Shared Prosperity

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.

Read the rest of this entry...

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.

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.

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

Read the rest of this entry...

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."

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.

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.

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.

Blogger Avedon Carol:

[W]hat the oligarchs never want you to think about is that heavily taxing the rich — especially things like estate taxes — also make the economy richer, improve your opportunities, increase the likelihood of innovation, and all that other good stuff that America is supposed to be especially good at. Because without estate taxes, wealthy families can keep accumulating wealth for their unproductive offspring and keep that money out of the economy, making them stronger and you proportionately weaker, until the vast majority of people are little more than serfs and slaves working for a tiny number of Malefactors of Great Wealth. Money is like blood in the economy's body, and if it doesn't circulate — if it all accumulates at the top — the body withers while the head becomes stuffed up and bloated, and neither part functions very well.

Money as blood is an interesting analogy. It makes sense that there's a limited pool of wealth, and the economy would function better if more people had access to it. One could offer the counterargument that new wealth can be created (e.g. through new inventions or through harvesting natural resources). But the people in the best position to create that new wealth are — wouldn't you know it — the ones who already have lots of wealth.

Obama lays the financial meltdown squarely at the feet of conservatism (barackobama.com):

The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren't minding the store. Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression.

I certainly don't fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to. It's a philosophy we've had for the last eight years — one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else. It's a philosophy that says even common-sense regulations are unnecessary and unwise, and one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises.

Well now, instead of prosperity trickling down, the pain has trickled up — from the struggles of hardworking Americans on Main Street to the largest firms of Wall Street.