Democracy for Utah - Economy

Fix the financial crisis and help homeowners, too

Tue, 18 Nov 2008 14:32:13 -0700

There are good ideas out there (NYTimes):

One interesting idea was conceived by two veteran investment managers, Thomas H. Patrick and Mac Taylor. They propose refinancing all $1.1 trillion of the loans in securitization pools that are still performing but that may soon face punishing interest rate resets.[Translation: folks who are paying their current mortgages but will not be able to meet the higher monthly charges when their Adjustable Rate Mortgages reset to higher rates.] Homeowners whose loans are in these pools would receive newly issued loans with fixed interest rates, currently 6.14 percent, and 30-year terms. Under this plan, Fannie Mae and Freddie Mac would issue debt to pay off the outstanding principal on the loans and then guarantee the new ones.

Voilà: Investors who own the underlying interests in the mortgages would be fully repaid and the securitizations would be closed out.

Live at your own risk

Tue, 28 Oct 2008 16:08:11 -0600

An overview of Jacob Hacker's The Great Risk Shift and a couple more books on the same theme (In These Times):

For three decades, the gap between the rich and everyone else has grown in the United States. At the same time, working people have faced greater economic uncertainty, their incomes have fluctuated more dramatically, and both employers and governments have cut back on measures such as pensions and health insurance that helped mitigate the uncertainties of life. Yale political scientist Jacob Hacker calls this the great risk shift — transferring the burden of risks in life from collective institutions to individuals.

Hacker observes that “Social Security, Medicare, private health insurance, traditional guaranteed pensions — all sent the same reassuring message: someone is watching out for you, all of us are watching out for you, when things go bad. Today, the message is starkly different: You are on your own.” [...]

As a result, Americans are increasingly anxious. Everyone except the rich are at risk, and no individual solution, including education, can adequately compensate for the insecurities that loom over Americans’ lives.

AIG execs lose their own money - finally

Wed, 22 Oct 2008 17:45:00 -0600

NPR reports:

New York Attorney General Andrew Cuomo wrote in a letter to AIG's new chairman, Edward Liddy, that after his office's review of company documents, the insurance and finance giant agreed to stop payments under former chief executive Martin Sullivan's $19 million pay package.

AIG also confirmed that no payments will be made from the $600 million compensation and bonus pools of its Financial Products subsidiary, including $69 million the former head of the subsidiary, Joseph Casano, could have been paid and about $93 million that five other top executives might have been eligible to receive.

Hooray! We don't have to share $181 million in taxpayer wealth with the folks who drove AIG over the cliff.

Excerpt from Barbara Ehrenreich's new book

Mon, 20 Oct 2008 13:02:52 -0600

An excerpt from Barbara Ehrenreich's new book This Land Is Their Land: Reports from a Divided Nation (Macmillan):

There was a connection, as most people suspected, between the massive buildup of wealth among the few and the anxiety and desperation of the many. The money that fueled the explosion of gluttony at the top had to come from somewhere or, more specifically, from someone. Since no domestic oil deposits had been discovered, no new seams of uranium or gold, and since the war in Iraq enriched only the military contractors and suppliers, it had to have come from other Americans. In fact, the greatest capitalist innovations of this past decade have been in the realm of squeezing money out of those who have little to spare: taking away workers' pensions and benefits to swell profits, offering easy credit on dubious terms, raising insurance premiums and refusing to insure those who might ever make a claim, downsizing workforces to boost share prices, even falsifying time records to avoid paying overtime.

Prosperity, in America, had not always been a zero-sum game. Early twentieth-century capitalists — who were certainly no saints — envisioned a prosperous people generating profits for the upper class by

It's a good thing to 'spread the wealth around'

Fri, 17 Oct 2008 12:20:04 -0600

Barbara O'Brien at Mahablog:

During the debate every time McCain repeated the remark, with a "gotcha" smirk on his face, I think most viewers must have wondered what planet he was from. I realize just about any use of the word "wealth" by a liberal sets off alarm bells on the ideological Right. But most working people are getting tired of a system that keeps them shut out of "the wealth," even though their labor is creating it.

Most of us are fine with capitalism as long as it is kept fair. And, frankly, a capitalist system in which wealth is "spread around" — where workers are paid well and can buy stuff, so that wealth is kept in broad circulation instead of being hoarded by a minority — is a healthy capitalist system that benefits everyone, including the very wealthy. [...]

I don't know if John McCain understands the unfairness that increasing numbers of Americans are feeling. [...] As far as I can tell he has no personal experience of how working people in America actually live. Possibly he has no clue how he is coming across when he makes fun of "spread the wealth around."

Are Americans living beyond their means?

Wed, 15 Oct 2008 12:34:58 -0600

Former Secretary of Labor Robert Reich (TAPPED):

The "living beyond our means" argument, with its thinly veiled suggestion of moral turpitude, is technically correct. Over the last fifteen years, average household debt has soared to record levels, and the typical American family has taken on more of debt than it can safely manage. That became crystal clear when the housing bubble burst and home prices fell, eliminating easy home equity loans and refinancings.

