain what to match to what. Off the top of my head, looking at the Bureau of Labor Statistics website, it looks like the sector identified as "Retail Trade" would match up with the above chart, and here's what their 10-year picture of jobs in this sector looks like:
Not very encouraging, and not remotely similar.
So what's going on?
Well, I assume that it's just like I said. I have every reason to think so. But I want to be sure. So, I turned to the Center for Economic Policy Research, who are not only very very good, but pretty damn fast as well (h/t Alan Barber, their media person). If we had more think tanks like them on the left, we'd be in much, much better shape. And not only did they confirm it was the right data comparison, I got a quote from Dean Baker about the figures behind the Clusterstock chart:
Retail sales almost always grow, except in recessions. This means that typically, every single month is the highest sales on record. Stock analysts and members of Congress can make a big deal out of this, but it doesn't tell a real story. After 2 years and 3 months we are just getting back to the pre-crisis levels in nominal terms. We are still down after adjusting for inflation. Look at the two years prior to the crash -- we had the same sort of growth then and it was not from a hugely depressed base.
Dr. Kenneth Katz recently published an article in the New England Journal of Medicine titled "Health Hazards of 'Don't Ask, Don't Tell." This week, he penned an op/ed for RH Reality Check about his experiences treating U.S. military at an STD clinic in San Diego. Dr. Katz sees the Pentagon's "Don't Ask Don't Tell" rule for LGB members of the military as a huge roadblock to good medical care. He's pretty confident that his military patients feel safe divulging their sexual histories to a civilian doctor like himself. But when those troops go overseas, they are cared for by military doctors. Technically, doctor-patient communication is exempt from DADT, but many patients don't realize that they can tell their military doctors about gay sex without fear of reprisals (at least in theory). Dr. Katz's patients have told him that they won't go for recommended follow-up STD screening after they ship out because they're afraid to be honest with their doctors. He worries about how many troops are suffering from treatable infections in war zones because they aren't allowed to serve openly.
Food stamp use skyrockets, swordfish sales unaccountably flat
Monica Potts of TAPPED points to the alarming statistic that in the last month alone an additional 500,000 Americans went on food stamps. She notes that the right wing website Daily Calleris alarmed not by the fact that fellow citizens can't afford food, but rather that there's no gruel-only foodstamp program available:
Meanwhile, the conservative news site The Daily Calleris shocked, shocked, to learn that you can use food stamps to buy all manner of food. The government, apparently, doesn't restrict you from purchasing an $18-per-pound swordfish steak from Whole Foods. But that kind of discovery, like almost everything else in the "debate" over food stamp use, is the sort of ridiculous one that comes from a person who's never been hungry.
The Hyde Amendment
In Campus Progress, Jessica Arons and Madina Agénor call for the repeal of the Hyde Amendment for being an assault on the reproductive rights of poor women and women of color. The Supreme Court declared abortion to be a constitutional right in 1973, yet nearly 40 years later, the Hyde Amendment still prohibits nearly all federal funding for abortions. In practice, the women most affected by the Hyde Amendment are those who depend on government health care programs like Medicaid and the Indian Health Service:
Former U.S. Rep. Henry Hyde (R-IL), the law's sponsor, admitted during debate of his proposal that he was targeting poor women because they were the only ones vulnerable enough for him to reach. "I certainly would like to prevent, if I could legally, anybody having an abortion, a rich woman, a middle-class woman, or a poor woman," he said. "Unfortunately, the only vehicle available is the ... Medicaid bill."
Meanwhile, ultra-conservative Rep. Michele Bachmann (R-MN) is calling on Congress to de-fund the reproductive health provider Planned Parenthood, Andy Birkey reports in the Minnesota Independent. In an interview with a conservative news site, Bachmann doubled down on that idea, suggesting that all of health care reform be de-funded because it funds abortions. This is not true. The aforementioned Hyde Amendment guarantees as much. Furthermore, even though health reform never would have funded abortions, President Obama signed an eleventh-hour executive order guaranteeing that health care reform would not fund abortions.
