Category Archives: Economy

Obama Makes Recess Appointments

Although President Obama has made fewer recess appointments than any president in the last 40 years, the GOP pretended to be outraged by the President’s appointment of Richard Cordray to lead the Consumer Financial Protection Agency. The President said he was fed up with the GOP stalling his nominee to lead a new consumer protection agency in order to prevent protections being enforced.

“I refuse to take `no’ for an answer,” the president said. Obama announced the move with Cordray by his side before a cheering crowd in Ohio, a politically vital state where Cordray once was attorney general.

“Today I am appointing Richard as consumer watchdog,” the president addressed the crowd. “That means he is going to be in charge of one thing: looking out for the best interests of American consumers. His job is to protect families like yours from the abuses of the financial industry. His job is to make sure you have all the information you need. Right away, he’ll make sure that millions of Americans are treated fairly by mortgage brokers, payday lenders and debt collectors.”

Obama mentioned why he was making the appointment now even though Cordray was nominated last summer. He cited Senate Republican opposition who refused to give Cordray an up-or-down vote, despite the fact he has the support of the Senate majority.

“The only reason why Republicans have blocked Richard in the Senate.” said Obama, “is because they don’t agree with the law that set up a consumer watchdog in the first place. They want to weaken the law. They want to water it down. By the way, a lot of folks in the financial industry have poured millions of dollars to try to water it down. That makes no sense.”

He added: “We shouldn’t be weakening oversight, we shouldn’t be weakening accountability. We should be strengthening it, especially when it comes to looking out for families like yours.”

With a director in place, the new Consumer Financial Protection Bureau will be able to start overseeing the mortgage companies, payday lenders, debt collectors and other financial companies often blamed for practices that helped tank the economy.

The president announced three other appointments to the Labor Relations Board – another government agency that the GOP opposes.

Until now, President Obama has made only 28 recess appointments. Bush made more than 170 during his presidency. Bill Clinton made almost 140.

GOP: Raise Taxes on Middle Class

By Robert Reich

Every time I try to make sense of Re­pub­li­can tax doc­trine I get lost.

For ex­am­ple, rank-and-file House Re­pub­li­cans are will­ing to in­crease taxes on the mid­dle class start­ing in a few weeks in order to avoid a tax in­crease the very rich.

Here are the de­tails: The pay­roll tax will in­crease 2 per­cent start­ing Jan­u­ary 1 – cost­ing most work­ing Amer­i­cans about $1,000 next year – un­less the em­ployee part of the tax cut is ex­tended for an­other year.

De­moc­rats want to pay for this with a tem­po­rary – not per­ma­nent – sur­tax on any earn­ings over $1 mil­lion, ac­cord­ing to their most re­cent pro­posal. The sur­tax would be 1.9 per­cent, for ten years. (De­moc­rats would also in­crease the fees Fan­nie Mae and Fred­die Mac charge lenders.)

This means some­one who earns $1,000,001 would pay just under two cents extra next year, and 19 cents over ten years.

Rel­a­tively few Amer­i­cans earn more than a mil­lion dol­lars, to begin with. An ex­quis­itely tiny num­ber earn so much that a 1.9 per­cent sur­tax on their earn­ings in ex­cess of a mil­lion would amount to much. Most of these peo­ple are on Wall Street. It’s hard to find a small busi­ness “job cre­ator” among them.

Nonethe­less, Re­pub­li­cans say no to the sur­tax. “The sur­tax is some­thing that could very much hurt small busi­nesses and job cre­ation,” says John Kyl of Ari­zona, the Sen­ate’s sec­ond-rank­ing Re­pub­li­can.

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This puts Re­pub­li­cans in the awk­ward po­si­tion of al­low­ing taxes to in­crease on most Amer­i­cans in order to avoid a small, tem­po­rary tax only on earn­ings in ex­cess of a mil­lion dol­lars — mostly hit­ting a tiny group of fi­nanciers.