But this story leaves out one very important fact. Since the year 2000, median family income has been dropping, adjusted for inflation. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.

It's not as if the typical family suddenly went on a spending binge — buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.

Obama proposes financial help

Tue, 14 Oct 2008 11:06:47 -0600

NYTimes:

[...] Mr. Obama, the Democratic presidential nominee, proposed giving employers a $3,000 tax credit for each new hire to encourage job creation. He said he would seek to allow Americans of all ages to borrow from retirement savings without a tax penalty; to eliminate income taxes on unemployment benefits; and to double, to $50 billion, the government’s loan guarantees for automakers.

Mr. Obama also called on the Treasury and the Federal Reserve to create a mechanism to lend money to cities and states with fiscal problems, and to expand the government guarantees for financial institutions to encourage a return to more normal lending. He also proposed a 90-day moratorium on most home foreclosures; it would require financial institutions that take government help to agree not to act against homeowners who are trying to make payments, even if not the full amounts.

"We need to give people the breathing room they need to get back on their feet," Mr. Obama told a crowd of more than 3,000 people at the SeaGate Convention Centre in downtown Toledo.

Congratulations, Paul - Krugman wins Nobel Prize in Economics

Mon, 13 Oct 2008 09:34:14 -0600

From Bloomberg.com:

While Krugman found broader fame with his newspaper columns attacking Bush, he gained his reputation in economics by arguing countries could gain a competitive advantage through subsidies to key industries. His research helped explain how the development of large-scale production for the world market has attracted more people to cities and led to higher wages.

'Nudging' people to make better choices

Fri, 10 Oct 2008 13:48:01 -0600

Behavioral economists Richard Thaler and Cass Sunstein (Nudge: Improving Decisions About Health, Wealth, and Happiness) have some ideas on helping people to make better choices in their lives (Amazon.com):

Amazon.com: What do you mean by "nudge" and why do people sometimes need to be nudged?

Thaler and Sunstein: By a nudge we mean anything that influences our choices. A school cafeteria might try to nudge kids toward good diets by putting the healthiest foods at front. We think that it's time for institutions, including government, to become much more user-friendly by enlisting the science of choice to make life easier for people and by gentling nudging them in directions that will make their lives better. [...]

Amazon.com: Can you describe a nudge that is now being used successfully?

Thaler and Sunstein: One example is the Save More Tomorrow program. Firms offer employees who are not saving very much the option of joining a program in which their saving rates are automatically increased whenever the employee gets a raise. This plan has more than tripled saving rates in some firms, and is now offered by thousands of employers.

Don't panic

Fri, 10 Oct 2008 13:01:17 -0600

If you're in need of some cheering up (and who isn't right now), former chairman of the Federal Reserve Paul Volcker says we have the tools to get through this economic crisis (WSJ):

[T]here is now clear recognition that the problem is international, and international coordination and cooperation is both necessary and underway. The days of finger pointing and schadenfreude are over. The concerted reduction in central bank interest rates is one concrete manifestation of that fact. [...]

None of that is easy. Some of it poses risks for the taxpayer. All of it is decidedly unattractive in the sense of large official intervention in what should be private markets able to stand on their own feet. Unattractive or not in normal circumstances, the point is the needed tools to restore and maintain functioning markets are there. Now is the time to use them. To that end, the immediate and critical need is determined, forceful and persistent leadership — extending across administrations and Congresses. Both the public and private sectors must be involved.

The inevitable recession can be moderated. The groundwork can be laid for reconstructing the financial system and the regulatory and supervisory arrangements from the bottom up.

Let's hope so.

Illinois sheriff refuses to evict tenants

Thu, 09 Oct 2008 15:52:57 -0600

CNN:

Mortgage companies are supposed to identify a building's occupants before asking for an eviction, but sheriff's deputies routinely find that the mortgage companies have not done so, [Sheriff Thomas J.] Dart said.

"This is an example where the banking industry has not done any of the work they should do. It's a piece of paper to them," Dart said.

"These mortgage companies ... don't care who's in the building," Dart said Wednesday. "They simply want their money and don't care who gets hurt along the way.

"On top of it all, they want taxpayers to fund their investigative work for them. We're not going to do their jobs for them anymore. We're just not going to evict innocent tenants. It stops today."

A liberation movement for the wealthy

Wed, 08 Oct 2008 14:42:39 -0600

Author Naomi Klein (The Shock Doctrine: The Rise of Disaster Capitalism), speaking at the Chicago School of Economics (via Democracy Now):

When [anti-regulation economist] Milton Friedman turned ninety, the Bush White House held a birthday party for him to honor him, to honor his legacy, in 2002, and everyone made speeches, including George Bush, but there was a really good speech that was given by Donald Rumsfeld. I have it on my website. My favorite quote in that speech from Rumsfeld is this: he said, "Milton is the embodiment of the truth that ideas have consequences."