Brooklyn bees gorge on maraschino cherry run-off
Home beekeeping is the hottest new trend for health-conscious locavores. New York City recently changed the law to accommodate beekeepers in the five boroughs. Just because you live in an industrial neighborhood in Brooklyn is no reason to miss out on this sweet action, right? Well, actually, there is a catch. That nice honey at the farmers' market tastes like lavender because that's what those rural bees ate. What do bees in Red Hook, Brooklyn eat? Run-off from a maraschino cherry factory. The overindulgent bees "look like vampires" according to one local keeper and their honey runs bright red. Maraschino honey sounds like a delicious mash-up of high and low culture. Unfortunately, Sarah Goodyear reports in Grist that the end product doesn't taste nearly as good as it looks. Arthur Mondella, the owner of Dell's Maraschino Cherries, wants to do right by the beekeepers. He initially suggested putting out vats of different colored syrup to "help" the bees make rainbow honey. His proposal was not well-received by the crunchy set. Instead, he has agreed to work with the beekeepers to keep the bees out of the vats next year.
The Opportunity Agenda has created a series of tools for advocates and policymakers to use as they advocate for equal opportunity in the economic recovery process.
The last three and a half decades have seen a disturbing increase in inequality in the U.S. The wealthiest Americans have made significant income and wealth gains, while the rest of us have treaded water at best. And yet, as our national dream of economic security and mobility dies, we don’t even care enough to offer a eulogy. As Willy Loman’s wife reminded us, “Attention must be paid.”
President Barack Obama's decision to appoint Elizabeth Warren to set up the new Consumer Financial Protection Bureau (CFPB) couldn't have come at a more critical time.
For those of us who can still even stomach it, the first Friday of the month—the usual day for the release of the previous month’s federal Employment Situation Summary, known informally as the jobs report—has become a fairly pathetic ritual, particularly for optimists. We hope for some proof, any proof, that a real recovery is underway. If jobs were shed across the board, but the unemployment rate trended lightly downward, we try to pretend that it wasn’t because still more people have pulled themselves out of the formal count by giving up looking for work entirely. If private sector job growth and public sector job loss cancel each other out, we put on our market fundamentalist wishful thinking caps and talk about how private sector jobs are somehow more sustainable than their public sector equivalents. And when modest job growth does occur, even when it’s below even the basic replacement rate needed to accommodate a growing workforce, well, that’s when we bring out the champagne.
The economy is terrible. Jobs are nowhere to be found. Wall Street bonuses are through the roof. But mainstream business journalism is still praising the con-men who created this mess, yet attacking anybody who takes real solutions-like government spending to create jobs-seriously.
Last week, Social Security advocates learned something they had long suspected. Arguments for cutting Social Security aren't really about economics or the deficit. They're all about waging war on social services.
On Tuesday, the Obama administration is scheduled to begin its first trial of a prisoner held at Guantanamo Bay. Omar Khadr was only 15 when he was captured in a firefight in 2002 with U.S. forces in Afghanistan. Now 23, he'll finally have his day in court. Only instead of an experienced federal court with a long history of trying terror suspects, Khadr will be tried in a military commission, created just last year. In the eight years since President George W. Bush created the first military commissions at Guantanamo, they have convicted only four terrorists - only two in contested trials. Regular federal courts in the United States, by contrast, have convicted more than 400 in the same time period.
Khadr was only nine when his father, an alleged Al Qaeda financier, dragged him from Canada to Afghanistan and put him to work helping his Al Qaeda-connected friends. Khadr has said that he never had a choice. And a Canadian intelligence agency reported, based on interrogations of Khadr in 2003, that Khadr viewed Al Qaeda "through the eyes of a child" who didn't understand that his father's activities were linked to terrorism.
What's more, based on what's been presented in pretrial hearings so far, there appears to be little or no evidence, other than "confessions" extracted under highly suspicious circumstances, that Khadr actually committed the most serious crime he's accused of: throwing a grenade that killed a U.S. soldier.
