Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Sen. Durbin: Bankers 'Own' CongressFrom Glenn Greenwald's blog at Salon.com; hat-tip to LF:Thursday April 30, 2009 05:35 EDT Top Senate Democrat: bankers "own" the U.S. Congress Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is. The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials. Here is just one random item this week announcing a couple of standard personnel moves: Former Barney Frank staffer now top Goldman Sachs lobbyist So: Paese went from Chairman Frank's office to be the top lobbyist at Goldman, and shortly before that, Goldman dispatched Paese's predecessor, close Tom Daschle associate Mark Patterson, to be Chief of Staff to Treasury Secretary Tim Geithner, himself a protege of former Goldman CEO Robert Rubin and a virtually wholly owned subsidiary of the banking industry. That's all part of what Desmond Lachman -- American Enterprise Institute fellow, former chief emerging market strategist at Salomon Smith Barney and top IMF official (no socialist he) -- recently described as "Goldman Sachs's seeming lock on high-level U.S. Treasury jobs." Meanwhile, the above-linked Huffington Post article which reported on Durbin's comments also notes Sen. Evan Bayh's previously-reported central role on behalf of the bankers in blocking legislation, hated by the banking industry, to allow bankruptcy judges to alter the terms of mortgages so that families can stay in their homes. Bayh is up for re-election in 2010, and here -- according to the indispensable Open Secrets site -- is Bayh's top donor: Goldman is also the top donor to Bayh over the course of his Congressional career, during which Bayh has received more than $4 million from the finance, insurance and real estate sectors. In a totally unrelated coincidence -- after the Government, as Matt Taibbi put it, enacted "a bailout program that has now figured three ways to funnel money to Goldman, Sachs"-- this is what happened earlier this month: Goldman reports $1.8 billion profit Nobody even tries to hide this any longer. The only way they could make it more blatant is if they hung a huge Goldman Sachs logo on the Capitol dome and then branded it onto the foreheads of leading members of Congress and executive branch officials. Of course, ownership of the government is not confined to Goldman or even to bankers generally; legislation in virtually every area is written by the lobbyists dispatched by the corporations that demand it, and its passage then ensured by "representatives" whose pockets are stuffed with money from those same corporations. Just as one example, as Jane Hamsher reported about Bayh: Bayh's little "lobbyist problem" is considered by many to be what tanked his Vice Presidential aspirations. His wife Susan earns about $837,000 a year serving on seven corporate boards, among them Wellpoint, a health insurance company for which Bayh helped secure a $24.7 million dollar grant. She's on the board of ETrade, even as Bayh is on the Senate Finance Committee. Meanwhile, the only citizen protests relating to this mass robbery are driven by anger at the government for treating bankers too harshly and unfairly -- one of the most classic manifestations of what Taibbi, in a separate piece, so aptly calls the "peasant mentality": After all, the reason the winger crowd can't find a way to be coherently angry right now is because this country has no healthy avenues for genuine populist outrage. It never has. The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That's why even people like [Glenn] Beck's audience, who I'd wager are mostly lower-income people, can't imagine themselves protesting against the Wall Street barons who in actuality are the ones who fucked them over. . . . One might think it would be a big news story for the second most-powerful member of the U.S. Senate to baldly state that the Congress is "owned" by the bankers who spawned the financial crisis and continue to dictate the government's actions. But it won't be. The leading members of the media work for the very corporations that benefit most from this process. Establishment journalists are integral and well-rewarded members of the same system and thus cannot and will not see it as inherently corrupt (instead, as Newsweek's Evan Thomas said, their role, as "members of the ruling class," is to "prop up the existing order," "protect traditional institutions" and "safeguard the status quo"). That Congress is fully owned and controlled by a tiny sliver of narrow, oligarchical, deeply corrupted interests is simultaneously so obvious yet so demonized (only Unserious Shrill Fringe radicals, such as the IMF's former chief economist, use that sort of language) that even Durbin's explicit admission will be largely ignored. Even that extreme of a confession (Durbin elaborated on it with Ed Schultz last night) hardly causes a ripple. Read the full post (I may have missed some his links, too). Labels: banking system, barney frank, Glenn Greenwald, Richard Durbin, U.S. Congress, U.S. Senate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chrysler to File for BankruptcyThe big banks went for the deal, but the hedge funds wouldn't budge. Now it's headed for bankruptcy court.From the BBC: US carmaker Chrysler will file for Chapter 11 bankruptcy protection immediately and has formed an alliance with Fiat, President Obama has said. Labels: auto industry, bankruptcy, Chrysler Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). NAFTA Flu?From an interview with Robert Wallace, a geographer who has studied avian flu, on Democracy Now!. Hat-tip to LF.The "NAFTA Flu": Critics Say Swine Flu Has Roots in Forcing Poor Countries to Accept Western Agribusiness So, starting in the 1970s, the livestock revolution was brought to East Asia. You have the CP Group, which is now the fourth—world's fourth-largest poultry company, in Thailand. That company subsequently brought the livestock revolution into China once China opened up its doors in 1980. So we have cities of poultry and pork developing around the world. And this phenomenon goes hand in hand with the very structural adjustment programs that the IMF and the World Bank helped institute during this time. So if you're a poor country, you're having financial difficulties, in order to get some money to bail you out, you had to go to the International Monetary Fund for a loan. And in return, the IMF would make demands on you to change your economy in such a way that would allow you—will force you to open up your economy to outside corporations, including agricultural companies. And, of course, that would have a detrimental effect on domestic agriculture. So, small companies within poor countries could not out-compete large agribusinesses from the North that are subsidized by the industrial governments. So they're not able to compete with them, so there's—they either must contract their labor and land to the companies, foreign companies that are coming into their country, or they basically retire out of the business and sell their land to the large companies that are coming in. So, in other words, the spread of the cities of pork and poultry go hand in hand with this structural adjustment program. And, of course, NAFTA is our local version of that. The North American Free Trade Agreement was signed in 1993, instituted in 1994, and has had a subsequent effect on how poultry and pigs are raised in Mexico. So, from that time, the pattern I just described, the small farmers had to either bulk up, in terms of acquiring the farms around them, acquiring the pigs around them, or had to sell out to agribusinesses that were coming in. So the Smithfield subsidiary that is now being accused of being the possible plant of origin for this H1N1 is a subsidiary of an outside corporation. Read the transcript or watch the video of the full interview. Labels: agribusiness, avian flu, Democracy Now, Mexico, NAFTA, Swine Flu Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yes, Things Are Really BadAnother fabulously depressing economic snapshot from the Economic Policy Institute (EPI): Unusually bad and getting worse Labels: economic meltdown, Economic Policy Institute, EPI, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Is Factory Pig Farming To Blame For Swine Flu?In the face of what may soon become a global pandemic, the pork industry has begun lobbying to have officials stop using the words "Swine Flu" for fear that people will stop eating their product.The industry is probably as concerned about a drop-off in pork sales as it is