So, what I want to argue here is that, among other things, the economic chaos that we're seeing right now on Wall Street and on Main Street and in Washington stems from many factors, of course, but among them are the ideas of Milton Friedman and many of his colleagues and students from this school. Ideas have consequences.

More than that, what we are seeing with the crash on Wall Street, I believe, should be for Friedmanism what the fall of the Berlin Wall was for authoritarian communism: an indictment of ideology. It cannot simply be written off as corruption or greed, because what we have been living, since Reagan, is a policy of liberating the forces of greed to discard the idea of the government as regulator, of protecting citizens and consumers from the detrimental impact of greed, ideas that, of course, gained great currency after the market crash of 1929, but that really what we have been living is a liberation movement, indeed the most successful liberation movement of our time, which is the movement by capital to liberate itself from all constraints on its accumulation.

WSJ: This is leadership?

Thu, 25 Sep 2008 11:31:57 -0600

The Wall Street Journal opinion page on McCain's campaign suspension:

Last we checked, the President of the United States was still George W. Bush, the Secretary of the Treasury was still Henry Paulson, the Chairman of the Federal Reserve was still Ben Bernanke, and Congress still had 533 members not running for President who are at least nominally competent to debate and pass legislation.

So count us as mystified by Senator John McCain's decision yesterday to suspend his campaign and call for a postponement in Friday's first Presidential debate so that he and Barack Obama can work out a consensus bill to stabilize the financial system. This is supposed to be evidence of leadership?

Bailout Details Will Matter

Mon, 22 Sep 2008 21:51:36 -0600

Gretchen Morgenson at NYTimes explains why the details of the bailout plan must be transparent and debated:

....lawmakers are at work on a bailout fund that would buy the kind of distressed assets (defaulted mortgages [and credit default swaps], for example) that have ignited this firestorm. Treasury Secretary Henry M. Paulson Jr. has called the fund the "troubled asset relief program." I'll just call it TARP, for short. And depending on how TARP is operated and how the assets are valued before taxpayers are forced to buy them, it could bloat our final bill for this mess, while benefiting the very institutions that got us into it.Consider: A bank wants to sell the TARPistas (aka TAXPAYERS) a pile of stinky mortgage securities that it currently values at 60 cents on the dollar. Let's assume that the most recent actual trade [on the market] for similar securities was struck at 30 cents on the dollar. So what's a fair price that we TARPistas should pay for the assets? If we bought at 60 cents, a price that the bank would argue is appropriate, we would most likely face a loss. The bank, however, would be much better off than if it had to dump at 30 cents.

Understanding the Wall Street crash

Mon, 22 Sep 2008 11:25:38 -0600

Devilstower at Daily Kos explains the shiny new financial instrument called a credit default swap, which is at the root of our current problems:

A kind of insurance one bank could exchange with another, credit default swaps supposedly made it safe for banks to take on ever riskier forms of debt. The [Commodity Futures Modernization] Act didn't invent these swaps, though they were relatively new. Instead, by placing them in a state where they were not only unregulated but almost perfectly opaque, credit default swaps were turned into the perfect vehicle to fuel a Wall Street revolution. No one had any idea what these things were actually worth, they were traded "over the counter" without being administered by any exchange, and even the SEC could monitor their existence only indirectly. [...]

A secondary market for trading swaps exploded into existence, and swaps were traded with absolutely no consideration for the nature or quality of the underlying investment. Swaps changed hands a dozen or more times, growing in "value" as they went. Worse still, no one regulated who could buy a swap, so it was (and is) perfectly possible for a company to acquire swaps that theoretically cover billions of dollars in loans, even if that company doesn't have a red cent on hand to cover those swaps should the loans default.

Which is, of course, what happened, and the companies that were left holding the swaps didn't have enough money to pay out.

Do read the whole article, since it puts the current fiasco in context with the S&L and Enron scandals (hint: it's all the same guys).

Also see digby:

McCain thinks that firing [SEC chairman Chris] Cox will solve the problem. But Cox is just a natural symptom of the illness of modern conservatism's Randian philosophy, which, at its core, really does hold that the Big Money Boyz should be allowed unfettered freedom to make money without restrictions or rules. And when they gamble on the wrong thing, they believe that it is the right thing for the rubes to bail them out. Their basic philosophy holds that the taxpayers are parasites who benefit when the John Galts of the world make money, so [the taxpayers] should shoulder the burden when they fail. Indeed, they believe the serfs should be grateful for what they got out of it (which, by the way, wasn't much lately since the BMB decided some time back that they didn't have anything to lose by taking more and more of the pie for themselves).

Update: Tom Toles at the WaPo illustrates Bush's bailout plan (click for full size):