Even if he did, Khadr shouldn't be tried in a military commission.
Under international law, a child captured in combat is supposed to be treated as a victim rather than a warrior, offered rehabilitation in custody and eventually repatriated home. Khadr, who has relatives in Canada, was offered neither option.
In addition, the crime of murdering a U.S. soldier isn't actually a war crime. In war, it's not a crime to target the other side's soldiers. But because Khadr was a civilian, rather than a member of a regular foreign army, throwing a grenade is a criminal act that could be prosecuted in a regular criminal court. Although the military commission rules characterize his crime as one that falls within the commissions' jurisdiction, the legal authority of the commission to prosecute conduct that was declared a war crime after the act was committed, or ex-post facto, remains legally questionable.
Khadr's lawyer has also questioned the legality of the military commissions as a whole, filing an appeal just this week with the Supreme Court arguing that the commissions are unconstitutional because they target only "aliens"--people who are not U.S. citizens. Though the courts have so far punted on this issue, it's clear that even if Khadr is convicted, he'll have several strong grounds for appeal.
So why is the government bringing this case in a military commission?
Perhaps the government hopes that Khadr's statements, which he claims were extracted by various kinds of torture and abuse, will be allowed into court as evidence. Although Khadr's lawyer hasn't yet had the opportunity to present all the evidence of his client's treatment at Bagram and at Guantanamo Bay, what's come out at pretrial hearings so far is that when Khadr was captured by U.S. soldiers in July 2002, the teenager had been shot twice in the back, blinded in one eye and had a face peppered with shrapnel. Interrogators at the Bagram air base took to calling him "Buckshot Bob." But that didn't stop them from interrogating him while he was still recovering from life-threatening wounds and strapped to a hospital gurney. Using what the military calls a "fear up" technique, an interrogator testified, Khadr was told a story about another prison just like him who refused to cooperate - and who then was gang-raped and killed in an American prison.
Official documents also reveal that at Guantanamo, Khadr was subjected to the military's "frequent flyer" program -- meaning he was moved every three hours for weeks at a time to keep him from sleeping prior to interrogations.
So just how reliable are the statements he made, either at Bagram or at Guantanamo?
Now, after eight years at Gitmo, Khadr insists he's not guilty. He has also at times said he'd boycott his own trial because he thinks the whole military commission process is a sham.
It's easy to understand why. Now 23, Khadr, has been interviewed by dozens of interrogators, each time led to believe that his cooperation would spare him from violence and lead to his release. He told interrogators what he thought they wanted to hear, but that release never happened. If Khadr had been imprisoned in the United States, he would have been tried and either convicted or released long ago. But instead, Khadr has been held without trial on a secluded prison camp in Cuba for nearly a decade with little opportunity to defend himself.
Human Rights First has been observing the military commission hearings since their inception in 2002. Repeatedly, our observers have been astounded by the injustices, inefficiency and wholesale fiasco that many of the inexperienced and legally questionable commissions' proceedings produce.
That's partly because the commissions are so new - created by a law passed in 2009. The first military commission system, created by the Bush administration, was ruled unconstitutional by the U.S. Supreme Court in 2006. As a result, there's is almost no legal precedent to guide commission judges. The Military Commissions Manual, meanwhile, was only issued in late April - on the eve of Khadr's first pretrial hearing. The resulting confusion offers yet more opportunity for Khadr and anyone else convicted in a military commission to challenge their convictions on a broad range of legal grounds. Decisions on the prisoners' fate will be delayed that much longer.
