December 13, 2014 § Leave a comment
As I write this, the United States Senate is debating a measure that would weaken Dodd-Frank’s regulation of Wall Street banks, increase the amount of money a single donor can contribute to political parties and enable employers to reduce pension payments of retirees after they retire and have earned their pensions.
These outrages are attached to a budget bill whose passage is required to keep the government operating. None of these dishonest and unwise amendments have anything to do with the budget. They were attached to the budget bill by anonymous members of the House of Representatives at the behest of Citigroup. There was no committee hearing. There was no opportunity to vote on them separately.
In other words, they were so obviously the result of corruption that their sponsors would not own them. They could only be adopted as part of a legislative blackmail scheme.
This is not, however, the real scandal. The real scandal is that this dishonest scheme could only proceed with votes by Democratic Party members. The bill passed the House by a narrow margin, including aye votes by 57 Democrats.
[I note with some satisfaction that no Texas Democrat voted “aye”.]
No, that is really not the real scandal. The real scandal is that the only two elected officials who are personally identified with pressuring members of Congress to agree to these outrages are named Barack Obama and Joe Biden . Yep. Some things are too dishonest to make it, even given the present sorry state of our politics. So you have to bring out the Big Guns, the Prez and Vice (pun intended).
How did this happen? Well, we get the usual explanation. It was a compromise; the best deal we could get. If we don’t go along, the President won’t be able to work with Republicans on other matters.
Whoa! Say what? When has the President been able to work with Republicans on anything significant? What makes anyone think this will improve in a few weeks when the GOP majority will become filibuster proof? Just how stupid and naive are we suppose to be? Will this be an adequate explanation for the retirees whose pensions will be decimated? When the power of the Koch Brothers and others like them is used to gain even more control of our political parties, will we view the results and say, “Well, it’s bad, but it was worth it to avoid an ugly argument about the 2014 Budget Bill.”
The Perpetuation of “Too Big To Fail/Jail”
Dodd Frank addressed a problem that confronted us when the Wall Street Banks faced insolvency because of their fraudulent marketing of mortgage based derivatives. They used depositor money to finance those derivatives. If they became insolvent, the taxpayers would have to make the depositors whole because of the FDIC insurance program. That is, the taxpayers would belatedly finance the reckless greed of the Wall Street pirates.
Dodd Frank cured this by requiring that future trading strategies that depend on derivatives and Byzantine schemes involving sketchy tools like credit-default-swaps, that look like insurance but have no reserves, would have to be conducted by entities separate from FDIC insured deposits, with money other than depositor money.
In other words, the ones who profit from high-risk gambles would have to risk their own money, not FDIC-insured depositor money.
Predictably, this was regarded as a terrible idea by the high-risk gamblers. They have become addicted to the system of “If I win, I pocket the money. If I lose, you pay for the loss.” So, Citigroup, acting for the other pirates, just wrote a solution to their problem, forwarded it to some elected officials they owned, who transcribed it into an amendment to the budget bill. Their solution is part of the bill Obama and Biden have been frantically calling House and Senate members about, begging them to vote “aye”.
Thank God For the Women
Nancy Pelosi was left out of the negotiations that led to this piece of garbage. She did not join the cheer leaders who whooped it through the House. But the one who has filled a gaping chasm where the political soul and conscience of the Democratic Party once rested, is Elizabeth Warren. What a thrill to see a Senator who has not forgotten how to express moral outrage. And knows how to do it while exhibiting a razor sharp wit and a mind to match.
When she spoke on the floor of the Senate, looked squarely into the camera and addressed Citigroup, the sponsor and author of the Dodd-Frank gut job, and said, “I agree with you. Dodd-Frank is not perfect. It failed to break you up into small pieces.”, I just about fell in love again, despite 65 years of marriage. She is a wonder!
Which Side Are You On?
This episode reminded me of an old union song I taught my daughters to sing when they, and I, were young. It was written in 1931 by Florence Reese, the wife of a coal miner in Harlan County, Kentucky, during a bitter strike. The Harlan County Sheriff was J.H. Blair, an enforcer and strike breaker for the mine owners.
One night some of Blair’s thugs stormed into the Reese home, looking for Sam Reese. He had been tipped off and was not there. They terrorized his wife Florence and his children but didn’t get Sam.
