Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Failed Stress Tests...in 2004From the Financial Times:Northern Rock risk revealed in 2004 By Norma Cohen and Chris Giles Published: May 30 2009 00:03 | Last updated: May 30 2009 00:03 Banking regulators identified Northern Rock as the weak link in Britain's banking system during secret "war games" held as long ago as 2004, the Financial Times has learned. The risk simulation planning, conducted by the Financial Services Authority, the Bank of England and the Treasury, made clear the systemic risks posed by Northern Rock's business model, and its domino effect on HBOS, then the UK's largest mortgage lender. The revelation is at odds with the notion that no one could have foreseen the September 2007 collapse of Northern Rock or the subsequent rescue of HBOS, which was sold to Lloyds Bank. The FT has found the troubled lender and HBOS were at the centre of a 2004 war game that regulators held to test how banks would cope with sudden turmoil in mortgage markets and the withdrawal of the money from foreign banks on which Northern Rock's business model relied. Regulators chose that scenario because they were worried about the growing dependency of banks such as Northern Rock and HBOS on such funds rather than on stable retail deposits. Even though the exercise revealed the banks' vulnerability, the regulators concluded they could not force the lenders to change their practices, according to several people familiar with the matter. It was felt that it was too hard to say Northern Rock's business model was excessively risky, and in any case banks following that strategy were profitable and growing, though the Bank did warn of the growth in wholesale deposits repeatedly in its financial stability reports. However, as wholesale lending markets dried up in mid-2007, the war game's findings proved eerily prescient. Both banks sustained irreparable damage beginning in 2007 as wholesale lending markets seized up and mortgage-backed securities became unsaleable. Regulators on Friday confirmed that Northern Rock and HBOS were central to the war game. But spokespeople for the FSA and the Bank of England said the exercise was focused on uncovering weak regulatory practices rather than predicting individual bank failure. Mervyn King, Bank governor, alluded to the war games in a 2005 interview with the FT, saying the Bank had looked at a situation in which "there could be a problem in a particular institution which isn't terribly big, which may for completely unpredictable reasons turn out to pose a liquidity problem to a very big institution". But until now no one has known the name of any banks used in the exercise. The Financial Times sought details in early April under the Freedom of Information Act from the Bank and the Treasury, but those requests have so far been unsuccessful. Copyright The Financial Times Limited 2009 Labels: baillout, Bank of England, financial crisis, HBOS, Lloyd's TSB, Mervyn King, Northern Rock Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Job Fair Canceled Because of CrowdsNext up, bread lines?From the Boston Globe: A weekend job fair at a Dedham shopping center was postponed today after organizers became concerned that a flood of job seekers would snarl traffic and create safety problems. Labels: jobs, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Rallies for Single-Payer in 50+ Cities 5/30From Healthcare Now!—important rallies this weekend, in a city near you (visit the website for a long list of cities and events--most are on Saturday):May 30th: National Day of Action Nationwide Rallies for Improved Medicare for All Join thousands of single-payer supporters in a nationwide week of action to support improved Medicare for all (HR 676). Single-payer activists will be gathering all over the country to say, "Healthcare, yes; Insurance companies, no," and to show solidarity with demonstrations at the AHIP (American Health Insurance Plans, a private health insurance lobby) conference in San Diego. If an action isn't already in your city, plan your own day of action! It can be a town hall meeting, demonstration in front of a local insurance company, film showing, vigil, or your own unique idea. Let us know what you'd like to start planning by contacting info@healthcare-now.org. 47 million Americans are uninsured. Private insurance rates are rising faster than inflation and our incomes. By 2025 the cost of private health insurance will exceed our projected income. Click here for more info including a list of cities and events. Labels: health care, Healthcare NOW, HR676, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Peruvian Workers Protest for Higher PayFrom the Latin American Herald Tribune:LIMA – Thousands of workers demonstrated in different Peruvian cities to demand improvements in their economic situation and support the demands of Amazon Indians, who have been conducting protests for 48 hours against land and resource laws they say threaten their way of life. In Lima, the march organized by the CGTP labor federation attracted about 5,000 participants and transpired peacefully. Demonstrators marched to Congress chanting slogans such as "Let the rich pay for the crisis, not the people." CGTP general secretary Mario Huaman said that the main objective of the mobilization is to demand that the government provide “the solution to the Amazon strike and the repeal of the decrees” that the Indians feel hurt their rights to the land. "If the government does not solve the different conflicts that exist on the national level, we’re going to radicalize the measures of struggle," he warned. Other aims of the protesters included asking for salary and pension hikes to compensate them for the rise in the cost of living, as well as the nullification of several measures that criminalize protests, the union leader said. With regard to the timing of the general strike announced in March by the CGTP to protest the government's policy, Huaman said that the federation will announce the date in two weeks, but it will most probably be held in July. In the southern city of Cuzco, Canal N television said that the city was practically paralyzed by Wednesday’s demonstrations, which affected schools, public transport and the transportation of tourists to the Inca citadel of Machu Picchu, Peru's premier tourist attraction. The most serious demonstrations occurred in the northeastern Amazon city of Iquitos, where 11 people were injured on Thursday and 20 were arrested in confrontations with police. Labels: financial crisis, general strike, Peru, protest Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Hedge Fund Manager 