There's another reason that this whole military commission system leaves me scratching my head: the extravagant expense involved. Keeping the Guantanamo Bay prison camp and military commission system open for fewer than 180 detainees costs taxpayers a lot of money. Construction and renovations to the camp have cost about $500 million so far; operating costs are another $150 million every year. The Washington Post recently estimated the bill, much of which has been paid to KBR and Halliburton, has so far exceeded $2 billion. Just the cost of flying dozens of journalists and observers like myself, plus all the lawyers involved, to and from Guantanamo to attend each of these hearings so the government can claim that they're "public" is astronomical. Meanwhile, federal courts and secure prisons in the United States are readily available and already paid for. And the government doesn't have to cover anyone's costs to get there.
I'm in Guantanamo Bay this week to observe the end of Khadr's pretrial hearings and the beginning of his trial in a military commission. But I doubt I'll gain any better understanding of why the Obama administration chose to try him there.
Update: Lt. Col. Jon Jackson, Omar Khadr's military defense lawyer, just gave a quick news conference in the sweltering airplane hangar here at the Gitmo base. (Only prosecutors are allowed to use the indoor air-conditioned rooms for press conferences.) "This case will echo in the future," Jackson said, noting that it will set a sad precedent for the United States' right to try a child soldier as a full-fledged war criminal.
It will also create a lasting legacy for the Obama administration."Forever the Obama administration will be remembered as starting the military commissions with a case of a child soldier," Jackson said.
Somehow that doesn't seem like the sort of legacy Obama had in mind when he vowed to close the Gitmo prison down on his first day in office.
The June labor market report announced that the unemployment rate is down from 9.7 to 9.5 percent and 83,000 private-sector jobs were created in June. Unfortunately, the situation isn't quite so rosy. As Annie Lowrey reports in The Washington Independent, the real cause of the drop in unemployment was not more jobs, but fewer workers. Hundreds of thousands of unemployed Americans have now been reclassified as "discouraged" workers who have not actively searched for work for four weeks. As such, they are no longer part of the system.
The recent troubles faced by Greece bring to mind a fascinating way in which this financial crisis has been different from so many others. Namely, it has been the wealthy, Western countries that have been hit hardest and who have been made to look bad.
It was troubles in the United States, the world's preeminent economic power, which first initiated the recession. Its sophisticated, modernized financial system self-destructed in a manner previously thought only possible in places like Indonesia or Argentina. For the first time since the Great Depression, First-World banks were in danger of falling; Great Britain even had an old-fashioned bank run.
And it was rich Westernized Iceland that was the first to collapse. Not some Latin American Argentina or Asian Indonesia - but Iceland. Today the country is still in financial chaos - an Icesave bill to restore stability has proven deeply unpopular, much like the bail-out bill for the banks. The bill is being put into a national referendum, where it will almost certainly lose.
Seventeen percent of sexually active teenage girls said they used the rhythm method as a means of birth control in 2008, up from just 11% in 2002, according to the latest report from the CDC. For most of these girls "rhythm method" means guessing the least risky day to have unprotected sex. You and I both know that one in five teenage girls isn't taking her temperature every day and charting the consistency of her cervical mucus on the calendar.
Not so ab-fab
Amanda Marcotte of RH Reality Check blames abstinence-only propaganda for the trend. She points out that abstinence-based curricula rely heavily on shame to discourage kids from having sex. Teens who are ashamed don't necessarily abstain, but they are less likely to use birth control when they do have sex. Claiming to use the rhythm method is an excuse not to use real birth control. Marcotte points out that abstinence-only curricula also promotes stereotypes of female passivity and male dominance, which makes it even harder for girls to negotiate condom use.
There is a glimmer of hope, Robin Marty of RH Reality Check reports that the Obama administration is shifting gears on sex ed. For the first time in many years, school districts will be eligible for federal funds to teach evidence-based, comprehensive sex ed. Abstinence-only funding hasn't gone away, but at least districts will have the option.
Recession-based bedroom blues
Interestingly, teens are having slightly less sex overall, according to the CDC. The abstinence-only crowd is trying to take credit, but as Stephanie Mencimer of Mother Jones notes, the recession seems to be putting a damper on the sex lives Americans of all ages. The latest sex survey by the AARP showed that Americans over 45 are having less sex than they were in 2004 and enjoying it less as well.