Not even a res­olute, doc­tri­naire fol­lower of GOP pres­i­dent Grover Norquist has any basis for pre­fer­ring mil­lion­aires over the rest of us.

To say the least, this po­si­tion is also dif­fi­cult to ex­plain to av­er­age Amer­i­cans flat­tened by an econ­omy that’s taken away their jobs, wages, and homes but con­tin­ues to con­fer record prof­its to cor­po­ra­tions and un­prece­dented pay to CEOs and Wall Street’s top ex­ec­u­tives.

So Re­pub­li­can lead­ers are try­ing to get rank-and-file Re­pub­li­cans to go along with an ex­tended pay­roll tax hol­i­day — but by pay­ing for it with­out rais­ing taxes on the very rich.

Ac­cord­ing to their lat­est pro­posal, they want to pay for it mainly by ex­tend­ing the pay freeze on fed­eral work­ers for an­other four years — in ef­fect, cut­ting fed­eral em­ploy­ees’ pay even more deeply — and in­creas­ing Medicare pre­mi­ums on wealthy ben­e­fi­cia­ries over time.

But even this pro­posal seems odd, given what Re­pub­li­cans say they be­lieve about taxes.

For years, Re­pub­li­cans have been telling us tax cuts pay for them­selves by pro­mot­ing growth. That was their ar­gu­ment in favor of the Bush tax cuts, re­mem­ber?

So if they be­lieve what they say, why should they worry about pay­ing for a one-year ex­ten­sion of the pay­roll tax hol­i­day? Surely it will pay for it­self.

This ar­ti­cle was orig­i­nally posted on Robert Reich’s blog.

Fed Paid Out $16 Trillion to Banks

The first ever audit of the Federal Reserve (read the Fed Audit here) shows the following:

Page 131 – The total lending for the Fed’s “broad-based emergency programs” was $16,115,000,000,000. That’s right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank.

Pages 133 & 137 – Some of these “broad-based emergency program” loans were long-term, and some were short-term. But the “term-adjusted borrowing” was equivalent to a total of $1,139,000,000,000 more than one year. That’s more than $1 trillion out the door. Lending for these programs in fact peaked at more than $1 trillion.

Pages 135 & 196 – Sixty percent of the $738 billion “Commercial Paper Funding Facility” went to the subsidiaries of foreign banks. 36% of the $71 billion Term Asset-Backed Securities Loan Facility also went to subsidiaries of foreign banks.

Page 205 – Separate and apart from these “broad-based emergency program” loans were another $10,057,000,000,000 in “currency swaps.” In the “currency swaps,” the Fed handed dollars to foreign central banks, no strings attached, to fund bailouts in other countries. The Fed’s only “collateral” was a corresponding amount of foreign currency, which never left the Fed’s books (even to be deposited to earn interest), plus a promise to repay. But the Fed agreed to give back the foreign currency at the original exchange rate, even if the foreign currency appreciated in value during the period of the swap. These currency swaps and the “broad-based emergency program” loans, together, totaled more than $26 trillion. That’s almost $100,000 for every man, woman, and child in America. That’s an amount equal to more than seven years of federal spending — on the military, Social Security, Medicare, Medicaid, interest on the debt, and everything else. And around twice American’s total GNP.

Page 201 – Here again, these “swaps” were of varying length, but on Dec. 4, 2008, there were $588,000,000,000 outstanding. That’s almost $2,000 for every American. All sent to foreign countries. That’s more than twenty times as much as our foreign aid budget.

Page 129 – In October 2008, the Fed gave $60,000,000,000 to the Swiss National Bank with the specific understanding that the money would be used to bail out UBS, a Swiss bank. Not an American bank. A Swiss bank.

Pages 3 & 4 – In addition to the “broad-based programs,” and in addition to the “currency swaps,” there have been hundreds of billions of dollars in Fed loans called “assistance to individual institutions.” This has included Bear Stearns, AIG, Citigroup, Bank of America, and “some primary dealers.” The Fed decided unilaterally who received this “assistance,” and who didn’t.