about a growing concern about industrial pig farms, which some suspect may be at the root of the current outbreak. Industrial pig farms, already a foul staple of the Southern U.S. landscape, have been on the rise in Mexico. From the Guardian: "According to state agents of the Mexican social security institute, the vector of this outbreak are the clouds of flies that come out of the hog barns, and the waste lagoons into which the Mexican-US company spews tons of excrement," reported Mexico City newspaper La Jornada. Caroline Lucas, a Green Party MEP in England wrote in an editorial in the Guardian: This is not the first time intensive, industrialised agriculture has been accused of spreading disease. Recent avian flu outbreaks, for example, have shown the extent to which the export-oriented corporate model of poultry production may have spread strains such as H5N1. In my report Avian flu: time to shut the intensive poultry flu factories? of 2006, I outlined how bird flu has been endemic in wild birds in much of the world without leaping the species barrier and causing people any harm. Labels: factory farming, pig farming, pork industry, Swine Flu Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Citibank and Bank of America Fail Stress TestsSix of the nation's 19 largest banks have failed the Federal Reserve's "Stress Tests," including Citibank and Bank of America, according to Bloomberg.The Fed is pushing the banks to raise capital by converting preferred shares (including those held by the Treasury) into common shares, rather than seeking more federal funds. Labels: Bank of America, bank stress testing, Citibank, Federal Reserve, stress tests Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). American Casino (GritTV)Interview about a new documentary, on GritTV (also new? I hadn't heard of it) with Laura Flanders (whom I remember fondly from Fairness and Accuracy in Reporting's radio program, CounterSpin). Flanders also has an interesting post at the Nation's website. Hat-tip to LF for both of these items.While directing a documentary film on Wall Street and the housing bubble, Leslie Cockburn realized that the very subject of her film had become the greatest story of out time. In American Casino Leslie and Andrew Cockburn followed their characters through Wall Street's collapse, the foreclosure crisis, bankruptcy, and homelessness. According to Cockburn, "We watched whole neighborhoods ravaged by the subprime meltdown. I have spent much of my career filming in war zones and post apocalyptic societies—Somalia, Iraq, Afghanistan. But I never expected such a disaster at home." Leslie and Andrew Cockburn discuss their new film, American Casino and explain how we all lost. Watch the interview here. Labels: Americans for Fairness in Lending, casino capitalism, Counterspin, Laura Flanders, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Contours of Crisis: Fiction and RealityWe have posted the second article in a series by Shimshon Bichler and Jonathan Nitzan. Here are the first few paragraphs:This is the second in our Contours of Crisis paper series. The first article set the stage for the series. It began by outlining the conventional view that this is a finance-led crisis, that this turmoil was triggered and amplified by "financial excesses"; it then described the domino sequence of collapsing markets—a process that started with the meltdown of the U.S. housing and FIRE sectors (finance, insurance and real estate), expanded to the entire financial market, and eventually pulled down the so-called "real economy"; and, finally, it situated the pattern and magnitude of the current decline in historical context. The current market collapse is very significant. Even after their last month's rise, U.S. equity prices, measured in constant dollars, remain 50% below their 1999 peak—a decline comparable to the previous major bear markets of 1905-1920, 1928-1948 and 1968-1981. For many observers, though, the depth of the financial crash also implies that much of it may be over, and that the boom bulls will soon oust the doom bears. Predicting boom out of doom isn't far fetched. Equity markets are highly cyclical, and their gyrations are remarkably stylized. As our first article showed, over the past century the United States has experienced several major bear markets with very similar patterns: they all had more or less the same duration, they all shared a similar magnitude, and they all ended in a major bull run. In other words, there seems to be a certain automaticity here, and automaticity gives pundits the confidence to extrapolate the future from the past. But this automaticity is more apparent than real. Finance, we pointed out, is not an independent mechanism that goes up and down on its own. In this sense, the long-term movements of the equity market are not "technical" swings, but rather reflections and manifestations of deep social transformations that alter the entire structure of power. During the past century, every transition from a major bear market to a bull run was accompanied by a systemic reordering of the political economy: the 1920–1928 upswing marked the transition from robber-baron capitalism to big business and synchronized finance; the 1948–1968 uptrend came with the move from "laissez faire" capitalism to big government and the welfare-warfare state; and the 1981–1999 boom coincided with a return to liberal regulation on the one hand and the explosive growth of capital flows and transnational ownership on the other. Read the rest of the article. Labels: Contours of Crisis, financial crisis, Jonathan Nitzan, Shimshon Bichler Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Workers To Control ChryslerThe Financial Times is reporting that under a restructuring deal for Chrysler, the United Auto Workers (UAW) will own 55% of the auto company's stock, Italy's Fiat will get 35%, and the remainder will be divvied up between the company's secured lenders and the federal government.As part of the deal, the reformulated company will cut its contribution to the employee health care fund by half, and Fiat will contribute its "know how" and technology, but no cash. The worker revolution seems to have come not with a bang but with a whimper. Labels: auto industry, auto industry loans, Chrysler, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Corporate America: The Serial Job KillerSam Pizzigati writes that the biggest job killers in America are corporate CEOs. Will Obama stand up to them, and for workers?
Read the full post here. Labels: closures and layoffs, Employee Free Choice Act, Larry Ellison, Oracle, Sam Pizzigati, Sun Microsystems Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Lose Money Get RaiseThe New York Times has a nice chart showing how CEOs from public companies are making out like bandits with massive pay raises even while their bottom lines plummet.Some tidbits: ArcherDanielsMidland CEO Patricia A. Woertz saw her compensation jump 397% to $15 million from 2007 to 2008 while profits fell 17%. Data giant EMC's CEO Joseph M. Tucci a 148% raise in 2008 to $11.7 million while the company lost money. On a similar note, Paul Krugman laments that compensation for investment bankers is zooming back up to levels from pre-meltdown days. As he notes: there's no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous paychecks. --d.f. Labels: ceo pay, compensation, Corporate Swindles, Daniel Fireside, executive pay, Paul Krugman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Dumps Pontiac and WorkersIn a last ditch to stave off bankruptcy, GM announced that it will ditch the Pontiac brand by the end of next year (Hummers, Saabs, and Saturns will be done by the end of 2009 but other companies may buy the brand names), cut 23,000 of its 61,000 factory jobs by 2011, and slash the number of dealers by 42% to 3,600, and offering creditors stock for debt. The US Treasury would end up with at least a 50% stake in the company, bondholders up to 10%, the UAW 39%, and existing stockholders 1%.Bondholders, who currently own $27 billion in company debt, are the key to the deal going forward. In a letter to bondholders, the company warned:
The company will close 16 of its 47 US manufacturing plants by 2012, including six this year and seven next year. The automaker has already received over $15 billion in taxpayer funding and must present a restructuring plan by June 1 in order to receive additional funding and avoid bankruptcy. --d.f. Labels: auto industry, bankruptcy, Daniel Fireside, General Motors, GM Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Econ board has yet to meet publiclyFrom Politico. Hat-tip to Bob F.By JOSH GERSTEIN | 3/23/09 4:21 AM EDT Updated: 3/23/09 2:04 PM EDT Six weeks after President Barack Obama appointed a blue-ribbon panel to help him dig America out of its economic crisis, the board has yet to hold an official public meeting. The White House initially said that the 16-member Presidential Economic Recovery Advisory Board, headed by former Federal Reserve Chairman Paul Volcker, would meet "every few weeks." Last month, a spokesperson told POLITICO the group would meet monthly. More recently, the White House said the high-powered board, set up to address what Obama has called the worst economic emergency since the Great Depression, would gather only about four times a year, with the next session due in "late spring." But comments from board members and Obama himself indicate that some members of the panel are meeting, in smaller gatherings that have not been announced or opened to the public. And that raises the question of whether an administration that prides itself on openness and transparency is in fact finding it more convenient to conduct public business in private. Now, the administration finds itself in a Catch-22: It does not want to say that the president's economic panel, announced amid much fanfare, is not meeting during the worst economic crisis in generations. But if it is meeting, where's the announcement, the agenda, the minutes? In short, where's the sunshine? "If the president wants to talk to his advisory committee, it seems to me he ought to do that in the open," said Sidney Shapiro, a law professor at Wake Forest University. "There ought to be accountability for private people who address the government. It seems to me it becomes even more important, not less important, when you have a presidential advisory committee." Asked about Obama's right to solicit candid suggestions, Shapiro said, "If he wants private advice, he should pick up the telephone. He can call anybody he wants. If he wants to form a presidential advisory committee, they ought to meet in public." Read the rest of the article. Labels: Barack Obama, Economic Recovery Advisory Board, financial crisis, Paul Volcker Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 29 Failed Banks In 2009 -- So FarThe FDIC took over 4 more banks on Friday, bringing the total for 2009 to 29, compared to 25 for all of 2008. The banks were located in Idaho, Michigan, and Georgia, in addition to the now officially down and out First Bank of Beverly Hills.The massive number of bank failures has brought the FDIC insurance fund to its lowest point in nearly a quarter century. As of the end of 2008, it had $18.9 billion, compared to $52.4 billion a year earlier. The FDIC had 252 banks on its troubled bank watch list at the start of the year, up from 171 in September 2008. --d.f. Labels: bank failures, Daniel Fireside, FDIC Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Pensions Plans in PerilIf the auto industry is allowed to dump their pension plans through bankruptcy, it could put the pensions of millions of other retired workers at risk. The Pension Benefit Guarantee Corporation, the government insurer that backs pension plans, would quickly run out of funds and be overwhelmed with claims. It would be forced to slash promised benefits to retirees. It would also open the door to other companies looking to dump their pension obligations through bankruptcy court.The dire state of the Pension Benefit Guarantee Corporation's decision to gamble its money in the stock market certainly hasn't helped things, as we noted here earlier this month. The holes in the pension fund and related dire circumstances of 401(k) programs have been apparent for some time. James Ridgeway reported on corporate America's plans to ditch their obligations to retired workers back in this article from 1999. We can only hope that the current situation will put an end to any more calls to privatize Social Security, which is becoming the default retirement plan for more and more Americans. From the NYT: Pension experts predict that a government takeover of the two giant plans would spur other auto companies and all types of manufacturers to abandon such benefits for competitive reasons. --d.f. Labels: auto industry, Daniel Fireside, Pension Benefit Guarantee Corporation, pensions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). New! Blog PodcastWe just added podcast capability to our blog, courtesy of Odigo. The voice that reads it is kind of computery, but it's remarkably clear. (Ok, I wrote that sentence just so that I can hear the voice read it later and I can find out how it pronounces "computery".) Someone at lbo-talk tipped us off about Odigo; apparently this is how naked capitalism does its podcast.To listen and/or subscribe to the feed, click here. While I'm posting something that is content-free, I might as well take this opportunity to ask our loyal fans, and anyone else who likes our work, to please consider subscribing to the magazine, at the low introductory rates of $18.95 for a year, or $29.95 for two years. We are now offering e-subscriptions—we'll send you a full-color pdf of each issue. This is a great option for our non-U.S. readers, who may order e-subscriptions at the U.S. rate. Please also consider making an online donation. See links for both subscriptions and donations below. —cs Labels: donations, Odiogo, podcast, subscriptions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 14 million homes are vacantFrom USA Today:Census numbers show: Banks are on a tear to evict people rather than renegotiate loans to market rates. As we wrote earlier, this has hit renters as well as homeowners. The Obama plan barely addresses this problem by providing just $2 billion for buying up and renovating abandoned properties -- hardly enough to make the slightest dent in the growing glut of vacant properties. The bank policy of forcing eviction instead of renegotiating the loans to market rates is insane. The glut of foreclosed properties is driving down the value of homes everywhere. Vacant properties quickly attract vandals and criminals, often leaving disaster zones in their wake. The banks are left with a property worth a fraction of what they could have gotten by renegotiating the loans. This is why some Democrats have been pushing to give bankruptcy judges the authority to "cram down" mortgages. The impact has been devastating for communities. Owners who keep up on their mortgages have seen their home values fall even further, vacant properties are a blight on neighborhoods, and homelessness is rising. The banks seem determined to drive themselves into the ground and take the rest of the country with them. --d.f. Labels: Daniel Fireside, eviction, housing bubble, housing market, mortgage meltdown, Mortgage plan Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Silver Lining? Possible Leverage for DebtorsVery interesting blog post by Doug Henwood of Left Business Observer; what he's pointing out could be the basis for organizing leverage for ordinary folks. We were sorry to miss Doug's talk at Left Forum; he was on a panel on bank nationalization that also included Fred Moseley, author of our March/April cover story. We didn't even get to chat with him at our exhibit table, so we weren't able to have our yearly conversation about whether D&S and LBO are rival publications (they are not—everyone should subscribe to both). —csIn the course of a pretty wonky piece on CDOs, Felix Salmon points out that the modern financial environment weakens the political position of creditors. Back in 1975, when New York City was on the verge of default, its bonds were uninsured, and held mostly by the city's rich and its biggest banks. Both sets of bondholders were relatively few in number and invested in the city's long-term survival. The creditors were able to come together and speak with one voice to force wage cuts and layoffs on the unions and service cuts on city residents. Today, bondholdings are dispersed around the world, so it's hard to imagine a similar workout in 2009. There's an interesting parallel with Argentina's deliberate default early this decade (a default which followed the script laid out in this LBO article: How to default). Because Argentina's debts were held mostly by bondholders all over the place, many with rather small holdings, the creditors were in a very weak bargaining position. The contrast with the debt crisis of the early 1980s was stark. Then, a