Looking at the same study, Wendy Strgar of Care2 notes that that teen motherhood has become much more socially acceptable among adolescents, perhaps due to highly publicized teen moms like Bristol Palin and Jamie Spears.
The war on choice
Michelle Chen of RaceWire reports that hundreds of anti-choice bills have been introduced in state legislatures around the country since the passage of national health care reform. Missouri's new Abortion Restriction Act requires abortion clinics to post signs offering state assistance if she has the baby. Too bad the Missouri legislature slashed the funds that would have provided most of those services.
Two moms = healthy kids
In other health news, a new study forthcoming in the journal Pediatrics shows that lesbian couples raise healthier children than straight couples. Gabriel Arana of TAPPED suggests that maybe lesbians do better on average because they are a self-selected group of highly motivated parents that had to overcome obstacles in order to raise their kids. Or maybe two moms are better than one.
As Arana notes, the politically important thing about this study is the finding that same-sex parents are doing at least as well as opposite sex parents. Conservatives opposed to gay rights have often justified second-class citizenship for gays in terms of protecting children from allegedly harmful same-sex parents. Now, science is showing that same-sex families are at least as healthy as more traditional family units.
This post features links to the best independent, progressive reporting about health care by members of The Media Consortium. It is free to reprint. Visit the Pulse for a complete list of articles on health care reform, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Audit, The Mulch, and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Last week, the U.S. Senate rejected a plan that would have broken up the nation's six largest banks firms into firms that could fail without wreaking havoc on the economy. Even though the defeat reinforces Wall Street's political dominance, there is still room for a handful of other useful reforms, like banning banks from gambling with taxpayer money and protecting consumers from banker abuses. After looting our houses, banks are now pushing for the ability to bet on movie box-office receipts, and will keep trying to financialize anything they can unless Congress acts.
Wall Street calls the shots
Writing for The Nation, John Nichols details last week's Capitol Hill damage. Today's financial oligarchy, in which a handful of bigwig bankers and their lobbyists are able to write regulations and evade rules they don't like, will still be in place after the Wall Street reform bill is passed. The lesson is clear, as Nichols notes:
Whatever the final form of federal financial services reform legislation, one thing is now certain: The biggest of the big banks will still be calling the shots.
Still worth fighting for
As I emphasize for AlterNet, Congress has made a terrible mistake here, but there is still room for reform. It took President Franklin Delano Roosevelt seven years to enact his New Deal banking laws. It took even longer to reshape public opinion of monopolies when President Theodore Roosevelt took on Corporate America in the early 1900s.
What's still worth fighting for? We have to curb the derivatives market-the multi-trillion-dollar casino that destroyed AIG. We have to impose a strong version of the Volcker Rule, which would ban banks from engaging in speculative trading for their own accounts. We have to change the way the Federal Reserve does business and force the government's most secretive bailout engine to operate in the open. And we have to establish a strong, independent Consumer Financial Protection Agency to ensure that the horrific subprime mortgage abuses are not repeated.
As Nomi Prins details for The American Prospect, the current reform bill will not effectively deal with the dangers posed by hedge funds and private equity firms-companies that partnered with banks to blow up the economy through investments in subprime mortgages. That means that whatever happens with the current bill, Congress must again take action next year to rein in other financial sector excesses.
The derivatives casino at the movies
As Nick Baumann demonstrates for Mother Jones, banks are doing everything they can to gobble up other productive elements of the economy. The economy crashed in 2008 in large part because banks had used the derivatives market to place trillions of dollars in speculative bets on the housing market. This wasn't lending, it was pure gambling: Instead of using poker chips, bankers placed their bets with derivatives. But, as Baumann emphasizes, banks are now looking to expand the sort of thing they can make derivatives gambles with. The latest proposal is to allow banks to bet on the box office success of movies. That's right, banks would be gambling on movies.