Pages 101 & 173 – You may have heard somewhere that these were riskless transactions, where the Fed always had enough collateral to avoid losses. Not true. The “Maiden Lane I” bailout fund was in the hole for almost two years.

Page 4 – You also may have heard somewhere that all this money was paid back. Not true. The GAO lists five Fed bailout programs that still have amounts outstanding, including $909,000,000,000 (just under a trillion dollars) for the Fed’s Agency Mortgage-Backed Securities Purchase Program alone. That’s almost $3,000 for every American.

Page 126 – In contemporaneous documents, the Fed apparently did not even take a stab at explaining why it helped some banks (like Goldman Sachs and Morgan Stanley) and not others. After the fact, the Fed referred vaguely to “strains in the financial markets,” “transitional credit,” and the Fed’s all-time favorite rationale for everything it does, “increasing liquidity.”

81 different places in the GAO report – The Fed applied nothing even resembling a consistent policy toward valuing the assets that it acquired. Sometimes it asked its counterparty to take a “haircut” (discount), sometimes it didn’t. Having read the whole report, I see no rhyme or reason to those decisions, with billions upon billions of dollars at stake.

Page 2 – As massive as these enumerated Fed bailouts were, there were yet more. The GAO did not even endeavor to analyze the Fed’s discount window lending, or its single-tranche term repurchase agreements.

Pages 13 & 14 – And the Fed wasn’t the only one bailing out Wall Street, of course. On top of what the Fed did, there was the $700,000,000,000 TARP program authorized by Congress (which I voted against). The Federal Deposit Insurance Corp. (FDIC) also provided a federal guarantee for $600,000,000,000 in bonds issued by Wall Street.

There is one thing that I’d like to add to this, which isn’t in the GAO’s report. All this is something new, very new. For the first 96 years of the Fed’s existence, the Fed’s primary market activities were to buy or sell U.S. Treasury bonds (to change the money supply), and to lend at the “discount window.” Neither of these activities permitted the Fed to play favorites. But the programs that the GAO audited are fundamentally different. They allowed the Fed to choose winners and losers.

So what does all this mean? Here are some short observations:

(1) In the case of TARP, at least The People’s representatives got a vote. In the case of the Fed’s bailouts, which were roughly 20 times as substantial, there was never any vote. Unelected functionaries, with all sorts of ties to Wall Street, handed out trillions of dollars to Wall Street. That’s now how a democracy should function, or even can function.

(2) The notion that this was all without risk, just because the Fed can keep printing money, is both laughable and cryable (if that were a word). Leaving aside the example of Germany’s hyperinflation in 1923, we have the more recent examples of Iceland (75% of GNP gone when the central bank took over three failed banks) and Ireland (100% of GNP gone when the central bank tried to rescue property firms).

(3) In the same way that American troops cannot act as police officers for the world, our central bank cannot act as piggy bank for the world. If the European Central Bank wants to bail out UBS, fine. But there is no reason why our money should be involved in that.

(4) For the Fed to pick and choose among aid recipients, and then pick and choose who takes a “haircut” and who doesn’t, is both corporate welfare and socialism. The Fed is a central bank, not a barber shop.

(5) The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success. (If you don’t believe me, ask Jamie Dimon at JP Morgan.) The Fed helped the losers to squander and destroy even more capital.

(6) During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn’t borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can’t find a full-time job?

Mazie Hirono Signs on to Wall St. Trading Tax Bill

Note from webmaster:  Virtually all agree that a small transaction tax on stock trades will be an effective way to stabilize the stock market and discourage the high speed computer trading that is destabilizing the the market and hurting pensions and smaller investors.  High speed computer trading is Day Trading on steroids that pulls $billions of dollars out of the stock market a fraction of a cent at a time.  But since this is done in microseconds by computerized trading of huge quantities, it adds up.  It is thought that a mistake in this high speed computerized trading was responsible for the 1,000 point drop in the Dow last year that happened in less than an hour.