After they left, Florence, angry and scared, wrote a song on the back of a calendar, expressing her devotion to the union and her contempt for those who failed to support the strike. Here is a link to Pete Seeger and his banjo, singing Florence’s song:
While watching CNN and MSNBC about this budget episode, I kept getting madder and madder and I remembered that old song. So I wrote my own version:
In our US Congress
There are no neutrals there
You either vote your consciences
Or whore for billionaires
Which side are you on?
Which side are you on?
Which side are you on?
Which side are you on?
Obama we’re in danger
The wolves are at our door
We don’t need reasoned argument
We need a two-by-four
Barack Hussein Obama
How dumb can you get?
A shepherd cannot safely try
To make a wolf a pet!
It’s time to rein in Wall Street
Our country’s not for sale
At ballot box and in the streets
We must fight and prevail.
Thank God for Betsy Warren
She speaks for us out loud
She does not hedge or compromise
To blend in with the crowd
No go along to get along,
She hews to moral rules
She tells it straight and tells the truth
She has no time for fools
I don’t yet know how this drama will end, but I’m not optimistic.
December 8, 2014 § 1 Comment
Jim Hightower is a friend of mine. He edits and publishes a newsletter called Hightower Lowdown. I recently discovered it. Jim combines a seasoned political mind and a Molly Ivins sense of humor. A few decades ago, in 1982, before Texas became a Republican stronghold, Jim was elected Texas Commissioner of Agriculture. In 1990 he was defeated by Rick Oops Perry.
He was on Senator Ralph Yarborough’s staff for awhile; edited the Texas Observer for awhile; and has never stopped working to promote political common sense and economic justice.
I write with two purposes: First, spread awareness of his newsletter. Subscription costs are modest and the ideas deserve wider distribution. Second, to make available Jim’s reaction to Barack Obama’s War on ISIS. His statement, as usual, is both thoughtful and delivered with scathingly targeted humor. Here is a link: Lowdown.
I’m not sure but I think Jim was the author of one of my favorite political adages: There’s nothing in the middle of the road but dead armadillos.
December 3, 2014 § Leave a comment
I just watched Lawrence O’Donnell’s program aired last night on MSNBC. He presented a segment about the way an Assistant District Attorney advised the grand jury concerning the law pertinent to Daren Wilson’s killing of Michael Brown. He quotes excerpts from the transcript to show that the grand jury was given a copy of the Missouri statute stating the legal standard according to which Officer Wilson’s conduct should be judged.
The statututory standard in that statute was declared unconstitutional by the U.S. Supreme Court in 1985. It immunized a police officer for killing a person if the person was fleeing from the officer, regardless of the nature of the crime for which the officer was seeking to arrest the person.
Weeks later, the Assistant D.A., as the grand jury was finishing its deliberations, handed the grand jury a copy of the current applicable statute. She did not tell them the reason why the statutory standard which had governed their judgment during the previous several weeks had been declared unconstitutional. She just left them to figure it out.
Here is a link to O’Donnell’s presentation of this evidence of prosecutorial misconduct: Ferguson Farce
I urge you to watch it. There was never a chance for justice for Michael Brown. The grand jury unwittingly applied a law declared unjust and unconstitutional thirty-seven years ago.
November 25, 2014 § 1 Comment
In the aftermath of the farcical grand jury episode in Ferguson, Missouri, I am frustrated at the focus of attention on blood trails and whether the kid was moving toward the cop when the cop emptied his pistol into him.
I think the crucial event occurred in the police car in the few seconds before the cop got out of his car, his pistol drawn, and pursued Michael Brown. The cop told the Grand Jury that, while he was in the police car, he and Brown struggled. He said Brown tried to grab his pistol. He said the pistol discharged twice. We know that one of those shots hit Brown in the hand. Describing those events, the cop said that he felt like a five-year-old struggling with Hulk Hogan.
In other words, the cop said that he realized, while he was still in the police car, that he was physically incapable of subduing Michael Brown. Then, Michael Brown ran away from the police car. The cop was absolutely safe. He was in the police car. He had a radio. He could call for help. He had Mace. He had a truncheon or “billy club”. He was within a few minutes drive of police headquarters. During those few seconds, he had to make a choice: Should he call for help? Should he try to catch Brown and subdue him with Mace? Did he think he might be able to arrest Brown by using his truncheon?