dozen bankers, backed by the IMF, could face down a finance minister in a conference room and demand the concessions for which neoliberalism became famous. But that was no longer possible in a world dominated by bond finance. And in today's securitized, derivatized world, mortgage holders often don't know who their creditors are. In fact, it could even be easier for debtors in a single neighborhood to organize than their creditors, who could be anywhere from Frankfurt to Abu Dhabi. (This is the full post.) Labels: CDOs, creditors, debtors, Doug Henwood, Felix Salmon Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). California Housing Defaults SkyrocketAfter a brief lull, California's housing market has resumed its downward spiral. According to the Silicon Valley Mercury News, the number of default notices sent by lenders to property owners jumped 80% in the first three months of 2009 versus the last three months of 2008. Default is the first step in the foreclosure process.There were nearly 80,000 foreclosures in the third quarter of 2008 before dropping to 46,183 and 43,620 for the following two quarters, respectively, due to temporary changes in foreclosure policies that have now come to an end. Foreclosed properties now account for 58.1% of all resales in California this year. --d.f. Labels: California, Daniel Fireside, foreclosures, housing bubble, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dean Baker at JP Forum on April 30thCo-sponsored by D&S:Economist Dean Baker to Discuss the Root of the Economic Meltdown WHAT: On Thursday, April 30th, economist Dean Baker will discuss his latest book, Plunder and Blunder: The Rise and Fall of the Bubble Economy, which chronicles the growth and collapse of the stock and housing bubbles. Baker, co-director of the Center of Economic and Policy Research, was one of the economists who saw it coming as early as 2005 when he warned about the housing bubble, lack of regulation and corruption at the root of the economic meltdown. Dean Baker was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. Baker's other books include The United States Since 1980, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, Social Security: The Phony Crisis (co-authored with Mark Weisbrot), and The Benefits of Full Employment (co-authored with Jared Bernstein). Baker appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his Ph.D. in economics from the University of Michigan. WHEN: Thursday, April 30th, 2009, 7:00 p.m. WHERE: The Jamaica Plain Forum, 6 Eliot Street, Jamaica Plain, MA 02130 Presented by The Jamaica Plain Forum and Cosponsored by: Institute for Policy Studies Dollars & Sense United for a Fair Economy Labels: Dean Baker, financial crisis, Jamaica Plain Forum Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Thievery Under TARPFrom Truthdig:By Robert Scheer We are being robbed big-time, but you can't say we haven't been warned. Not after the release Tuesday of a scathing report by the Treasury Department's special inspector general, who charged that the aptly named Troubled Asset Relief Program is rife with mismanagement and potential for fraud. The IG's office already has opened 20 criminal fraud investigations into the $700 billion program, which is now well on its way to a $3 trillion obligation, and the IG predicts many more are coming. Special Inspector General Neil M. Barofsky charged that the TARP program from its inception was designed to trust the Wall Street recipients of the bailout funds to act responsibly on their own, without accountability to the government that gave them the money. He pointed to the example of AIG, which has acted as a conduit of funds to the banks it had insured without being required to tell the government what it is doing: "Failure to impose this requirement with respect to the injection of yet another $30 billion into AIG would not only be a failure of oversight, but could call into question the credibility of the government's efforts." AIG is just one example in a bailout that has left the financial conglomerates unsupervised as they spend taxpayer money in what the report termed a government program of "unprecedented scope, scale and complexity," putting the public and the Treasury Department in the dark as to how the money is being used by the very tycoons who got us into this mess. "The American people have a right to know how their tax dollars are being used," Barofsky wrote in the report, which sharply criticized the government for failing to hold financial institutions accountable. For all of its criticism of the original program, designed by the Bush administration, the report was equally severe in denouncing the Obama administration's plan to partner with hedge funds and other private capital groups to buy up the "toxic" holdings of the banks. Charging that the plan carries "significant fraud risks," the inspector general's report pointed out that almost all of the risk in this new trillion-dollar plan is being borne by the taxpayers. The so-called private investors would be able to put up money they borrowed from the Fed through "nonrecourse" loans, meaning if the toxic assets purchased prove too toxic and the scheme failed, the private investors could just walk away without repaying the Fed for those loans. The reason those loans may prove even more toxic than expected and the price paid by this government-underwritten partnership far too high is that the government is purchasing the most suspect of the banks' mortgage packages. In addition, the plan is to accept at face value the evaluation of those packages by the very same credit-rating firms whose absurdly wrong estimates of the dollar worth of these securities helped create the problem that now haunts the world's economy. "Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis," the report found. As with the entire banking bailout, the new plan of Obama's treasury secretary, Timothy Geithner, is likely to enrich the very folks who impoverished the rest of us, as the report notes: "The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit." At the heart of this potentially massive fraud was the original decision of Henry Paulson, President Bush's treasury secretary and a former Goldman Sachs chairman, to not require the recipients of the bailout, such as his old firm, to account for how the money was spent. Unfortunately, President Obama's administration continued that practice. The only difference is that the amount of public money being put at risk is now far greater, and the hedge funds, which are totally unregulated, have been brought in as the central players. One of the largest of those hedge funds, D.E. Shaw, carried Obama's top economic adviser, Lawrence Summers, on its payroll to the tune of $5.2 million last year. He may have reason to trust these secretive enterprises that operate beyond the law, but the public does not. Labels: Corporate Fraud, Robert Scheer, TARP program, Truthdig Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chrysler Headed For Bankruptcy?The NYTimes is reporting that the government is preparing a Chapter 11 bankruptcy (reorganization) filing for Chrysler. The filing itself could come as soon as next week.Union health care and pension benefits would remain protected and a potential deal with Fiat could still be worked out under the filing. A major sticking point, however, will be how to deal with the company's creditors, who hold nearly $7 billion in debt. The government has offered the creditors 22 cents on the dollar and a 5% equity stake. The lenders had earlier proposed receiving 65 cents on the dollar and a 40% equity stake. If no agreement is reached, the matter will likely head to the courts. From the Times: The U.A.W., Chrysler and Treasury have reached agreements in principle that would protect workers' benefits, people with knowledge of the negotiations said, and a similar agreement is expected to be reached as soon as this weekend with the Canadian Auto Workers union. Labels: auto industry, auto industry loans, bankruptcy, Chrysler, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Wall Street Digs InGood online piece from Newsweek from a while ago (April 10th). The subtitle is confusing, though: clearly Obama is getting the message (from Wall St.)