'Less of a Capitalist'One of our interns, Chris H., found this nugget at footnoted.org, about a talk that veteran hedge fund manager Michael Steinhardt made at a Brandeis University event at the Harmonie Club in New York City recently. His admission that the financial crisis and its aftermath had made him "less of a capitalist" is interesting. I wonder what exactly he means by that? The idea that the aftermath of the crisis is a "punishment-free period" gives a clue: capitalism should punish failures, and the gov't has not allowed that to happen, or has failed to play its assigned role of making sure that it happens. His allusion to Joseph Schumpeter, via the notion of "creative destruction" is also interesting, as is the overheard comment mentioned in the last paragraph. —csOf particular interest to footnoted readers were Steinhardt's comments on the SEC losing its way (he also said the Department of Justice had too). He also said that the current period has "made me less of a capitalist" because so far at least, it has been a "punishment-free period." That's particularly interesting given Steinhardt's personal history with regulators. Some might remember that back in the early 1990s, Steinhardt settled with the SEC and DOJ over an investigation over T-bills, personally paying over $50 million in fines. He said the money management industry had "failed miserably" and that hedge funds were "no longer a place for the best and the brightest". Read the whole post. Labels: capitalism, hedge funds, Joseph Schumpeter, Michael Steinhardt, punishment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Min. wage increases boost consumer spendingThe most recent economic snapshot from the Economic Policy Institute fits nicely with an article from our March/April issue, Should We Be Talking About Living Wages Now?, in which Jeannette Wicks-Lim of the Political Economy Research Institute argues that a recession and financial crisis is not a time to abandon living wage campaigns and policies. We'll have another article by Wicks-Lim in our July/August issue, as part of our continuing series of articles from PERI researchers. —csIncreases in minimum wage boost consumer spending Economic Snapshot for May 27, 2009 By Kai Filion The recently enacted American Recovery and Reinvestment Act included policies to help struggling families and create jobs. But an extremely effective and simple policy that achieves both of these goals is often overlooked: increases in the minimum wage. Each increase provides financial relief directly to minimum wage workers and their families and helps stimulate the economy. By increasing families' take-home pay, workers gain both financial security and an increased ability to purchase goods and services, thus creating jobs for other Americans.  A three-step federal minimum wage increase was passed by Congress in 2007. The first step took place in July of 2007, with a year between each step. In a forthcoming paper, we estimate the total impact of each increase using results from a study by economists at the Federal Reserve Bank of Chicago (Aaronson et al. 2008) that measures the effect of minimum wage increases on spending. The first two increases in July 2007 and July 2008 will have generated an estimated $4.9 billion of spending by July 2009, precisely when our economy needs it the most (see Figure). Furthermore, the final increase in July 2009 is expected to generate another $5.5 billion over the following year. The paper also shows that if the minimum wage were increased to $9.50 in 2011, as President Obama promised during the election, an estimated $60 billion of additional spending would be generated over two years. (This assumes a two-step increase, first to $8.25, then to $9.50 a year later.) These results demonstrate that an increase in the minimum wage would not only benefit low-income working families, but it would also provide a boost to consumer spending and the broader economy. Reference: Aaronson, Daniel, Sumit Agarwal, and Eric French. 2008. The Spending and Debt Response to Minimum Wage Hikes. Working Paper. Chicago, Ill: Federal Reserve of Chicago. Read the original snapshot. Labels: Economic Policy Institute, living wage, minimum wage Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Fed In the HeadlightsDisturbing C-Span footage of Rep. Alan Grayson questioning Elizabeth A. Coleman, Inspector General of the Federal Reserve, about whether her office has conducted any investigations of the Fed's decision not to save Lehmann Brothers or about the $1tn+ increase in the Fed's balance-sheet since last September. The website of the Fed's Inspector General describes the office's duties thus:The Office of Inspector General (OIG) conducts independent and objective audits, inspections, evaluations, investigations, and other reviews related to programs and operations of the Board of Governors of the Federal Reserve System (Board). OIG efforts promote integrity, economy, efficiency, and effectiveness; help prevent and detect fraud, waste, and abuse; and strengthen accountability to the Congress and the public. The OIG's work assists the Board in managing risk and in achieving its overall mission to foster the stability, integrity, and efficiency of the nation's monetary, financial, and payment systems so as to promote optimal macroeconomic performance. Her testimony doesn't really reassure us that her office is living up to its mission. Maybe Elizabeth Coleman needs to be replaced with Elizabeth Warren? The Bloomberg article Grayson refers to is this one. Hat-tip to Doug Henwood on lbo-talk for the YouTube link. Labels: Alan Grayson, Elizabeth A. Coleman, fed balance sheet, Federal Reserve Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A Job and No Mortgage for All in a Spanish TownNice piece in today's NYTimes about communists in Spain weathering the financial crisis.By VICTORIA BURNETT Published: May 25, 2009 MARINALEDA, Spain—The people of this small Andalusian town have never been shy about their political convictions. Since they occupied the estate of a local aristocrat in the 1980s, they and their fiery mayor, Juan Manuel Sánchez Gordillo, have been synonymous in Spain with a dogged struggle for the rural poor. Now that Spain's real estate bust is fueling rampant unemployment, this Communist enclave, surrounded by sloping olive groves, is thumbing its nose at its countrymen's capitalist folly. Attracted by its municipal housing program and bustling farming cooperative, people from neighboring villages and beyond have come here seeking jobs or homes, villagers and officials say. Mr. Sánchez, a bearded 53-year-old who this month celebrated three