He rejected all those alternatives. Knowing that he was incapable of physically subduing Brown, the cop, his pistol in hand, got out of the police car and pursued Brown. When he made that choice, he formed the intent necessary to convict him of premeditated murder or, if we assume he was acting in response to overwhelming rage due to the pummeling he had endured at the hands of Brown, maybe involuntary homicide. One thing is plain: He was not acting in self-defense. He was guilty of homicide.
The particular circumstances that surrounded the actual shooting are interesting but they are not crucial. That encounter was caused by the cop, not Michael Brown.
I have now heard that the cop claimed he felt bound to pursue Brown because he thought Brown might assault innocent citizens. The circumstances do not support that lame excuse. When the cop first saw Brown and a companion walking down the street, they did not appear to be prowling around looking for people to assault. He just told them to move to the sidewalk. They were jaywalking.
At a trial, the cop could try to convince a jury that, feeling like a five-year-old challenging Hulk Hogan, he was so concerned about protecting others from Brown that he felt it was necessary to kill Brown. He already knew that the only way he could control Brown was to kill him because Brown was beyond his physical ability to handle.
Another thing that makes me believe the cop was guilty of premeditated murder is the fact that he went through the farce of yelling “get down” “get down” before killing him. He had absolutely no reason to believe, based on the encounter in the police car, that Brown was likely to become docile and obedient in response to this cop who had just shot him in the hand. The “get down” yell was just going through the standard preparation for the killing. Like most cops, this one probably believed that failing to obey the directions of a peace officer is sufficient basis for using deadly force. This is not the law, but the false belief that it is, leads to numerous deaths at the hands of lawless cops.
The cop’s Hulk Hogan admission was a confession.
November 22, 2014 § 2 Comments
The House of Debt
I just finished reading a book recommended by my friend, Milton Lower. The book is The House of Debt by Atif Mian, professor of economics and public policy at Princeton, and Amir Sufi, professor of finance at the University of Chicago.
This is a short, well written book about the the housing collapse that precipitated the Great Recession of 2008. The writers identify the causes and recommend some policy changes that would prevent such calamities.
Their approach is similar to Thomas Piketty’s: They base their conclusions on carefully compiled and analyzed data. They patiently consider and discredit causation theories other than theirs and cite data-based reasons for rejecting them.
What Caused the Housing Market to Crater?
The authors present and reject three views about the causes of recessions. The first, and most popular, is the “fundamentals” view: That some disaster, radical political upheaval or other unexpected catastrophe caused it. But no such event occurred in 2007 to trigger the recession. The second is that “animal spirits” cause it. That is, buyers were guilty of “irrational exuberance”. They foolishly believed prices would endlessly rise. When they realized their folly, they panicked and the recession followed. Finally, some have argued that banks were to blame. They stopped loaning money thus thwarting economic expansion and the recession followed.
The authors offer convincing evidence that the latter two ideas don’t fit the facts. They cite ample statistical evidence that residential housing prices in some areas of the country sharply increased between 2000 and 2007. That price inflation followed a dramatic relaxation of requirements for mortgage loans, which fueled the price inflation of houses. That is, far from withholding loans, the banks eagerly offered money to borrowers, including many who, until the requirements were lowered, could not qualify for mortgage loans.
So, it was not “animal spirits” that caused the recession. It was lending money to people who lacked income to pay it back. Then, when defaults occurred, foreclosures followed, foreclosed homes depressed housing prices in surrounding neighborhoods and the downward spiral led to a general collapse of housing prices, diminished consumer demand and, hence, the Great Recession.
How Did The Housing Collapse Cause the Recession?
When residential housing prices fell, some owners continued making mortgage payments on homes that were worth less than the debt balances secured by them. Others walked away and tendered their homes for foreclosure. In either case, the principal assets of a giant class of homeowners, equity in their homes, were devalued and, in many cases, wiped out.