WASHINGTON, D.C. – Mazie Hirono signed on to Senator Tom Harkin’s (D-IA)  legislation to place a tax on certain trading activities undertaken by banking and financial firms.  The measure does not harm long-term investing, but instead raises the greatest revenue from rapid financial trading and complex transactions undertaken by financial and investment firms.

Joining Harkin and Braley in cosponsoring the legislation were Senators Bernie Sanders (I-VT) and Sherrod Brown (D-OH) along with Congressmen Peter DeFazio, Hank Johnson, John Sarbanes, Bob Filner, Betty Sutton, Earl Blumenauer, Louise Slaughter, Mazie Hirono, Peter Welch, John Conyers and Maurice Hinchey.

“True deficit reduction in this country must come from a balance of spending cuts and necessary revenue increases,” said Senator Harkin.  “This trading tax would help raise necessary funds to invest in our infrastructure and the education of our children, among other priorities, and would do so without hurting job creation.  There is no question that Wall Street can easily bear this modest tax.”

“Wall Street got us into this economic mess — they should help get us out,” Braley said.  “While Iowa and the rest of America are left dealing with the consequences of their actions, Wall Street’s back to bagging record profits.  That’s not right.

“The Wall Street speculation fee we’re proposing is a tiny amount that would drastically cut down on stock market speculation and put a check on the greed that’s run rampant on Wall Street in recent years,” Braley continued.  “It’s about time Wall Street does their fair share to pay down the deficit and rebuild our country.”

The measure will place a small tax of three basis points (3 pennies on $100 in value) on most non-consumer financial trading including stocks, bonds and other debts, except for their initial issuance.  For example, if a company receives a loan from a financial company, that transaction would not be taxed.  But, if the financial institution traded the debt, the trade would be subject to the tax.  The tax would also cover all derivative contracts, options, puts, forward contracts, swaps and other complex instruments at their actual cost.  The measure excludes debt that has an original term of less than 100 days.  

By setting the tax rate very low, the measure is not likely to impact the decision to engage in productive economic activity.  It would, however, reduce certain speculative activities like high-speed computer arbitrage trading.  A transaction tax could help to shift Wall Street away from short-term trading.  Given the very high volume of financial trading, it will raise considerable funds, badly needed for government services and for reducing deficits.

The proposed tax would take effect on January 1, 2013.  

The European Union is considering a similar proposal, but with a tax rate that is more than three times higher.  Today, 30 foreign nations have in place a similar tax, including Great Britain and Switzerland.

Various experts are available to comment on this proposal, including Dean Baker, Co-Director of the Center for Economic and Policy Research, John Fullerton, former Managing Director of JPMorgan, Capital Institute and Lisa Donner, Executive Director, Americans for Financial Reform.

What caused the financial crisis? The Big Lie goes viral

From BARRY RITHOLTZ’s article in The Washington Post
[Emphasis added for those whose eyes glaze over at long expositions]

Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long- standing housing policies that were at fault.

Indeed, the arguments these folks make fail to withstand even casual scrutiny. But that has not stopped people who should know better from repeating them.

The Big Lie made a surprise appearance Tuesday when New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”

What made his comments so stunning is that he built Bloomberg Data Services on the notion that data are what matter most to investors. The terminals are found on nearly 400,000 trading desks around the world, at a cost of $1,500 a month. (Do the math — that’s over half a billion dollars a month.) Perhaps the fact that Wall Street was the source of his vast wealth biased him. But the key principle of the business that made the mayor a billionaire is that fund managers, economists, researchers and traders should ignore the squishy narrative and, instead, focus on facts. Yet he ignored his own principles to repeat statements he should have known were false.

Why are people trying to rewrite the history of the crisis? Some are simply trying to save face. Interest groups who advocate for deregulation of the finance sector would prefer that deregulation not receive any blame for the crisis.