decades as mayor of the town of 2,700, says the economic crisis proves the wisdom of his socialist vision. "They all thought that the market was God, who made everything work with his invisible hand," Mr. Sánchez said on a recent morning, seated in his office below a portrait of Che Guevara. "Before, it was a mortal sin to talk about the government having a role in the economy. Now, we see we have to put the economy at the service of man." While the rest of Spain gorged on cheap credit to buy overpriced houses, the people of Marinaleda were building their own, mortgage-free, under a municipal program, he said. If a resident loses his job, the cooperative hires him, he said, so nobody wants for work—a bold claim in a region with 21 percent unemployment. Vanessa Romero, who moved here with her family from Barcelona in January after she and her husband lost their jobs, said she was drawn by the prospect of work and facilities like the nursery school, which costs about $17 a month. The couple make about $1,500 a month each working for the cooperative. Read the rest of the article. Labels: communism, cooperatives, Marinaleda, solidarity economics, Spain, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Sinking Dollar (Wallerstein)Very clear and interesting commentary by Immanuel Wallerstein; hat-tip to Bob F. Also check out the cover story from our Jan/Feb issue.May 15, 2009, Commentary No. 257 When Premier Wen Jiabao of China said in March of 2009 that he was "a little bit worried" about the state of the U.S. dollar, he echoed the feelings of states, enterprises, and individuals across the world. He called upon the United States "to maintain its good credit, to honor its promises and to guarantee the safety of China's assets." Even five years ago, this would have seemed a very presumptuous request. Now it seems "understandable" even to Janet Yellen, the President of the San Francisco Federal Reserve Bank, although she considers China's proposals concerning the world's reserve currency "far from being a practical alternative." There are only two ways to store wealth: in actual physical structures and in some form of money (currency, bonds, gold). They both entail risks for the holder. Physical structures deteriorate unless used and using them involves costs. To utilize such structures to obtain income and therefore profits depends on the "market" - that is, on the availability of buyers willing to purchase what the physical structures can produce. Physical structures are at least tangible. Money (which is denominated in nominal figures) is merely a potential claim on physical structures. The value of that claim depends on its exchange relation with physical structures. And this relation can and does vary constantly. If it varies a small amount, hardly anyone notices. But if it varies considerably and frequently, its holders either gain or lose a lot of wealth, often quite rapidly. A reserve currency in economic terms is really nothing but the most reliable form of money, the one that varies least. It is therefore the safest place to store whatever wealth one has that is not in the form of physical structures. Since at least 1945, the world's reserve currency has been the U.S. dollar. It still is the U.S. dollar. The country that issues the reserve currency has one singular advantage over all other countries. It is the only country that can legally print the currency, whenever it thinks it is in its interest to do so. Currencies all have exchange rates with other currencies. Since the United States ended its fixed rate of exchange with gold in 1973, the dollar has fluctuated against other currencies, up and down. When its currency went down against another currency, it made selling its exports easier because the buyer of the exports required less of its own currency. But it also made importing more expensive, since it required more dollars to pay for the imported item. In the short run, a weakened currency may increase employment at home. But this is at best a short-run advantage. In the middle run, there are greater advantages to having a so-called strong currency. It means that the holder of such currency has a greater command on world wealth as measured in physical structures and products. Over the middle run, reserve currencies are strong currencies and want to remain strong. The strength of a reserve currency derives not only from its command over world wealth but from the political power it offers in the world-system. This is why the world's reserve currency tends to be the currency of the world's hegemonic power, even if it is a declining hegemonic power. This is why the U.S. dollar is the world's reserve currency. Read the rest of the commentary. Labels: China, dollar, Immanuel Wallerstein, reserve currency Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The SEC and Investor SuffrageFloyd Norris has an article in today's New York Times about a proposed rule-making that the SEC just opened up comment on that "would make it easier for institutional shareholders to propose board candidates to be listed on the proxies that every public company sends to its shareholders." Norris worries about potential mischief that shareholders with ulterior motives could create if the rule-making goes through. But the lack of shareholder democracy is pretty egregious; some kind of reform allowing shareholders to have a say in board elections seems in order.Below is a message we got a couple of days ago (after the SEC hearing on proxy access) from shareholder democracy proponent Jim McRitchie of CorpGov.net. We've been in touch with one of the other co-filers of the brief mentioned below, Glyn Holton of the Investor Suffrage Movement, and we hope to be covering this issue in the pages of Dollars & Sense very soon. —cs [From James McRitchie:] This morning, the SEC held a hearing on proxy access. By a three to two vote, Commissioners voted for proxy access. Democracy in corporate governance will dramatically improve with our right to nominate and elect directors, even if limited to 25% of the board. Directors may actually begin to feel dependent on the will of shareowners. Labels: Chris Sturr, Glyn Holton, investor suffrage, James McRitchie, SEC, shareholder democracy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Wells Fargo's Counter-Stimulus StrategyRoger Bybee's feature in our current issue shows how big corporations are taking the financial crisis and recession/depression as an opportunity to eliminate jobs in the United States. ArcelorMittal, the world's largest steel company, is trying to shut down two steel mills, one in Hennepin, Ill., and one in Lackawanna, N.Y., despite the fact that the mills are profitable and have willing buyers.Today's New York Times includes an article indicating that at least one corporation—Wells Fargo—is willing to follow this sort of strategy, even though it was the recipient of tens of billions of dollars of government bailout money. Wells Fargo, the main creditor for the clothing manufacturing company Hartmarx, which is in bankruptcy, is trying to prevent the company's board from selling the company to Emerisque, a London-based private investment firm specializing in "reviving heritage brands," according to its website. According to the Times article (see part of it below), Unite Here ("the union that represented Hartmarx's workers"—do the not represent them anymore, now that the company is in bankruptcy?