!Wall Street Digs In The old system refuses to change. Is Obama getting the message? Michael Hirsh | Newsweek Web Exclusive Not long ago, a group of skeptical Democratic senators met at the White House with President Obama, his chief economic adviser, Larry Summers, and Treasury Secretary Tim Geithner. The six senators—most of them centrists, joined by one left-leaning independent, Vermont's Bernie Sanders—said that while they supported Obama, they were worried. The financial reform policies the president was pursuing were not going far enough, they told him, and the people Obama was choosing as his regulators were not going to change things fundamentally enough. His appointed officials and nominees were products of the very system that brought us all this economic grief; they would tinker with the system but in the end leave Wall Street, and its practices, mostly intact, the senators suggested politely. In addition to Sanders, the senators at the meeting were Maria Cantwell, Byron Dorgan, Dianne Feinstein, Carl Levin and Jim Webb. That March 23 gathering, the details of which have gone largely unreported until now, was just a minor flare-up in a larger battle for the future—one that may already be lost. With the financial markets seeming to stabilize in recent weeks, major Wall Street players are digging in against fundamental changes. And while it clearly wants to install serious supervision, the Obama administration—along with other key authorities like the New York Fed—appears willing to stand back while Wall Street resurrects much of the ultracomplex global trading system that helped lead to the worst financial collapse since the Depression. At issue is whether trading in credit default swaps and other derivatives—and the giant, too-big-to-fail firms that traded them—will be allowed to dominate the financial landscape again once the crisis passes. As things look now, that is likely to happen. And the firms may soon be recapitalized and have a lot more sway in Washington—all of it courtesy of their supporters in the Obama administration. With its Public-Private Investment Program set to bid up and buy toxic assets, the administration is handing these companies another giant federal subsidy. But this time the money will come through the back door, bypassing Congress, mainly via FDIC loans. No one is quite sure how the program will work yet, but it's very likely going to make a lot of the same Wall Street houses much richer at taxpayer expense. Meanwhile, the big banks that still need help will almost certainly get another large infusion once the stress tests are completed by the end of the month. The financial industry isn't leaving anything to chance, however. One sign of a newly assertive Wall Street emerged recently when a bevy of bailed-out firms, including Citigroup, JPMorgan and Goldman Sachs, formed a new lobby calling itself the Coalition for Business Finance Reform. Its goal: to stand against heavy regulation of "over-the-counter" derivatives, in other words customized contracts that are traded off an exchange. Companies like these kinds of contracts, which are agreed to privately between firms, because they allow them to tailor a hedge perfectly against a firm-specific risk for a certain time period. But in order to preserve its right to negotiate these cheaper private contracts, Wall Street is apparently willing to argue for the same lack of public transparency and to permit the systemic risk that led to the crash. Geithner's financial regulation plan, announced April 2, does address some of these concerns. The Treasury chief wants all standardized over-the-counter trading of derivatives to go through an industry clearinghouse, which will give the government more oversight. Geithner said he wants to require "systemically important" firms to reserve more capital. He also wants to rein in "customized" derivatives contracts—those agreed to privately between firms. Whereas once these trades went totally unregulated, Geithner would require that they be "reported to trade repositories and be subject to robust standards" for documenting and collateralizing, among other new rules. But it's unlikely this will do much to change Wall Street. Geithner's new rules would allow the over-the-counter market to boom again, orchestrated by global giants that will continue to be "too big to fail" (they may have to be rescued again someday, in other words). And most of it will still occur largely out of sight of regulated exchanges. The response favored by the administration, the Federal Reserve and even many in Congress is to create a new all-knowing "systemic risk regulator" with as-yet-undetermined powers. Is such a person sitting at 30,000 feet really going to be able to keep up with all this onrushing complexity, especially as over-the-counter trading resumes in quiet places around the world? It is a triumph of hope over experience to think so. Meanwhile, up in Manhattan, the New York Fed has been conducting meetings on future regulation with a group of major Street insiders and their traditional regulators. At the most recent meeting, on April 1, they agreed on creating central clearinghouses for trading and "trade-information warehouses" that will track market data far better than before. But they have resisted anything more dramatic, like requiring all trading to occur on publicly recognized exchanges. Geithner has also put his stock in clearinghouses; he says he only wants to "encourage greater use of exchange-traded instruments." That has placed Geithner at odds with another Democratic senator, Tom Harkin of Iowa, chair of the agriculture committee, who wants all futures contracts traded on exchange. "The senator feels that what he's offering in his bill does include more integrity and transparency than the current Geithner plan," a Harkin spokesman told me. Officials at the firms who took part in the New York Fed meeting and at the Fed maintain that there is little difference between clearinghouses and formal exchanges; both are regulated and both are industry-run, they say. But that misses a major point, says Michael Greenberger, a former top official at the Commodity Futures Trading Commission who has been a critic of the administration's reform efforts. Exchange trading gives the government authority over fraud and manipulation and emergency powers to stop trading, he says, and it creates the kind of public transparency that isn't possible in a privately run clearinghouse. The White House and Treasury Department did not immediately respond to my requests for comment on these issues or on the March 23 meeting (beyond confirming that it took place). But it's noteworthy that more than a month and a half passed before Obama agreed to the meeting, which was prompted by a letter that Dorgan sent in early February. The senators were invited after one of the group, Sanders, put a hold on the nomination of Gary Gensler, Obama's nominee to be head of the Commodity Futures Trading Commission. In an interview, Sanders said he opposes the nomination because Gensler has spent much of his career in Washington working for Wall Street's interests. Gensler, in testimony, has said he has learned from his past mistakes. "At this moment in our history, we need an independent leader who will help create a new culture in the financial marketplace," Sanders said. Instead, the old culture is reasserting itself with a vengeance. All of which runs up against the advice now being dispensed by many of the experts who were most prescient about the crash and its causes—the outsiders, in other words, as opposed to the insiders who are still running the show. Among the outsiders is Nassim Nicholas Taleb, the trader and professor who wrote "The Black Swan: The Impact of the Highly Improbable." Taleb wrote in the Financial Times this week that a fundamental new approach is needed. Not only should firms be prevented from growing too big to fail, "complex derivatives need to be banned because nobody understands them and few are rational enough to know it," he said. Yet even as we are still picking up the debris, we seem to be ready to embrace that world once again. Read the original article. Labels: bailout, Credit Default Swaps, derivatives, financial crisis, Timothy Geithner, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (ix): ZizekA series of blog postings by D&S collective member Larry PetersonA Meditation on The Monstrosity of Christ OK, that was a seductively incomplete, or even misleading title for this blog entry. The reference is not so much to Jesus Christ as it is to the atheistic, Marxist-inspired philosopher/critic/psychoanalyst/you-name-it Slavoj Zizek, who has teamed up with the theologian John Milbank in this release by MIT Press, and gave a lecture with the same title at the Brattle Theatre in Cambridge, MA on Monday night. Like most