Seven Reasons Why We All Need to Pick up a Pitchfork
Since the financial near-collapse of 2008, we’ve inaugurated a new president, bailed out big banks, and seen Congress fumble an attempt to reform healthcare. Most recently, we’ve seen our Supreme Court rule that corporations have a right to free speech. None of this sounds outrageously shocking. What’s the big deal?
The big deal is a shift in business as usual. Here are seven reasons YOU should be raising Cain with your Congressperson, no matter your party:
1) THE SHEER MAGNITUDE OF THE BAILOUT. It’s fairly well-understood that the financial crisis was very bad. So bad that the government had to enact unprecedented emergency funding of private enterprise followed by a substantial stimulus effort to keep the economy from plummeting into a 1930s-like depression. The cost to the taxpayers? ELEVEN TRILLION DOLLARS. Debt that will take decades to repay.
2) THE DISTORTION OF FREE-MARKET THEORY. What began as a return in the Reagan era to what some people (mostly conservatives) consider to be a bedrock philosophy here in the US: a belief in the righteousness of free-markets, has turned instead into the dark-side of Objectivist Randianism. Investment banks broke zero laws while dragging the entire world’s credit markets into the gravel by profit-raiding under the guise of re-selling debt. Our entire financial system nearly collapsed, and now our economy struggles in a deep recession, while the big bankers and clever investment guys lobby Congress against regulation, because we all know, regulation is un-American and anti-free-market. Regulation is bad, but relying on bailouts from government is okay?!? These guys mean business. From the NY Times:
The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.
To oversee the consortium’s push, lobbying records show, the banks hired a longtime Washington power broker who previously helped fend off derivatives regulation: Edward J. Rosen, a partner at the law firm Cleary Gottlieb Steen & Hamilton. A confidential memo Mr. Rosen drafted and shared with the Treasury Department and leaders on Capitol Hill has, politicians and market participants say, played a pivotal role in shaping the debate over derivatives regulation.”
Derivatives, of course, being the most profitable “instrument” in a financial institutions arsenal. And a large cause of the crisis.
3) LOBBYING IS PREVENTING EFFORTS TO REGULATE THE BIGGEST BANKS. The Senate banking committee is hearing testimony about whether or not to adopt policy called “the Volcker Rules” after ex-Federal Reserve Chairman Paul Volcker, who believes in a return to a separation of investment firms (higher risk) and traditional commercial banking (lower risk, or should be!). President Obama recently came out in support of the Volcker Rule. From Business Week:
The White House defines proprietary trades as those not done for the benefit of customers, a senior administration official said when the Volcker plan was announced. Regulators would have the power to ask banks whether certain trades are related to client business, the official said. If they’re not, the regulators could order firms to exit the positions.”
In other words, if the banks are risking YOUR money for their own private benefit, it’s not allowed. Due to heavy lobbying by the financial industry, the Volcker Rules will likely not pass in the Senate.
4) THOSE BIG, FAT BONUSES. Not only are bankers once again pulling down nauseatingly huge bonuses, they are currently testifying to Congress that regulation will hamper financial innovation. Hello? Didn’t financial “innovation” cause this entire problem? Gerald Corrigan, the Managing Director of Goldman Sachs, testified that he has always believed that banks are “special” and that he could agree to the pre-crisis rule where banks do not enjoy the discount window “so long as Section 13 lending remains a possibility in extreme circumstances.” In other words, as long as they could have a bail-out loans from the Fed if they needed one, lending previously reserved for traditional banks only, not bank holding companies like Goldman Sachs.
One commenter put it this way:
They [Goldman Sachs] were hours, if not minutes, from going the way of the dodo, and yet, 16 months later they are rolling in ill-gotten gains, denying ever having been in trouble, consolidating power, and flipping the bird to anyone who bothers to raise the subject. Chutzpah? Cojones? Sociopathic behavior? It probably doesn’t matter at this point. The predator class seems to hold all the cards, those being: recalcitrance, obfuscation, entitlement… When you have money, power, and are unwilling to “play well with others”, it is quite easy to dig in your heels, threaten to shut off the money supply to incumbent politicians, and sit back and watch your dreams (our nightmares) come true.”
5) WE ALL LOST IN THE RECESSION WHILE THE BANKS SCORED BIG. According to Simon Johnson, former chief economist of the IMF:
As a result of the crisis and various government rescue efforts, the largest 6 banks in our economy now have total assets in excess of 63 percent of GDP. This is a significant increase from even 2006, when the same banks’ assets were around 55 percent of GDP, and a complete transformation compared with the situation in the US just 15 years ago– when the 6 largest banks had combined assets of only around 17 percent of GDP.”