—the article doesn't tell us) is threatening to kick up a fuss if Wells Fargo succeeds in blocking the sale. The article quotes Unite Here president Bruce Raynor as saying: "The surest route for the bank to recover its money is to make a deal with a well-respected private equity firm that owns and runs several successful brands," Mr. Raynor said. "Emerisque is not only offering substantial recovery for the bank, but to protect the jobs of workers." It seems a little odd for the union to be finding common cause with private equity, given the track-record of private equity firms of stripping companies of assets and downsizing workforces, as we reported in a feature article in our July/August 2008 issue. Should the Hartmarx workers trust Emerisque's promises? Pres. Obama's statements in support of the Republic Windows and Doors workers' sit-in in December was encouraging, if only because it indicated a strategy that workers can take in confronting banks and companies that are trying to screw them, and can bring public opinion to bear on the occasional politician. Given that workers at the Hart Schaffner Marx plant (owned by Hartmarx) outside of Chicago made the tuxedo that Obama wore on his inauguration day, can those workers count on him to stand by them, too? —cs Wells Fargo Said to Be Squeezing Clothier Hartmarx, Raising Liquidation Fears Read the rest of the article. Labels: Barack Obama, counterstimulus, Hartmarx, labor, Roger Bybee, unions, Unite Here, Wells Fargo Chris Sturr Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Card-Check Is Dead (Liza Featherstone)From Slate's The Big Money blog:Card-Check Is Dead Unions are surprisingly bad at politics. By Liza Featherstone | Posted Thursday, May 21, 2009 - 11:18am Last Thursday, President Obama pronounced "card check" dead, saying that the current Employee Free Choice Act didn't have the votes to pass but that a "compromise" could work. By compromise, the president meant a version of the bill without card check, the provision obliging employers to recognize unions after a majority of workers have signed cards, rather than after an election. On the same day, Sen. Arlen Specter, newly "D"-Pa., a key swing vote, said that he, too, would support a "compromise" on EFCA: card-check-free, of course. These twin announcements sealed what most observers had understood for a while: Card check isn't happening. The provision has always been imperfect, but its death is a sure sign that the labor movement needs a more effective approach to politics. Card check was devised as a solution to a simple yet intractable problem: Workers who want to join unions do not get a fair shake. Elections take too long, giving employers plenty of time to hire high-priced union-busting law firms, fire union sympathizers, intimidate and spy upon workers, and do whatever they can do, legally or illegally, to keep the union out. Many people now work for companies like Home Depot (HD), Rite Aid (RAD), or Wal-Mart (WMT) that have plenty of resources to wear unions down and every incentive to do so since their business models depend on underpaid, short-term labor. Specter opposes card check but does support speeding up elections, allowing workers to campaign at their work sites without retaliation, and imposing stiffer penalties for violations of organizing rights. Click Here! Not everyone committed to labor-law reform is mourning card check. Columbia economist Jagdish Bhagwati, one of EFCA's most prominent sympathizers, told TBM earlier this spring that he regretted the card-check provision of the bill: "I think that it was a mistake for us who are supporters of unions and unionization to go for card check. I agree that some employers intimidate workers who wish to unionize, but those who do not wish to unionize can also be intimidated by union organizers." Bhagwati strongly supports secret ballots and thinks it would have been better to try to reform enforcement mechanisms to ensure that illegal intimidation by employers would be punished. Bhagwati also points out that U.S. labor law makes it cripplingly difficult for unions to strike: "If unions cannot strike effectively they become paper tigers, more or less. I would have concentrated on this rather than get diverted into the card-check provision." He adds, "The card-check provision has unnecessarily cost us some credibility and also some votes, I fear." Sandy Pope, president of Teamsters Local 805, which is headquartered in Long Island City, Queens, thinks labor law reform is needed but says she's "not sad about card check going away." Pope explains: "I would prefer an expedited election to card check. It's important for workers to do something as a group. In order to go into bargaining in the strongest possible way, you have to campaign. You have to really want" the union. Pope argues that if unions "treat people like babies" by bypassing the election process, workers won't build effective organizations that can stand up to the employers' aggressive behavior at the bargaining table. A shorter election would bypass much of the employers' current strategy of intimidation and firings, Pope thinks, while preserving the possibility of debate in the workplace and allowing employees to organize, if they choose to do so, rather than passively assent to a visiting bureaucrat. Read the rest of the article. Labels: card check, Employee Free Choice Act, Liza Featherstone, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). U.S. May Add New Financial WatchdogFrom today's Washington Post; hat-tip to LF:Consumer Agency Under Consideration By Zachary A. Goldfarb, Binyamin Appelbaum and David Cho Washington Post Staff Writers Wednesday, May 20, 2009 The Obama administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds, according to several sources familiar with the matter. The proposed commission would be one of the administration's most significant