Hollywood may be shallow, but it isn't stupid. It doesn't want to see the banking industry repeat its destructive looting of the housing industry on the movie business, and is pushing hard to ban banks from betting on movies. But we can't count on every industry having a powerful lobby group to counter every assault from the banking system.
Taking stock in schools
Consider the unsettling report by Juan Gonzales of Democracy Now!. Gonzales details how big banks gamed the charter school system to score huge profits while simultaneously saddling taxpayers with massive debts that make teaching kids supremely difficult. By exploiting multiple federal tax credits, banks that invest in charter schools have been able to double their money in seven years-no small feat in the investing world-while schools have seen their rents skyrocket. One school in Albany, N.Y. saw its rent jump from $170,000 to $500,000 in a single year.
About that unemployment rate...
It's not like public schools are flush with cash right now. The $330,000 increase in rent could pay the salaries of more than a few teachers. As the recession sparked by big bank excess grinds on, even the good news is pretty hard to swallow. As David Moberg emphasizes for Working In These Times, the economy added 290,000 jobs in April, but the unemployment rate actually climbed from 9.7 percent to 9.9 percent in March. That's because the unemployment rate only counts workers who are actively seeking a job-if you want a job but haven't found one for so long that you give up, you're not technically "unemployed." All of those "new" workers are driving the official figures up.
In other words, it's still rough out there. And likely to stay rough as state governments try to deal with the lost tax revenue from plunging home values and mass layoffs. Nearly half of all unemployed people in the U.S. have been out of a job for six months or more. And while we'd be much worse off without Obama's economic stimulus package, that percentage is likely to grow this year, Moberg notes.
This is what unrestrained banking behemoths do. They book big profits and bonuses for themselves, regardless of the consequences for the rest of the economy. Congress absolutely must impose serious financial reform this year. After the November election, breaking up the banks must once again be on the agenda when Congress considers the future fate of hedge funds, private equity firms, Fannie Mae and Freddie Mac. If we don't rein in Wall Street, banks will continue to wreak havoc on our homes, our jobs and even our schools. Congress must act.
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.
Last week, the Securities and Exchange Commission filed fraud charges against Goldman Sachs and underscored what most Americans have believed for some time: Wall Street has rigged the economy in its own favor, and will stop at nothing-not even outright theft-to boost its profits. What's worse, Goldman's scam could have been completely prevented by better regulations and law enforcement.
Goldman's heist
Let's be clear. "Financial fraud" means "theft." Goldman Sachs sold investors securities that were stocked with subprime mortgages and had been cherry-picked by a hedge fund manager named John Paulson. Paulson believed these mortgages were about to go bust, so he helped Goldman Sachs concoct the securities so that he could bet against them himself.
Goldman Sachs, like Paulson, also bet against the securities. But when Goldman sold the securities to investors, it didn't tell them that Paulson had devised the securities, or that he was betting on their failure. By withholding crucial information from investors, Goldman directly profited from the scam at the expense of its own clients. If ordinary citizens did what the SEC's alleges Goldman did, we'd call it stealing.
As Nick Baumann emphasizes for Mother Jones, the SEC's suit against Goldman is just the tip of the iceberg. During the savings and loan crisis of the late 1980s, literally thousands of bankers were jailed for financial fraud. Today's crisis was much larger in scope, yet the Goldman allegations are among the first serious charges of legal wrongdoing to emerge (other complaints have been filed against Regions Bank and former Countrywide CEO Angelo Mozilo). If the SEC or the FBI are doing their jobs, we should see many more of these cases.
Bust 'em up.
How do banks get away with these kinds of shenanigans and still secure epic taxpayer bailouts? It's all about their political clout, as Robert Reich notes for The American Prospect. So long as banks are so enormous that they can ruin the economy with their collapse, the institutions will always carry tremendous political clout.
Even in the case of Goldman Sachs, which is too-big-to-fail by any reasonable standard, the SEC's fraud case is being filed three years after the company's alleged offense. That's well after the company rode to safety on the Troubled Asset Relief Program, the AIG bailout and billions more in other indirect assistance-and only after multiple journalists made Goldman's offensive transactions general public knowledge.