of Zizek's offerings, the title involves wordplay (in this case, the signified work seems to be, as will become apparent later, I hope, the mediaeval devotional work The Imitation of Christ, by Thomas à Kempis) which suggests that the object (Christ) is, in fact, of lesser significance than the historical and social conditions that, given their convoluted, not to mention tragic, historical play, or dialectic, if you will, have come to invest the former with an exaggerated significance. And this symptomatic, inevitably perhaps, fosters cultural and institutional distortions that, in this case, ensure that the plain words of Christ will be, in practice, turned upside down (thereby vitiating any real significance they might still hold for us). By coming in intuitive conflict with his "provocative" wordplay, Zizek hopes to provoke a materialist, common sense, Brechtian awakening. Needless to say, to go from Jesus Christ to matters as disparate as the nature of Lee Kuan Yew's regime in Singapore, contemporary capitalism's seemingly inexplicable resuscitation of rent-seeking, and on to the ideological significance of Batman, the Black-Knight, or whatever the hell he was, is no job for an amateur, and Zizek did not disappoint. In what follows, I will attempt to relate what I found to be the breathtaking intellectual ride Zizek led me on that night. I didn't begin to take notes (in the dark, with a pen almost out of ink, and on the 2"x5" ticket to the event), so my rendition will be impressionistic and topical rather than chronological. Still, I found the argument, which, I felt, was not always made fully implicit, to be remarkably tight, in spite of Zizek's far-flung categorical forays. The unifying theme of the lecture, to me, concerned the nature of the "Other" and of freedom in contemporary society. This sounds hokey, but Zizek made it clear from the start, and with the use of very explicit language, that his notion of the "Other" involves all those aspects of other human beings, which, especially in situations or under social conditions characterized by growing duress, tend to be perceived as unwanted and even unjustifiable constraints on freedom the ability of acting persons to do as they see fit. To some degree, the "Other" always impinges on our freedom, and, in certain cases, we readily and willingly hand over our freedom, at least temporarily, anyway: under the sway of charismatic authority, for instance; and even, as many people understand it, in the defining state of human experience or potential, that of love. But Zizek seemed to hone in on cases in which the "Other" is already defined as that which precisely doesn't bear anything close to this kind of distinction, or on cases in which it's all too easy to fall back on available justifications in the culture to employ acceptable pre-existent barriers to prevent the "Other" from turning into something that could trip us up at all on any kind of purported advance toward wish-fulfillment at best, or avoidance of mere discomfort otherwise. Accordingly, the "Other", to Zizek, is the very sort of person who, far from corresponding to the super-abstract, ghostly presence one has come to expect from tendentious postmodern tomes, seems to go out of his or her way to bring out the worst in us, in terms defined by society in the most emphatic and primitive terms it has at its often considerable disposal. Zizek illustrated with a telling example where he wanted to go with this. He mentioned a dinner party he went to with a professor and some graduate students here in Cambridge a while ago at which participants were instructed to introduce themselves by mentioning, besides their names, their profession or concentration, their sexual orientation. Now this is where Zizek, in my recollection, could have been more explicit, but my take was that his discomfort with this experience concerned the fact that it, inasmuch as it attracted no comment or surprise by the participants, seemed to evidence the pervasiveness of an exaggeratedly formalistic attitude towards sexuality which, though seemingly open and accommodative, is in fact restrictive in precisely those matters the society is most intensely conflicted about, and requires open discussion or, if you will, engagement with the "Other" if it is to resolve, or simply acknowledge the existence of, potentially serious conflicts. Let me try to explain what I mean. Zizek seems to see that normative standards, especially in societies which privilege conceptions of the individual, often work more by appealing to self-conceptions (however accurate) rather than (and in precedence to) notions of others, especially those who are on receiving end. That being the case, the seemingly implicit object of the normative attitude, the "Other", almost invariably appears as an imposition to be avoided from the start, and engagements with that Other will tend to be seen from the start as overly restrictive of freedom. Under these conditions, a real temptation to employ normative conceptions in ways that advertise a strictly limited applicability will almost certainly prove popular, especially if constraints on action are already being vigorously enforced by the society in its everyday workings. And contemporary capitalism is doubly indicted on this point: for, as it provides for the meeting of needs (petty or essential, real or confabulated) more efficiently than any system yet created, it encourages demand for further convenience (or potential freedom), but demands more flexibility (or potential constraint) on the part of the vast majority at the same time, precisely in order to produce these means of fulfillment that forever lag behind their ability to provide true freedom or satisfaction (if such things exist). Back to the dinner party. What Zizek is saying here, I think, goes like this: to define the acceptable limits of conversation and conduct, the question about sexuality is presented to the participants. Most likely, the host expected that it would set his or her guests at ease. But any ease on their part was almost certainly ensured by the fact that they were all enlightened, modern, affluent graduate students and faculty. Where sexuality was concerned, however, the implicit message seemed to be this: you look and act enough like us to gain admittance to our party. But if you have some sort of issue with sexuality, we will not recognize it unless it is strictly limited to the sort which has already been decided in a specific way by just about everyone who would conceivably come to this party. So, if you are homosexual or heterosexual, that's ok; but if you are by some small chance just someone who is a loser, and can't find a partner of whatever sort, or some sort of pervert (if only in demand for a cure, or a sliver of sympathy in dealing with being saddled with such monstrous desires), your situation doesn't fall into the category, and will not be discussed. In the even less likely event that someone who has made it through the implicit winnowing process insists on raising it, that person may be subject to censure, justified expulsion or worse. You have been warned! The reference to Christ then becomes clear: Zizek actually spoke of the "neighbor" as the one who trips us (skandalos means "stumbling block" in Greek) up, or limits our freedom. This elicited in me thoughts of the parable of the Good Samaritan, which, unfortunately, Zizek didn't cite. In this parable, Jesus famously spoke of a man who was beaten and robbed, and left beside the road to die. A priest came by, looked at the body, and moved on. A Levite (or member of a privileged religious caste) came along, and did likewise. Finally, a Samaritan came by, took pity on the man, took him to an inn, and nursed him back to health at his expense. That's where the story ends for most of us. Edifying, right? Well, the way Christ told this story, as Zizek would no doubt affirm, involved a startling inversion. Samaritans, at the time of Christ, were referred to in the most derogatory terms possible; so Christ's reference to them then would have the much same effect as if a contemporary Christ used the n-word to refer to the Samaritan in an updated version of the parable. This is where Christ's words force us to truly confront the structural nature of the "Other". And that is why Christ matters to Zizek; it's not because of Jesus' historical significance, but because of our twisted perception of him, and what that reveals about us, and our society. Zizek knows that normative concepts, though liberally thrown