steps yet to overhaul the financial regulatory system. It would also be one of its first proposals to address causes of the financial crisis such as predatory mortgage lending. Plans for a new body remain fluid, but it could be granted broad powers to make sure the terms and marketing of a wide range of loans and other financial products are in the interests of ordinary consumers, sources said. Sources, who spoke on condition of anonymity because discussions are ongoing, said talks have begun with industry officials, lawmakers and other financial experts about the proposal, which would require legislation. Last night, senior policymakers, including Treasury Secretary Timothy F. Geithner and National Economic Council Director Lawrence H. Summers, were to discuss the idea at a dinner held at the Treasury Department. Responsibility for regulation of consumer financial products is currently distributed among a patchwork of federal agencies. Some of these regulators regard consumer protection as a low priority. And some financial products are not regulated at all. The proposal could centralize enforcement of existing laws and create a vehicle for imposing tougher rules. The idea is likely to face significant opposition from industry groups, which argue that stricter regulation limits the availability of financial products to consumers. It could also trigger a massive regulatory turf war. Banking regulators and agencies such as the Securities and Exchange Commission, which regulates mutual funds, could stand to lose powers, personnel and funding. Those agencies are likely to argue they are positioned to protect consumers because they oversee the financial firms directly and have experience writing and enforcing rules governing financial products. The proposal is part of the administration's broader plan to improve financial regulation. Officials have proposed the creation of a systemic risk regulator whose job would be to spot threats to the health of the overall financial system. Officials also have called for tighter regulation of individual financial firms and markets, including new rules governing hedge funds and derivatives. While those proposals focus on the guts of the financial system, this new plan would concentrate on the front end -- consumers who borrow money to buy homes and products and who invest their money for retirement, college education and savings. The leading proponent of such a commission is Elizabeth Warren, a Harvard University law professor who now chairs the Congressional Oversight Panel for the government's financial rescue initiative. Her plan is the kernel of the idea the White House is now considering, sources said. Warren wrote in a 2007 article in the journal Democracy that the government had failed to protect American consumers in their relationships with financial companies. "It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street," Warren wrote. "Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?" Warren proposed creating a new commission modeled on the Consumer Product Safety Commission, which protects buyers of products such as bicycles and baby cribs. Such a commission could be very powerful. A number of sweeping federal laws already offer broad protection to consumers of financial products, but those laws have been lightly enforced in recent years. The Department of Housing and Urban Development, for example, has clear authority to crack down on companies that charge excessive closing costs on mortgage loans, but repeatedly postponed planned reforms in the face of industry opposition. Warren's proposal initially found little support in Washington, but the mood has shifted dramatically with the onset of the financial crisis and the election of a Democratic administration. In March, Sen. Richard J. Durbin (D-Ill.) introduced legislation to create a commission like the one that Warren had described. The legislation is co-sponsored by Sen. Charles E. Schumer (D-N.Y.) and Sen. Edward M. Kennedy (D-Mass.). The White House's support would greatly improve its chances of passing. In proposing the legislation, the senators said that the commission would be responsible for identifying emerging problems and for educating consumers. They were also critical of the existing process. "The Federal Reserve was supposed to do this, but they were asleep at the switch," Schumer said at the time. Staff writer Neil Irwin contributed to this report. Read the original article t. Labels: banking regulation, Elizabeth Warren, financial crisis, financial regulation Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Science Fiction From BelowOn Saturday I got to see a terrific new movie, Sleep Dealer, written and directed by Alex Rivera. It's lefty science fiction, and deals with immigration, global sweatshops, militarism, and the corporatization/privatization of water resources, among other topics. The degree to which it is only barely fiction is a little scary. I recommend it highly.Mark Engler (author of this article for us, among others), has just posted an interview with Alex Rivera over at Foreign Policy in Focus. He's also posted a clip from the movie on his website. Here is part of the interview: Science Fiction From Below Read the rest of the interview; see the clip. Labels: Alex Rivera, immigration, Mark Engler, Sleep Dealer, sweatshops, water rights Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A Monetary Reformer in Kindergarten I stumbled on this nice piece over at Global Research: A Monetary Reformer in Kindergarten —cs Labels: Hansel and Gretel, kindergarten, monetary reform, Richard Cook Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Michael Greenberger on DerivativesC-Span had a nice segment on Friday with Michael Greenberger, a law professor at the University of Maryland, on derivatives. He characterizes derivatives as like bets, and many of them as essentially bets on other people's misfortune. The callers' questions are great too. His answer to the last question, in which the caller raises the notion that it was regulators that caused all the trouble by requiring banks to make risky loans, is nice and concise—a good response without being overheated. I wish he'd added that far from making loans because the gov't required them to, banks were falling all over themselves to make such loans once it was clear how much money was to be made by packaging the loans and selling derivatives based on them.I would embed the video here, but C-Span doesn't appear to provide a mechanism for doing so. Hat-tip to LF. Labels: Barack Obama, derivatives, Michael Greenberger, mortgage backed securities Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Ethanol Snake OilBusinessWeek has an exposé on the pitfalls of ethanol.