Assets in excess of 63 percent of GDP?!?!?! Meet your new overlords.
6) THE FINANCIAL INDUSTRY OWNS CONGRESS. Congress has little incentive to fight against this oligarchy of investment bankers. Because, many congressional representatives are in effect paid to protect business and profit.
From a paper cited in the blog of Mark Thoma, Dept of Economics of the University of Oregon: “By going through individual lobbying reports, we identify all lobbying activities by financial institutions related to the regulation of mortgage lending and securitisation. During the period of the boom from 2000 to 2006, we find 16 pieces of federal legislation aimed at enhancing the regulation of predatory lending practices, none of which ever became law. The amounts spent on lobbying in relation to these laws were substantial and were spent mostly by large financial institutions.” Emphasis added. Because this means that the crisis happened because lobbyists from financial firms influenced legislation AGAINST regulation. The authors further found that institutions that lobbied harder took more risks and fared worse in the crisis than banks that did not invest in lobbying. The authors concluded:
Recent reports show that financial institutions intensified their lobbying efforts in 2009 to fight against an overhaul of derivatives regulation and legislation. Johnson argues that substantial reform will fail unless the political power of the finance industry is weakened.”
7) THE SUPREME COURT JUST SIDED WITH BIG BUSINESS OVER VOTERS. Enter the Supreme Court with the Citizens United v. Federal Elections Commission (FEC). According to a press release from Feb 5, 2010: “The Federal Election Commission today announced that, due to the Supreme Court’s decision in Citizens United v. FEC, it will no longer enforce statutory and regulatory provisions prohibiting corporations and labor unions from making either independent expenditures or electioneering communications.” So there goes that nice idea that maybe we need to limit money’s influence on the political process. Thanks Supreme Court.
So we have two choices as average citizens. Either we make some noise, make some calls to Congress and work to pass some regulation and reforms (like the Fair Elections Now Act), or we sink into apathy and watch the “free market”continue to reward the grotesquely wealthy. I may be a progressive, but this storm of recent events should give even a staunch libertarian the shivers. Our government bailed out massive banks with taxpayer money leaving us with staggering debt. Now those same banks are arguing against regulation so they can do it all again. And the Supreme Court just exacerbated the problem by encouraging the influence of big business in our democratic process. Angry yet?
Obama Dissed, Volcker Speaks Out Against Bankers Gone Wild
If anything about the financial crisis made you beet-red angry, then you must read Simon Johnson. Johnson is a former chief economist for the International Monetary Fund who wrote one of the best pieces on the financial crisis in print, the Quiet Coup. This week he urges people to pass on the message of Paul Volcker, former head of the Fed Reserve (before Greenspan), and now the head of Obama’s Economic Recovery Advisory Board.
Obama met this week with the heads of the major banks in an attempt to discuss regulation and the return of stability to the financial system. Guess who decided to attend the meeting with the President of the Free World only by phone? If you guessed Lloyd C. Blankfein, the chief executive of Goldman Sachs; John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup you got it right. (Thanks guys, cause that shows how much you appreciated the use of all our taxpayer dollars!!)
The meeting continued with discussions about executive compensation, regulation, and making more loans available to small business. From the NY Times:
…the banks are seeking to restore executive pay to high levels and asserting that the government’s demand that they hold bigger financial buffers against possible losses makes it hard for them to issue more loans. During the hourlong meeting in the Roosevelt Room of the White House, Mr. Obama prodded the executives to stop fighting the regulation legislation intended to deal with the problems that led to the financial crisis”
Paul Volcker was one of the few outspoken critics of the unprecedented response by the Federal Reserve in the financial crisis. Far oversimplified, he did not agree that it was a good idea to bail out failing banks at all.
After President Obama’s meeting with the top banking executives, Volcker had this to say (emphasis added):
Every day I hear financial leaders saying that they are necessary and desirable, they are wonderful and they are God’s work. Has there been one financial leader to stand out and say that maybe this is excessive and that maybe we should get together privately to think about some restraint?
I hear about these wonderful innovations in the financial markets, and they sure as hell need a lot of innovation. I can tell you of two—credit-default swaps and collateralized debt obligations—which took us right to the brink of disaster. Were they wonderful innovations that we want to create more of? [...] Wake up, gentlemen. I can only say that your response is inadequate. I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information.
Paul Volcker and Simon Johnson for the win.