There were two classes of people involved in these transactions: The homeowner borrowers and the investor lenders who deposited their money in banks, who made the loans secured by the mortgages. The impact of the housing downturn was not equally distributed. For most of the homeowners, their only assets, the equity in their homes, were destroyed. For the investor lenders, their losses were only a fraction of their total wealth, which typically included stocks, bonds, investment real estate as well as their homes. Their losses did little or nothing to affect their propensity to spend and to maintain their lifestyles. The homeowners, by contrast, sustained close to total asset losses and they significantly cut back their spending.
The less wealthy homeowners’ propensity to spend was greater than that of the wealthier investors. That is, they spent a greater percentage of their income than the more wealthy investors. So, when the far more numerous homeowners lowered their rate of spending, the impact on the total demand for goods and services in the economy was significantly affected. In other words, the downturn in the housing market sparked a general downturn in demand throughout the economy and the Great Recession resulted.
What Was The Reason for the Relaxation of Credit Requirements?
This is the most interesting part of the book.
In 1990, the financial markets in Thailand, in the words of Mian andSufi, “went berserk”. There was a frenzy of inflation and speculation. The price of real estate escalated wildly. Foreign investors flooded Thailand with Dollars and Thailand banks grabbed them like ravenous wolves. In due course, the bubble burst. The foreign investors began withdrawing their money from the Thai banks.
Because the foreign investments were made in Dollars, they demanded withdrawals in Dollars. The Thai banks did not have enough Dollars to meet th0se demands. To avoid a complete collapse, the central bank in Asia tried to respond by making Dollars available to the desperate Thai banks, but they lacked sufficient stores of Dollars. So, they had to appeal to the IMF [International Monetary Fund] for help.
That help came with draconian requirements for painful austerity that plagued for decades those Asiatic central banks and the economy which they supported
Having learned a bitter lesson about the importance of ample caches of Dollars, the banks in Asia began to flood American banks with purchases of U.S. treasuries. Instead of responding to this influx of money by lowering the interest rate on treasuries, the U.S. central bank chose to use that flood of cash to funnel money into the home mortgage market. To accomplish this goal, it allowed and encouraged banks and other lending agencies to create mortgage backed assets and to market them as derivative securities.
This proved to be so profitable for Wall Street dealers in these securities that they sought more and more mortgages from banks. To satisfy the demand for mortgages, the banks lowered the requirements for obtaining mortgages. This opened up a large market consisting of people whose incomes had theretofore been too low to qualify for home ownership. This increased demand for homes, which resulted in increased home prices. The Wall Street bankers designed a wide assortment of complex combinations of mortgages and constantly pressured the banks to make more and more home loans to meet the demand for mortgages as fodder for the MBA’s.
The riskier mortgages made to low income borrowers were cleverly matched with safer groups of mortgages so that rating agencies could stamp the resulting cluster with AAA ratings. [I have described this widespread finagling in an earlier post entitled “The Bankenstein Fiends”] So, a mix of different risky and, in some ways, fraudulent schemes, combined to blow up the bubble that, when it popped, threatened the entire financial system of the Western industrial world. Crazy financial speculation 7,000 miles east of the United States thus triggered a series of events that ended in the Great Recession.
Wall Street banks made gigantic profits from the creation and marketing of the MBA’s. They not only made money selling them, they made money using market devices that enabled them to profit handsomely when the MBA’s were finally exposed as having been flagrantly misrepresented and mistakenly rated. They made money by selling the MBA’s and, when the value of the MBA’s lost value, they made more money.
There is a well known principle of equity, developed centuries before the birth of our country by judges sitting on the wool sack in English courts of Equity: No one may profit from his own wrong. This simple rule, so fundamental to any system of justice, was not only ignored, it was denounced as unwise and un-American by the ex-Wall Street bankers who advised both President Bush and President Obama when, amid a crisis, judgments had to be made about how to avoid a collapse of the financial system.
When the Wall Street banks were facing collapse the federal government had a choice: It could use taxpayer money to bail out the banks or it could take them over, wipe out the stockholders and enable the banks to continue performing their vital role in the domestic and the international financial system. This latter choice would have allowed the government, acting through the banks, to relieve the homeowners facing financial disaster by allowing them to postpone mortgage payments, reduce the principals of the loans secured by the mortgages, or both.