*It isn't better for the environment than oil; *It saves little energy if any; *It decreases fuel efficiency; *It increases the cost of food around the globe. And now, as the EPA is mulling rule changes that would mandate an increase in the percentage of ethanol in fuel (as the ethanol industry is in the midst of its own financial crisis), the article explains that there is a growing consensus that ethanol destroys car engines and fuel systems. Read the full article here. --d.f. Labels: EPA, ethanol, oil and gas industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 'Sham' Bailouts Help SpeculatorsNaked Capitalism has a couple of nice posts about comments made by Michael Patterson, head of a private equity firm, to the Telegraph that reflect very poorly on TARP. Here is the story from the Telegraph (which has since been yanked from their site, apparently because Patterson objected to it; it is preserved at zerohedge.blogspot.com):US 'sham' bank bail-outs enrich speculators, says buy-out chief Mark Patterson Here's what Yves Smith at Naked Capitalism had to say about the piece: The TARP elicited a firestorm of criticism at its inception, and at various points of its short existence, particularly the repeated injections into "too big to fail" Citigroup and Bank of America, plus the charade of Paulson forcing TARP funds onto banks who were eager to take them once the terms were revealed. Now, however, conventional wisdom on the program might be summarized as, "it's flawed, but still better than doing nothing." And this more recent post (from a larger project she has of showing how the business press airbrushes negative economic news): We posted last night on a Telegraph story, in which one Michael Patterson, head of a private equity firm that used TARP funds to buy a Michigan bank, said some less than positive things about it at an conference. —cs Labels: Naked Capitalism, private equity, TARP program, Telegraph, Timothy Geithner, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Steelworkers Attack ArcelorMittalFrom yesterday's WSJ; find background on the situation in this feature article in our current issue. The CEO of ArcelorMittal—the largest steel firm in the world—is Lakshmi Mittal, who is one of the richest people in the world. He is so rich that, as Roger Bybee reported in his feature article for us, he spent $55 million on his daughter's wedding. If you're wondering how even the super-rich could spend that much money on a wedding, it helps to know that they rented out Versailles for the reception. —csSteelworkers Attack ArcelorMittal Fed Up With Plant Shutdowns, Protesters Smash Windows at Annual Shareholder Meeting in Luxembourg By ROBERT GUY MATTHEWS ArcelorMittal is facing increasing worker protests around the world, including a violent confrontation during an annual shareholder meeting Tuesday in Luxembourg, as frustration mounts over plant shutdowns and the reluctance of the world's biggest steelmaker to commit to reopening idled facilities. Although ArcelorMittal has already cut production in half and shut down plants and blast furnaces around the world—including some iron ore operations idled Tuesday in Indiana—it still makes more steel than customers need and expects global steel demand to sink by up to 20% this year. On Tuesday, an estimated 1,000 steelworkers from the company's plants in France and Belgium attacked its headquarters in Luxembourg, setting off smoke bombs and smashing windows in an effort to disrupt an annual shareholder meeting. The meeting went on despite the protests. Lakshmi Mittal, chief executive officer of ArcelorMittal, told shareholders that customers are buying less steel and using their current inventory. Producing steel that could not be sold, he said, was pointless. Mr. Mittal said that he would shift steel production from higher cost plants to more efficient steelmaking plants, but declined to say where or when. Many of the companies higher cost plants are located in Europe and the U.S., where labor costs are higher. Raw material costs in those countries also tend to be higher because those plants tend to be further from mines that produce the raw materials. In addition, plants in those regions are tied to certain markets, particularly automotive, that have seen a steep drop off in demand. In the U.S., the local steel union mounted a nonviolent protest at the company's Chicago headquarters two weeks ago, over the anticipated permanent closure of ArcelorMittal's Hennepin, Ill., plant. Duane Calbow, vice president of the local 7367 United Steelworkers, said that Chicago workers are frustrated because the company doesn't seem interested in running the plant or trying to sell the existing operations or find other uses for the facility. Read the rest of the article; read Roger Bybee's feature article on ArcelorMittal (the sidebar on Marie Antoinette is particularly juicy). Labels: ArcelorMittal, Lakshmi Mittal, Roger Bybee, Steel industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The IMF as Big Banks' Debt-CollectorOn the topic of the IMF and the "global financial community," here is a nice piece from Michael Hudson; hat-tip, again to LF.The IMF Collects Debts on Behalf of the World's Largest Banks Read the rest of the article. Labels: banking crisis, Britain, Iceland, IMF, Michael Hudson Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Global Financial CommunityAn excellent article by Prabhat Patnaik on networkideas.org, the website of International Development Economics Associates, starts off with Lenin and goes on to talk about the role that the IMF and the World Bank play to create a "group of core ideologues" to exert "peer pressure" on elites to adopt a belief system that is friendly to global finance capital. This helps to explain why Obama picked the economic advisers he did:How people like Summers, Geithner and Rubin come to occupy such important political positions within the U.S. system is pretty obvious. American Presidential elections require massive amounts of money, a good chunk of which invariably comes from Wall Street. The story doing the rounds for a while was that Obama had got most of his funds from small donations of $100 each garnered through the internet; but this was complete nonsense. Obama like others before him had also tapped Wall Street and the appointment of the trio, who had organized Wall Street finance for him, was a quid pro quo. The elevation of members of the global financial community to run the American economy therefore should cause no surprise. I love the light tough of his title. Anyhow, here's the beginning of the article, which is well worth reading. Hat-tip to LF.