Some stand to profit from the status quo: Banks present a systemic risk to the economy, and reducing that risk by lowering their leverage and increasing capital requirements also lowers profitability. Others are hired guns, doing the bidding of bosses on Wall Street.

They all suffer cognitive dissonance — the intellectual crisis that occurs when a failed belief system or philosophy is confronted with proof of its implausibility.

And what about those facts? To be clear, no single issue was the cause. Our economy is a complex and intricate system. What caused the crisis? Look:

1. Fed Chair Alan Greenspan dropped rates to 1 percent — levels not seen for half a century — and kept them there for an unprecedentedly long period. This caused a spiral in anything priced in dollars (i.e., oil, gold) or credit (i.e., housing) or liquidity driven (i.e., stocks).

2. Low rates meant asset managers could no longer get decent yields from municipal bonds or Treasuries. Instead, they turned to high-yield mortgage-backed securities. Nearly all of them failed to do adequate due diligence before buying them, did not understand these instruments or the risk involved. They violated one of the most important rules of investing: Know what you own.

3. Fund managers made this error because they relied on the credit ratings agenciesMoody’s, S&P and Fitch. They had placed an AAA rating on these junk securities, claiming they were as safe as U.S. Treasurys.

4. Derivatives had become a uniquely unregulated financial instrument. They are exempt from all oversight, counter-party disclosure, exchange listing requirements, state insurance supervision and, most important, reserve requirements. This allowed AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims.

5. The Securities and Exchange Commission changed the leverage rules for just five Wall Street banks in 2004. The “Bear Stearns exemption” replaced the 1977 net capitalization rule’s 12-to-1 leverage limit. In its place, it allowed unlimited leverage for Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. These banks ramped leverage to 20-, 30-, even 40-to-1. Extreme leverage leaves very little room for error.

6. Wall Street’s compensation system was skewed toward short-term performance. It gives traders lots of upside and none of the downside. This creates incentives to take excessive risks.

7. The demand for higher-yielding paper led Wall Street to begin bundling mortgages. The highest yielding were subprime mortgages. This market was dominated by non-bank originators exempt from most regulations. The Fed could have supervised them, but Greenspan did not.

8. These mortgage originators’ lend- to-sell-to-securitizers model had them holding mortgages for a very short period. This allowed them to get creative with underwriting standards, abdicating traditional lending metrics such as income, credit rating, debt-service history and loan-to-value.

9. “Innovative” mortgage products were developed to reach more subprime borrowers. These include 2/28 adjustable-rate mortgages, interest-only loans, piggy-bank mortgages (simultaneous underlying mortgage and home-equity lines) and the notorious negative amortization loans (borrower’s indebtedness goes up each month). These mortgages defaulted in vastly disproportionate numbers to traditional 30-year fixed mortgages.

10. To keep up with these newfangled originators, traditional banks developed automated underwriting systems. The software was gamed by employees paid on loan volume, not quality.

11. Glass-Steagall legislation, which kept Wall Street and Main Street banks walled off from each other, was repealed in 1998. This allowed FDIC- insured banks, whose deposits were guaranteed by the government, to engage in highly risky business. It also allowed the banks to bulk up, becoming bigger, more complex and unwieldy.

12. Many states had anti-predatory lending laws on their books (along with lower defaults and foreclosure rates). In 2004, the Office of the Comptroller of the Currency federally preempted state laws regulating mortgage credit and national banks. Following this change, national lenders sold increasingly risky loan products in those states. Shortly after, their default and foreclosure rates skyrocketed.

Bloomberg was partially correct: Congress did radically deregulate the financial sector, doing away with many of the protections that had worked for decades. Congress allowed Wall Street to self-regulate, and the Fed the turned a blind eye to bank abuses.

The previous Big Lie — the discredited belief that free markets require no adult supervision — is the reason people have created a new false narrative.

Now it’s time for the Big Truth.