Presidents Bush and Obama chose to bail out the banks and leave the homeowners to their fate. Billions of dollars were handed over to the banks with no strings attached. The bankers suffered no losses. Instead of making changes in the mortgages to alleviate the homeowners’ financial problems, they used their blank check on the U.S. Treasury to fund record bonuses and watch their stock prices soar.
The net effect of these policy choices was a giant transfer of wealth from those at the low end of the wealth spectrum to those luxuriating at the very top.
Here is a brief summary of the remedy proposed by the authors of this book: They proposed a revision of the standard form of a residential mortgage. The new mortgage would be a Shared Responsibility Mortgage or SRM. It would provide downside protection for the mortgagor and corresponding benefit to the mortgagee.
If the value of the home decreased, the monthly payments would decrease proportionately. The extent of the decrease would be calculated by the average price of homes in the immediate neighborhood surrounding the home. The authors observe that extant agencies are already capable of monitoring those values in zip code areas. Regardless of the size of the monthly payments, the amortization table based on the original price of the home when the loan was made would remain the same. So, the effect would be the reduction of the amount being repaid.
The mortgagees would be protected by an entitlement to five percent of the sales price when the home is sold. The timing of the sale would be left to the homeowner but, if the lender had a diversified group of home mortgages in its portfolio, the five percent entitlement would result in a steady stream of return on its overall investment. The homeowner would sustain the five percent loss, but that would represent the value of the built-in insurance against loss of equity in case of a price drop.
The underlying thesis of the book is that housing bubbles cause general economic recessions because they result in losses of consumer demand that affects the entire economy.
For example, they point out that the tech bubble that popped in 2,000 caused many to lose money, but it did not cause a recession because the losers’ propensity to consume was not significantly affected. But the housing bubble of 2008 threatened a general collapse of the financial system.
The authors make a point that is obvious, but one I had never fully appreciated: The problem with debt, whether it’s mortgage debt or student college debt, is that, as presently designed, it is inflexible. When the economy experiences turbulence, the borrowers have no way to survive because their debts are like anchors that sink them.
The authors contend that recessions can be avoided if our most common debts are redesigned so that borrowers can continue to consume without sustaining crippling losses of their assets. When consumer demand is maintained, businesses will not be forced to lay off employees. In other words, redesigned debt documents will serve as an efficient method of distributing economic stimulus. Instead of waiting until the economy is in recession and millions of workers have lost their jobs, the authors propose measures to avoid the job losses by maintaining consumer demand.
The authors also propose rewriting the documentation for student debt to make its repayment dependent on the job market at the time of graduation and thereafter. They offer persuasive arguments that all pervasive debt should be designed to adjust in response to prevailing economic conditions. They call it “equity financing”.
I have not done justice to this book. I can only offer a taste and a suggestion that you read it. It is packed with interesting statistics and historical examples. It also is an example of some very sharp and disciplined analysis presented in an easily readable form. These guys are probably wonderful teachers. They are masters at making dense economic data interesting and understandable. If I were Thomas Piketty, I would incorporate their proposals into my remedy for wealth inequality.
November 22, 2014 § 1 Comment
In response to the murderous attack on Jews worshiping at a Jerusalem synagogue, Netanyahu ordered the demolition of the family homes of the two murderers. He also ordered the demolition of the family homes of two others who recently committed violent attacks in Jerusalem.
All of the attackers are dead. The razing of their homes does not punish them. It punishes their families. The United States has declared this reaction by Israel “counterproductive”. Germany, France, Italy, Spain and Great Britain have denounced it.
This kind of collective punishment is a continuation of the policy that produced the war on Gaza that destroyed thousands of homes and killed over two thousand Palestinian civilians in response to mostly ineffective missiles launched from Gaza into Israel.
Here is a link to a Haaretz article that describes the issue: Demolitions
I believe this persistent policy raises an ethical policy well known to lawyers:
A client is entitled to be zealously defended by his lawyer, regardless of how immoral or illegal his conduct has been. But a lawyer may not, in any way, facilitate a client’s engagement in illegal or immoral conduct. If he does, the lawyer becomes complicit in the illegal or immoral activity.
I believe Israel has placed the United States squarely in the middle of this dilemma. We continue to furnish arms, supplies and money to Israel while Israel continues to engage in conduct that offends basic rules of fairness and justice. Collective punishment imposed on innocent people in response to violent acts by individuals violates international law.