Read the rest of the article. Labels: IMF, imperialism, larry Summers, Lenin, Prabhat Patnaik, Timothy Geithner, World Bank Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Changing the Auto Industry from the Wheels UpWe just posted a new web-only article on the auto industry, by Alejandro Reuss of the D&S collective. Here is the introduction to the article:Changing the Auto Industry from the Wheels Up The problems of the U.S. auto industry call for radical solutions. By Alejandro Reuss | Dollars & Sense | May 13, 2009 The "Big Three" U.S. auto companies are not facing a crisis – they are facing multiple interrelated crises at once. Chrysler, General Motors, and Ford have posted tens of billions in losses over the last few years. They suffer from chronic overcapacity, producing more cars than they can sell, and have ended up selling cars at a loss. Their cars are widely viewed as lagging behind those of international competitors in quality, styling, and reliability. They have focused on fighting fuel-efficiency standards rather than developing new, fuel-efficient vehicles. They have bet heavily on large, gas-guzzling models and are playing catch-up Toyota and Honda in the development of hybrid cars. They face significant cost disadvantages compared to their main competitors, mainly due to retiree health and pension "legacy costs." And, on top of all this, a deep recession has hammered car sales. Already operating in the red before last year, the Big Three have been burning through billions in cash reserves during the current recession. General Motors, having posted losses every year since 2005, lost over $30 billion in 2008. It has reported that, in the first quarter of 2009, it lost another $6 billion (and depleted its cash reserves by over $10 billion). Ford has posted losses since 2006, including about $15 billion in 2008. Chrysler lost $8 billion last year. With their companies teetering on the edge of bankruptcy, GM and Chrysler executives appeared before Congress last November asking for a government bailout. In December, the Bush administration announced $13.4 billion in loans for GM and $4 billion for Chrysler. (Since then, both companies have asked for billions more.) In April, the Obama administration offered additional loans of one-half billion to Chrysler and up to $5 billion to GM. Lacking private sources of financing, the two companies have managed to stay in business this long thanks only to the government loans. The government has required both companies to submit restructuring plans, including concessions from workers and creditors, as a condition of the bailouts. At the end of March, the Obama administration rejected the submitted plans as inadequate. It gave Chrysler 30 days more to conclude a takeover deal with Italian auto giant Fiat, while GM got 60 days to submit a new restructuring plan. In late April, Chrysler appeared to have a deal with Fiat, with the Italian automaker set to take over operations and receive 20% of the company's stock (with a possible future increase to 35%). A United Auto Workers (UAW) retiree health-care trust would own 55% of the stock. The UAW accepted new concessions on wages and benefits, while the company's major creditors agreed to cancel billions in debt for about a third of its face value (plus less than 10% of the company's stock). When some creditors balked at the plan, however, the company filed for bankruptcy. Meanwhile, GM proposed a restructuring plan in which the federal government would own 50% of the stock (in exchange for the cancellation of about $10 billion in company debt), and the UAW retiree health-care trust nearly 40%, leaving the company's unsecured bondholders with just 10%. The plan included the shutdown of the company's Pontiac division and over 20,000 layoffs. Bondholders could still balk, however, in which case GM would go into bankruptcy as well. No matter what the outcome of the current crisis, the "Big Three" are not likely to return to the heights of their post-World War II heyday. In the 1950s and 1960s, the Big Three dominated the U.S. auto market. As recently as the late 1990s, they accounted for over 70% of total U.S. sales of new cars and light trucks. Now, they account for less than 50%. In the mid 1950s, General Motors alone accounted for over 50% of U.S. new-car sales. Today, the company's market share is about 20%. Under the company's proposed restructuring plan, it would employ less than 40,000 union auto workers, less than one tenth the number the company employed at its peak in 1970. There is no way to put Humpty-Dumpty together again, and it does not seem that any of the major players in this drama—the companies' managements, the leadership of the UAW, or the government—really believe that there is. The real question is whether something new and better will be built from the wreckage of this industry. Read the rest of the article. Labels: auto industry, Chrysler, ford, General Motors, UAW, VEBA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Sen. Byron Dorgan: the Good and the BadSen. Byron Dorgan (Dem.-N.D.) got some good press from Huffington Post a couple of days ago; turns out back in 1999 Dorgan was one of the only senators to vote against repeal of the Glass-Steagall Act (the Depression-era law that established a firewall between commercial banks, investment banks, and insurance companies):The footage of him speaking on the Senate floor has become something of a cult flick for the particularly wonky progressive. The date was November 4, 1999. Senator Byron Dorgan, in a patterned red tie, sharp dark suit and hair with slightly more color than it has today, was captured only by the cameras of CSPAN2. Other senators to vote against the repeal: Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold, and the late Paul Wellstone. HuffPo also cites a few other people who got it right, including Edward Kane, a finance professor at Boston College, Jeffrey Garten, a Clinton Commerce undersecretary, and Ralph Nader. (No mention of D&S, which opposed the repeal consistently (e.g. here, where Jim Campen said "dominant effect is likely to be a further concentration of economic and political power, and the use of this power to benefit the new financial giants at the expense of the rest of us."). Read the full HuffPo article here. It seems Sen. Dorgan is an inconsistent watchdog, however. Firedoglake recently reported that Dorgan voted against the "cramdown" legislation that would have allowed bankruptcy judges to write down the value of first mortgages (we reported on this here and here). Turns out Dorgan's