Federal Spending: Simon Johnson, Plus Graphs on Stimulus, TARP, Bailouts
Boy, you think you’ve finally got a handle on how much money the federal government is tossing around — and then you take a look at these interactive graphs (Feds to the Rescue and Fiscal Stimulus Map)published in the Atlantic this month in an article entitled, The Fed’s Cash Machine. The graphs are awesome because they do exactly what visual aids are supposed to do: They give you an insight into the scale of the spending meant to pull the economy up from its massive nosedive. Warning: these graphics are upsetting in nature since they may represent the complete leveraging of our children’s and grandchildren’s futures in order to provide the current bankers, CEOs and shareholders with a cushion against their painful mistakes in corporate policy and investment strategies.
For an incisive view of the current US economic situation, I cannot recommend enough Simon Johnson’s Atlantic article entitled, The Quiet Coup. Johnson, a former chief economist for the IMF, lays it bare. In no uncertain terms, Johnson explains:
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.
More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
And:
The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances.
Will Obama become just another protector of the banking industry elites? Will the far Right wake up to the fact that Obama is not the enemy, and maybe Greenspan, Paulsen, and the Federal Reserve are? Tune in for more in the months to come.
Ron Paul Sponsors Bill Requiring Transparency on Bailout
It takes a pissed-off Libertarian to really question the system. Irony abounds because of that “free-market with no regulation thing” the Libertarians back, but never-the-less, you should know Ron Paul is sponsoring a simple, clear bill called the Federal Reserve Transparency Act of 2009 that requires full-disclosure of where federal bailout funds are going and have gone.
Here’s a blog with a draft letter for you to use to contact your Congressional Representative to ask them to support the bill.
AIG is a Sucking, Bottomless Pit
Both Democratic and Repulican senators are (finally!!) getting angry over the massive bailout money forked over to AIG. AIG was supposed to be an insurance company for investors. But what did they do with their assets? The leveraged them outrageously in a frenzy of horrendous greed and mismanagement.
And now? Vice Chairman of the Federal Reserve Board, Donald Kohn, wants to give them more money — get this — “to protect investors.” Uh, the time to protect investors was a long time ago when AIG was ripping everyone off and taking huge heaps of profits from what should have been a very conservatively run business. Where was the regulation? Where was the oversight?
It’s starting to look more and more like dirty deals and the ultra-wealthy protecting the ultra-wealthy.
I’ve got a proposition for you. How about the federal government gives the money DIRECTLY to the investors and cuts out the middlemen at AIG pulling down the fat salaries!?!?!?
Whew. Okay. Calm… I swear, sometimes you just don’t even want to know this stuff.
Where’s Our Green New Deal? Treasury Reinforces Old Economy
I haven’t read Thomas Friedman’s new book Hot, Flat, and Crowded, but I’m going to. Friedman argues that we are at a unique moment in history where we need to forcefully impose green thinking. He takes the long view that we absolutely MUST shift out of our oil/coal dependent energy economy and throw money at all opportunities for green energy innovation. Here’s a quote from a HuffPost interview:
Just don’t tell me — this is the Cheney line — let’s let the market work. Just let the market work. As if the market is neutral. We give nothing to renewables. We give very little to renewables. And we have legacy subsidies and tax incentives for dirty fossil fuels. The whole thing is totally skewed. This market has been gamed from the beginning. If we’re going to game the market let’s at least game it so that clean fuels are on an equal footing with the dirty fuels.
We should be throwing money at this problem. This could give birth to a whole industry. This is not a thing you nickel and dime.
In the meantime, Neel Kashkari is pissing off finance execs by refusing to discuss recent Treasury decisions. Treasury increased funding to AIG from $123 BILLION to $130 BILLION with no explanation, among other mysteries. Bloomburg News is suing Treasury under the Freedom of Information Act for details about who/what institutions are receiving the massive amounts of dollars the government is throwing at them. WHATUP WITH THE SECRECY?? IT’S TAXPAYER MONEY!! Here’s a quote from the Bloomburg article:
The Fed has lent $1.5 trillion to banks, including Citigroup Inc. and Goldman Sachs Group Inc., through programs such as its discount window, the Primary Dealer Credit Facility and the Term Securities Lending Facility. Collateral is an asset pledged to a lender in the event that a loan payment isn’t made.
The Fed made the loans under 11 programs in response to the biggest financial crisis since the Great Depression. The total doesn’t include an additional $700 billion approved by Congress in a bailout package.
So, is our country bleeding or what? It’s all headlines right now, we’re not experiencing food shortages or energy blackouts yet. But dang! Is there impending doom? What would REALLY happen if these financial institutions collapsed, or to put it another way, if the Invisible Hand did its worst? Mass unemployment at least. Are we are only staving off the inevitable?
Like Friedman, I can’t help feeling like our country’s lack of imagination at the highest levels is our biggest burden. Hurry Obama!!! We need you. And don’t forget to make Al Gore, or somebody with VISION, Chief of Energy Independence when you pull together your cabinet!
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