This latter principle is sometimes subject to nuanced exceptions. For example, when a drone bombs a house to kill an enemy, innocent people are often killed. Such tragedies are excused as “collateral damage”. In my opinion this excuse is a lame one in some instances but, regardless of that argument, the Israeli policy of home demolition is different. The home demolitions ordered this week are specifically aimed at innocent victims.
We impose “sanctions” on Iran and Russia when they pursue policies that violate our values. I think we should consider whether sanctions should be imposed when Israel does the same thing.
It also seems chutzpah for Netanyahu to accuse Hamas and Mahmoud Abbas of “inciting” the violent episode at the Jerusalem synagogue. The “incitement” is plainly related to the brutal occupation of Palestine by Israel, the expansion of illegal settlements on the West Bank, the network of checkpoints that serve as daily interference with normal travel by Palestinians and conflicts between Jews and Muslims at Jerusalem’s holy sites. The demolition of homes of families who had nothing to do with the crimes committed by two now dead family members will certainly incite more violence.
One final thought: Suppose, after two brothers bombed the Boston Marathon, Barack Obama had ordered the demolition of their families’ homes. Do you have any doubt that a federal court would have granted a Temporary Restraining Order, prevented the demolition and probably ordered an immediate psychiatric examination of Obama to see if he was deranged?
During the recent Israeli war on Gaza, Netanyahu often said, “How would you Americans react if Mexico was lobbing missiles into your country?” It was an effective argument because our history is replete with disproportionate responses to minor events. The explosion on the Maine and subsequent war against Spain; the naval bombardment of Vera Cruz on 1914, in response to the arrest of 6 sailors in Tampico; and the assault on Ft. Sumter triggering the Civil War come to mind. But I’ll bet he doesn’t make a similar argument about the home demolitions, because we have a legal system that wouldn’t permit it and a set of values that wouldn’t condone it. We don’t punish the families of wrongdoers.
November 16, 2014 § Leave a comment
I have updated yesterday’s post concerning the Keystone Pipeline. The post had a link to Lou Dubose’s article in the Washington Spectator but, for some reason, the link did have the usual appearance . So, you probably did not realize it was a link. I have updated the post to include a link to the article and have designated it as a link. Lou’s article is not lengthy but it includes some information I did not include in my post.
Also, the Curmudgeon in Wisconsin, a friend and follower of this blog, commented on my post and included a link to a story in the Minnesota Star Tribune describing the current status of the Public Utilities Commission proceeding concerning Enbridge’s application for a permit to lay its new pipeline across the State. Here is a link to that story:
Also, in the penultimate paragraph of my “Playpen Politics” post, I quoted a panelist on a TV show who said that the Keystone Pipeline would create “about 30,000″ construction jobs. I commented they would be temporary jobs. After further research, I discovered that the 30,000 figure is probably inflated. I found an article in Forbes magazine entitled, “Pipe Dreams: How Many Jobs Will Be Created by the XL Pipeline?”. The article cites various theories proposed by different analysts. They vary widely but, considered as a whole, they conclude that the number of construction jobs may be as few as 13,000. Here is a link to the Forbes article: Forbes.
A Brief Comment
I have some concern about the news that Harry Reid has “rewarded” Senator Elizabeth Warren with a position on a leadership committee charged with crafting policy ideas for Democratic Party members of the Senate.
I hope, of course, that his decision represents a recognition that Senate Democrats need to focus attention away from pleasing their corporate campaign campaign contributors and toward the economic inequality that is beggaring the American working class. If that is the objective, Senator Warren is an obvious choice because she has been like a laser pointing at that injustice.
My fear is that, on the contrary, Reid’s decision is more like a way of managing Senator Warren so that she does not unduly disturb the cozy relationship between Senate Democrats and their financial supporters.
This latter motivation was once memorably expressed by President Lyndon Johnson, in an example of his genteel Texas style. He was talking about his reluctance to fire J. Edgar Hoover, the Director of the FBI. He wanted to fire him but decided not to. He explained his reluctance, ”Well, it’s probably better to have him inside the tent pissing out, than outside pissing in.” [Quoted by Davide Halberstam in a long article entitled “The Vantage Point” reviewing books about LBJ] [NY Times. October 31, 1971]