President Obama’s Jobs Bill

The president has proposed a comprehensive jobs bill which will:

  • Put 1.9 million people to work
  • Repair our roads, bridges, and other sadly neglected infrastructure
  • Lower taxes on the middle class and working people
  • Raise taxes on the ultra-rich and corporations.
  • Extend unemployment benefits

The GOP is filibustering this bill in the Senate and won’t even let it come up for discussion in the House.

The Republican’s plan is to:

  • Eliminate Social Security
  • Eliminate Medicare
  • Eliminate Medicaid
  • Cut Unemployment benefits
  • Extend the Bush tax cuts for the ultra-wealthy

The Republicans have had their way for 8 years and instead of the wealth “trickling down”, they have destroyed the middle class.

According to the C.I.A.’s own ranking of countries by income inequality, the United States is more unequal a society than either Tunisia or Egypt.

These facts underscore that inequality:

This is why people are protesting on Wall Street and all over the U.S.  And the protests are working!  We’re not hearing so much bluster about cutting Social Security and Medicare from Congress any more.

The Democratic Party stands up for the middle class and the working families of America.

Join your voice to those who are “Mad as hell and not going to take it anymore”.  Sign wave for Jobs not Cuts Sunday Oct 16th at noon on Ka’ahumanu Ave in front of Kahului Shopping Center.

It’s about time we’re talking about jobs.

by Sen Jeff Merkley
Last night, the President laid out a strong case that Washington needs to set aside the petty politics and take aggressive action to tackle the jobs crisis.
That is dead on.  We won’t diminish the debt by driving our economy into a double-dip recession or a depression.  We have to create jobs both to put a foundation under our families and to restore an economy to battle our debt.
 
This much is clear: no government program is as important to the success of a family as a good job. A good job pays the mortgage or the rent. A good job puts food on the table.  A good job feeds the soul.
 
It is unacceptable that 14 million Americans are out of work.  That’s 14 million families in trouble. That’s deep damage to communities across the nation.  That’s an economy stuck in the ditch.
 
Last night our President laid out a roadmap to get out of the ditch by putting folks back to work.  It is a diverse, serious, and substantial roadmap incorporating ideas from both sides of the aisle.  
 
So Republicans in Congress have a choice to make.  Do they work towards real solutions? Or keep pursuing Mitch McConnell’s top priority of denying President Obama a second term, even if it means costing more Americans their jobs, homes, and savings?

Keep Social Security Healthy

Want to fix Social Security? Lift the cap! As Republicans look to gut Social Security by screaming it’s going bankrupt – they are ignoring one simple solution – and that’s raising the cap. Currently – only the first $106,800 of your income is taxed for Social Security. In other words – Billionaires pay virtually no Social Security taxes, while working stiffs making 40,000 bucks a year carry almost the entire load.

At a town hall event yesterday – Republican front-runner Mitt Romney was asked why he doesn’t support raising the cap – to which he responded, “that doesn’t begin to solve the problem.” That’s a lie.

According to the Congressional Research Service – just by eliminating the cap – and ensuring that billionaires pay the same Social Security tax rate as the rest of us – the program will generate massive surpluses and stay solvent for at least another 75 years.

It’s a simple choice really – have millionaires and billionaires pay the same rate as everybody else – or follow the Republican’s plan to destroy Social Security.

Let’s hope our lawmakers choose the solution that helps everyone – and not just the top one-percent.

Standard & Poor Downgrades U.S.A rating

Thanks a trillion, Republicans.  Due to your hostage-taking over the debt ceiling, S&P just downgraded the US credit standing.

What does this mean to us?

It means that we’ll have to pay higher interest rates on the money the U.S. is borrowing.  Way to go, Republicans, THAT will certainly help us rein in our deficit…paying higher interest…NOT!

The Republicans keep talking about fiscal responsibility yet they still keep doing bonehead things like threatening default on U.S. debts to get their way which ends up  damaging our fiscal position.