around in our society, are becoming, in fact, less relevant in the way we actually live our lives (in part because the market has come to mediate so much more of our lives). This, coupled with the structural narrowing of the spectrum of free movement in capitalist societies mentioned above, almost ensures that normative thought and discourse will increasingly be employed to preemptively build walls around the "Other" than to engage, however tentatively, with the "Other". "Don't even go there" has become the golden rule of post-industrial, globalized capitalism. And it's for this reason that another society is necessary, one that more effectively, and more self-consciously interacts with the "Other", especially when temptations to ignore cascading categories of "Others" seem to build up as fast as the division of labor becomes more specialized. A society of freely associated producers would be a start. And, lest it be forgotten, it is the "monstrosity" of Christ, or his reference to, nay existence as an "Other" (inasmuch as we limit our conceptions of him to their exact opposites, when we entertain them seriously at all), that constitutes our own "Imitation of Christ". And it will only be by affirming his true "monstrosity", or "Otherness" that we may right this image, and perhaps be able to put to use any parts of Christ's message that remain truly relevant in this day and age. I think this was the invisible string that Zizek held tightly to on his tightrope walk on Monday, but he also said many provocative things on sundry issues I'd like to comment on for the remainder of this post. One of the most interesting concerned his meditation on the opening of a split between capitalism and democracy worldwide. This is where he speaks of Lee Kuan Yew and Singapore. Zizek noted that this kind of authoritarian capitalism was in fact adopted as a model by Deng Xiaoping in China, and, earlier, played no small role in the development of South Korea from bombed-out semi-feudal society to post-industrial consumerism in less than two generations. Even Japan has been a one-party state except for a few years in the 1990s since the war. Zizek's take seems to be that capitalism is becoming less able to garner popular support except in societies in which it is rigorously imposed. And in other societies, its growth trajectory will, in all likelihood, be increasingly reduced. This may not be much of a surprise in the wake of the financial crisis, but given the almost religious belief in the symbiosis of capitalism and democracy that held before the crisis (in spite of the experience of places like Singapore) it is a development that requires keen monitoring. Especially if countries like Singapore, which tend to be export-dependent and hold large current account surpluses, diversify into consumer-led economies (remember China's large and growing income inequality), assuming they can successfully (and quickly) make this transition in the first place. Not that Zizek expects a decisive movement towards socialism, or anything of that sort. I think this is precisely why Zizek focuses on his fears regarding a growing incompatibility between capitalism and democracy than on any promise of social movements that exist at the present. But he seems to insinuate something I have noticed myself: in the financial press, a lot has been written on the "failure" of capitalism, even by former Nobel economists (see, for instance, the Financial Times' series "The Future of Capitalism" http://www.ft.com/indepth/capitalism-future). But the same writers are quick to inform us, often in spite of their own recent myopia regarding capitalism's failures, that there is no alternative. Any elaboration on this juxtaposition is completely lacking, except for the employment of platitudes. I think Zizek is hinting that the repressed thought here goes like this: when such commentators speak of no alternative to capitalism, they are really saying that there is no alternative to capitalism unless we can spontaneously and rapidly adapt to the level of freedom which any removal of capitalism (which so effectively meets needs, but so implacably makes new, often unanticipated demands, and while it conditions us to seek out new sources of freedom, or at least seeming satisfactions) will require of us. And, for once, I must agree with these people: it's almost impossible to see us doing this. But it doesn't make it less necessary, especially given the environmental reckoning. Zizek also notes with some tongue-in-cheek perplexity the fact that the most advanced capitalist economies are relying more and more on rent-seeking forms of revenue than on profits from sales (or generation of surplus value, or even exploitation). In strict Marxian terms, this is odd: society should be moving toward intensifying competition with technological advances, not on protection of existing means of production. Like the resuscitation of absolute surplus value (longer working hours), however, it is an indisputable part of the most advanced economies or, again, it was until the crisis hit. In this vein, Zizek cites all the usual suspects: the vast swathes of corporate America, from financial firms which patent their "innovative" investments and business practices to pharmaceutical firms which do the same with life-forms themselves, and on to the advertisers, media and software firms which are being relied upon more and more to balance our still ridiculously high consumption levels (70% of GDP, down only 2% from before the crisis) internationally. Here, I wish Zizek had mentioned another phenomenon, the seeming revival of something corresponding to primitive accumulation, too. He actually did refer to one of the main documentary sources for this phenomenon, Naomi Klein's The Shock Doctrine. But didn't make any connection between these phenomena. And he didn't speak of another area I think he should find most illustrative of the confused condition of contemporary social structures, the rise of shadow and underground economies, and their increasing overlap with legal and visible ones (assuming talk of reform by the G20 and others on tax havens turns out to be characteristic bluster). It seems to me that all these elements must be put together, while acknowledging the old-fashioned super-exploitation that takes place in many of the places from which we source our consumer goods (though these are more-and-more tied to licensing-based industries like media companies and so on to promote them) and commodities. Where all this is relevant, though, concerns the productive sphere explicitly. Zizek sees that Marx's emphasis on the increase in producers' knowledge of their own processes of production and ability to cooperate in that process is being compromised mightily by just about all of the developments mentioned in the last paragraph. It's funny, because I've seen economic commentary that lauds the fact that economically significant competition will occur more between units within the same company as between firms themselves (or that companies will extract profits more from this competition, presumably by reducing costs and protecting technologies, than by competing in markets for goods and services). I'll wrap this up now. I have no doubt that I haven't done justice to Zizek's virtuoso performance (particularly inasmuch as my comments haven't been suitably critical!). But I hope that this post, if it does anything, will encourage others to see or read Zizek: he really does have his finger on a radical pulse that most writers don't even know exists. Labels: cultural theory, ideology, Karl Marx, Larry Peterson, Naomi Klein, Slavoj Zizek, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Big Banks' Fuzzy MathThere's less than meets the eye to the latest reports of bank profits. Most of it appears to be the result of accounting shell games and TARP money passed through AIG. With the government handing them nearly free money and lots of people wanting to borrow it and pay interest, why can't they make an honest buck?And if you can't answer that, then maybe it's time to talk nationalization. --df From the NYT: Bank Profits Appear Out of Thin Air By ANDREW ROSS SORKIN This is starting to feel like amateur hour for aspiring magicians. Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be - presto! - better-than-expected numbers. But in each case, investors spotted the attempts at sleight of hand, and didn't buy it for a second. With Goldman Sachs, the disappearing month of December didn't quite disappear (it changed its reporting calendar, effectively erasing the impact of a $1.5 billion loss that month); JPMorgan Chase reported a dazzling profit partly because the price of its bonds dropped (theoretically, they could retire them and buy them back at a cheaper price; that's sort of like saying you're richer because the value of your home has dropped); Citigroup pulled the same trick. Bank of America sold its shares in China Construction Bank to book a big one-time profit, but Ken Lewis heralded the results as "a testament to the value and breadth of the franchise." Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch's assets it acquired last quarter to prices that were higher than Merrill kept them. "Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won't be pretty," he said. Investors reacted by throwing tomatoes. Bank of America's stock plunged 24 percent, as did other bank stocks. They've had enough. Why can't anybody read the room here? After all the financial wizardry that got the country - actually, the world - into trouble, why don't these bankers give their audience what it seems to crave? Perhaps a bit of simple math that could fit on the back of an envelope, with no asterisks and no fine print, might win cheers instead of jeers from the market. What's particularly puzzling is why the banks don't just try to make some money the old-fashioned way. After all, earning it, if you could call it that, has never been easier with a business model sponsored by the federal government. That's the one in which Uncle Sam and we taxpayers are offering the banks dirt-cheap money, which they can turn around and lend at much higher rates. "If the federal government let me borrow money at zero percent interest, and then lend it out at 4 to 12 percent interest, even I could make a profit," said Professor Finkelstein of the Tuck School. "And if a college professor can make money in banking in 2009, what should we expect from the highly paid C.E.O.'s that populate corner offices?" Labels: Andrew Ross Sorkin, bank failures, bank nationalization, Citibank, Merrill Lynch, New York Times, Sydney Finkelstein Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Another $3 Billion Ponzi SchemeIt's getting hard to keep track these days. Was anybody making money honestly this past decade?From the WSJ:
Labels: Corporate Fraud, Corporate Swindles, ponzi Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Sky High Unemployment for Blacks With Degrees Another EPI economic snapshot: Fifteen months into a deep recession, college-educated white workers still had a relatively low unemployment rate of 3.8% in March of this year. The same could not be said for African Americans with four-year degrees. The March 2009 unemployment rate for college-educated blacks was 7.2%-almost twice as high as the white rate-and up 4.5 percentage points from March 2007, before the start of the current recession (see chart). Hispanics and Asian Americans with college degrees were in between, both with March 2009 unemployment rates of 5%. See original post for sources and more info. Labels: Black jobless rate, Economic Policy Institute, EPI Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Financialization of the American UniversityThis is from D&S collective member Faisal Chaudhry, with whom we hung out in NYC this past weekend during this year's Left Forum. It follows up on earlier posts on this topic, here and here.Some Further Notes on the 'Financialization' of the American University In recent weeks we have been keeping an active watch on the particular corner of the story of the financial crisis having to do with Harvard’s stunning $10 billion-plus endowment drop due to its highly risky investment strategy. Here are a couple of other notes to round out the still emerging picture. The first further illuminates that Harvard’s corner in this story may not just be one about excessive "risk" taken but something closer to a scandal in the making given a lack of transparency and accountability within the ranks of its administrative bureaucracy and money managers. The second, peels back this little corner of the financial crisis to remind us that it is likely much bigger than the focus on the Harvard story, in specific, has tended to suggest. As the second item makes so clear, if Harvard’s endowment hit has obviously been the most noticeable, it would be wrong to paint its investment strategy as somehow anomalous. Chalk item two up to another chapter in the story about the growing "corporatization" or, perhaps better, financialization of the American higher education system: 1. As the Boston Globe reported earlier this month a new employee at Harvard Management, Iris Mack, warned then university president Lawrence Summers of the ticking financial time bomb the university might be facing. In a letter date May 12 of that year, Mack expressed to Summers the "troubl[ing] and surpris[ing]" nature of the things she had seen as a quantitative analyst with Harvard Management. The particular concerns she expressed—including, according to the Globe, through reiterating them in later emails and conversations—was not only that the university was too heavily invested in derivatives but that her colleagues also seemed to possibly be engaged in insider trading. Despite having asked Summers to consider her communications while keeping her confidence, two months later, Mack—herself a doctoral alumnus of Harvard's mathematics department—was suddenly fired by chief of Harvard Management, Jack Meyer. 2. In a recent email to her campus community, Shirley Tilghman notified her fellow Princetonians that her university was facing a loss of some $5 billion in endowment funds, reflecting a 30 percent drop from $16.4 to $11.5 billion (reported on here). Like Harvard, which has recently reported that it is expected to slash its operating budget quite significantly (including , through instituting a fresh round of layoffs of workers in the clerical and other service sectors; more on this here), Princeton expects cuts to its budget in the range of $90 million. (No word yet on whether major layoffs in its service sector are planned). One might think that it has only been the elite Ivy League institutions that have been so hard hit, given the disproportionate amounts they generally have to invest. This, however, is not the case. According to a recently completed study by the Commonfund Institute in Wilton, Connecticut, in a survey of 629 educational institutions, for the period from July 1 to December 1, 2008 the average drop-off in endowment size was 24%. As Bloomberg news' Gillian Wee recently noted, this compares with an average decline of 29% in the S&P 500. For the Commonfund Institute's report click here. —fc Labels: Faisal Chaudhry, financial crisis, financialization, Harvard University, Laurence Summers, Princeton University Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Big Corps Using Bailout Bucks For LobbyingIt's the best game in town. Get taxpayer bailout billions and spend some of the spare cash on lobbyists to press Congressional Reps and Senators into giving more money and ending onerous conditions like limiting executive compensation.There oughta be a law... --df From the Washington Post: Major recipients of federal bailout money spent more than $10 million to lobby lawmakers in the first three months of 2009, including arguing against pay limits for corporate executives, according to newly filed disclosure records. Labels: bailout, Citigroup, Daniel Fireside, financial crisis bailout, General Motors, JP Morgan Chase, lobbyists, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). American Empire Foreclosed? (Mark Engler)One of the people that we (D&S collective member and blogger Larry Peterson and I) got to hang out with while we were in New York for this year's Left Forum was Mark Engler (author of this review that we published online a couple of months ago).Mark has a great skewering of Niall Ferguson in the Spring issue of Dissent (it looks like that article is not (yet?) online; and there was a nice review of Mark's book How to Rule the World in the Winter issue of Dissent. (Our table at the Left Forum book exhibit was next to Dissent's, and we enjoyed chatting with Maxine, Neil, and David.) Mark has an interesting new piece on U.S. imperialism, recently posted to the website of Foreign Policy in Focus, where Mark is a senior analyst. Empire Foreclosed? Read the rest of the article. --cs Labels: Chris Sturr, empire, imperialism, Mark Engler, Niall Ferguson Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