If we don't break up the big banks, politically connected Wall Street titans will make sure they get bailed out when the next crisis hits, regardless of whatever laws we have on the books.
Fix the derivatives casino
If Congress doesn't soon pass a bill to break up behemoth banks, it will be neglecting the gravest problem in our financial system today. But several other reforms are needed if Wall Street is ever going to serve a useful economic function again.
As Nomi Prins emphasizes for AlterNet, much of the Wall Street profit machine has been divorced from the economy that the rest of us live in. These days, banks make most of their money from securities trades and derivatives deals. Their actual lending business is taking a beating. That means big banks have very little incentive to promote economic well-being for every day citizens. We need to create these incentives by banning economically essential banks from engaging in securities trades, and make sure all derivatives transactions are conducted on open, transparent exchanges, just like ordinary stocks and bonds.
Better derivatives regulations could help protect against fraud. If Goldman Sachs' sketchy subprime deal had been subject to market scrutiny on an exchange, it's very unlikely that any investor would have bought into it. Goldman Sachs almost got away with it because the deal was secretive and beyond the scope of most regulatory oversight.
Protect whistleblowers
The Goldman case also raises significant questions about the government's enforcement of existing financial fraud laws. Bradley Birkenfeld, a banker for Swiss financial giant UBS, helped the Department of Justice bring the largest tax fraud case in history against his company, which was helping rich Americans hide money from the IRS in offshore bank accounts.
For his cooperation, Birkenfeld was rewarded with a four-year prison sentence, even though nobody else at UBS-nobody-has been sentenced to prison over the scam. As Juan Gonzalez and Amy Goodman emphasize for Democracy Now!, Birkenfeld's imprisonment could have something to with who exactly is hiding money with UBS.
Gonzalez discusses an interview with Birkenfeld, in which the former banker notes that the bank had a special office to handle the accounts of "politically exposed persons"- American politicians. Moreover, the top brass at UBS includes key advisors to top politicians in both parties. This is exactly the kind of influence smuggling that breaking up the banks would help fix. UBS is a multi-trillion-dollar institution with no less than 27 U.S. subsidiaries.
But protecting Birkenfeld would accomplish still more-by jailing him, the Justice Department is actively discouraging others from coming forward, and making it more difficult for regulators to enforce the law.
Greenspan's failure
It's abundantly clear that almost every major regulatory agency charged with curtailing financial excess failed to prevent the Crash of 2008. But that failure doesn't mean that effective regulation is impossible-it only shows that the regulators in power failed. The top bank regulator in the U.S., John Dugan, was a former bank lobbyist.
As Christopher Hayes demonstrates for The Nation, former Federal Reserve Chairman Alan Greenspan has never had any interest in regulation whatsoever. After the crash, Greenspan insisted that nobody could have seen it coming. But as Hayes notes, many people did-Greenspan simply didn't listen to them. These days, Greenspan is revising his story, claiming that he did in fact see the crisis coming, but that nobody could have prevented it. That is simply not credible.
Hayes draws a useful parallel Hurricane Katrina, a problem sparked by a natural event that became a catastrophe when regulators failed to take the necessary precautions. The lesson from both Katrina and the financial crash is not that government always screws up-we have plenty of examples of government preventing floods and economic calamity. The lesson we should learn is that people who don't believe in government will never do a good job governing. As Hayes notes:
If Greenspan couldn't figure things out, that doesn't mean others can't. In fact, developing systems for doing just that is called-quite simply-progress, and Alan Greenspan continues to be one of its enemies.
That is exactly the task that now presents itself before Congress: Developing a system to prevent and constrain economic destruction wielded by Wall Street. The U.S. had a system that did exactly this for more than fifty years. For the last thrity years, it has been systematically dismantled. How well Congress lives up to that challenge will define much of our economic future for decades to come.
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.
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