wife lobbied against the cramdown legislation on behalf of the American Council of Life Insurers: One of the key votes against "cramdown" in the Senate came, surprisingly, from Byron Dorgan of North Dakota. According to an FEC lobbying report filed by the American Council of Life Insurers, Dorgan's wife Kimberly worked for them as a lobbyist to defeat the measure during the first quarter of 2009 (PDF). Read the full article. Labels: Byron Dorgan, cram down, Glass-Steagall, Gramm-Leach-Bliley Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dean Baker on Economists' 'Malpractice'Interesting piece in the Boston Review by Dean Baker about how other countries operating their health care systems far more efficiently than the United States does. Removing protectionism in the US health care sector could unlock enormous potential gains to the U.S. economy. Baker notes that U.S. health care could be opened to global competition in three obvious ways: (1) increasing opportunities for foreign–born medical personnel to work in the United States (2) facilitating "medical tourism," so that Americans can more easily have major medical procedures performed in other countries; and (3) allowing Medicare beneficiaries to buy into the lower–cost health care systems of other wealthy countries. Hat-tip to LF.Malpractice Read the rest of the article. Labels: Boston Review, Dean Baker, health care, medical tourism Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 'Geithner' on SNLNice critique of the stress tests, and of both Geithner and the 19 banks that took it, in this past Saturday's SNL opener; recounted by Sudeep Reddy at the WSJ's Real Time Economics blog:Saturday Night Live opened with Geithner (played by Will Forte) sitting behind his desk reviewing banks' submissions for "Part 2″ of the stress tests—a written exam taken by all 19 bank CEOs. He explains that Treasury initially planned to give each bank a grade of 1 to 100. "But then we decided that that might unfairly stigmatize banks who scored low on the tests because they followed reckless lending practices, or were otherwise not good at banking.' They changed to a simple pass/fail system, then to a pass/pass*—"this seemed less judgmental and more inclusive.' "Eventually, at the banks' suggestion, we dropped the asterisk and went with a pass/pass system. Tonight, I am proud to say that after the written tests were examined, every one of the 19 banks scored a pass. Congratulations, banks.' He explains that none of the banks answered all 50 questions correctly, and most got less than half right. "One bank in particular—Citigroup—seemed to think the whole thing was just a big joke.' On screen we see its answers to questions 13 through 15: "Geithner Sucks!' "I was deeply disappointed with Citigroup's attitude towards this entire project,' the Treasury secretary explains. "Frankly, if Citigroup weren't too big to fail, I would've failed them. That's how disgusted I was.' Among the other questions and answers: * Number 11: For every 10 million in commercial loans outstanding, a bank should have … "The answer we were looking for was 10% cash on hand.' J.P. Morgan Chase wrote: Knicks Tickets Wells Fargo wrote: Gulfstream jet Citigroup wrote: Geithner Sucks! * Number 23: If federal bank examiners determine your bank to be under-capitalized, the bank's board of directors should … Goldman Sachs wrote: Flee the Country State Street of Boston said: Shred documents Capital One said: Eliminate eyewitnesses The Geithner stand-in explains, "GMAC apparently answered ‘taxpayer bailout' to every one of the 50 questions. Although that did turn out to be the right answer to 30 of them.' Labels: bank stress testing, Citigroup, SNL, stress tests, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Goldman Sachs Pays For Predatory WaysInvestment firm and recipient of government largess Goldman Sachs has just settled an investigation by the Attorney General of Massachusetts for $60 million that it engaged in predatory lending during the housing boom.From the NY Times:
According to the Attorney General's office:
--d.f. Labels: Goldman Sachs, mortgage backed securities, predatory lending Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). All-Out Effort to Put Single-Payer 'On the Table'From AfterDowningStreet and elswehere. They also had a great letter from Dr. Margaret Flowers of Physicians for a National Health Plan (reposted at Consortium News); Flowers was one of the activists who disrupted Sen. Baucus' roundtable on May 5th to ask why single-payer proponents weren't part of the discussion. The activists were hauled away by the Capital cops, while Baucus quipped about the need for more police. Hat-tip to LF.All Out Effort: Put Single-payer Healthcare "On the Table" Submitted by Chip on Mon, 2009-05-11 02:48. Activism Healthcare All Out Effort: Put Single-payer Healthcare "On the Table" It's National Nurses Week, and we're joining the California Nurses Association in Washington, D.C. to promote single-payer healthcare. We need your help! Please make 2 calls TODAY to get single-payer experts into the Senate Finance Committee Roundtable discussion! This Tuesday, May 12, the Senate Finance Subcommittee is holding its final roundtable on healthcare reform. The California Nurses Association/National Nurses Organizing Committee has issued a request to include Roseann Demoro, Executive Director of CNA/NNOC and longtime leader in the single-payer movement. PNHP has formally submitted the names of two outstanding physicians, Drs. Marcia Angell and Steffie Woolhandler, to testify as expert witnesses. Please call Sen. Baucus' office in Washington at 202-224-2651, or fax him at (202) 224-9412, and urge him to extend the invitations. Call your Senator, too! Members of Single-Payer New York met with Sen. Charles Schumer (NY), Senate Finance Committee member, on Friday evening. He agreed to ask Chairman Baucus to include a single-payer expert--if we can get another Senator on the committee to join him. Please call and ask your Senator to join Sen. Schumer in asking Chairman Baucus to include a single-payer expert in Tuesday's hearing.
At the last Senate Finance Committee hearing, physicians and single-payer advocates stood one-by-one to ask to for a seat at the table. The Senators laughed and had each one arrested. Watch the video here or at: Health Care Now. We need to end the exclusion of the only plan that will be truly universal and contain costs. Our health depends on it. Your action today is critical to the health of this nation. Labels: health care, Max Baucus, Physicians for a National Health Program, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
