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They Rob You With a Fountain Pen

Robert Borosage — Fri, 11 Jul 2008 12:39:11 -0400

“As through this world I’ve wandered, I’ve seen lots of funny men;
Some will rob you with a gun; And some with a fountain pen.

Woody Guthrie

Look out folks, you’re about to get fleeced. We’re getting sent the bill for the bankers’ bacchanalia. They had the party, made off with the dough, and we’re going to end up paying the price.

Here’s a brief description. Housing prices continue to fall. Down some 8% last year; another 8% in the first quarter this year, with a long way to go. By next year, experts predict one in four homes with a mortgage will be underwater – worth less than what is owed.

Rapacious bankers and investors drove this folly, inflating a housing bubble by huckstering mortgages to folks who couldn’t pay them or didn’t understand them, inventing exotic securities based on mortgages, marketing them widely, without a clue to their actual worth. Under the conservative hand of Alan Greenspan, the Federal Reserve sat idly by as the bankers had their predators’ ball. Now the banks are in trouble. Their basements are filled with securities that have no market. They are scrambling to sell off assets, raise new capital, and unload the lousy paper.

Who gets stuck with that? Check out the article by the invaluable Charles Morris from the Washington Independent, here. Morris, a recovering banker himself, provides a peak behind the screen.

The Federal Reserve, he estimates, has traded the banks about $500 billion in Treasuries (US bonds, backed by the good faith of American taxpayers) in exchange for dubious instruments, about $200 billion for mortgage backed securities. It is paying 98 cents on the dollar for securities that may be worth 60 cents, or may be worthless.

Meanwhile, the government is considering a bailout of Freddie Mac and Fannie Mae, two private government sponsored entities that finance about ½ of the $12 trillion US housing market. In the fourth quarter of last year and the first quarter this year, Morris reports, these entities have been financing mortgages at about twice the level of actual mortgage borrowing. Where did the extra money go? It went to take more of the worthless paper off the hands of banks and investors.

If Freddie and Fannie go belly up, the entire financial house of cards will collapse. So, as John McCain promised yesterday, they won’t be allowed to fail. But if the taxpayers end up bailing them out, then we’re looking at a staggering increase in US debt, and losses of hundreds of billions.

Trying to find a floor for housing prices makes a lot of sense. Helping homeowners who got fleeced by making the banks eat their losses while allowing people to keep their homes either as renters or with affordable mortgages makes sense also.

But remember one thing. The bankers and investors are walking away with millions of dollars in private profits built upon reckless gambling, secure in their confidence that the federal government would not let them fail. And now we’re getting the bill

The only sensible way for Americans to pay this bill would be to levy new taxes of the wealthiest Americans who profited from the folly. Whenever you hear conservatives complain about taxes, whenever you hear them rail about waste in government, whenever you hear their spurious arguments justifying tax breaks for the wealthy, remember the above.

The biggest waste in government is bailing out private follies. The largest thievery comes from privatized companies making out like bandits. The biggest crooks aren’t welfare moms; they are the guys who rob you with fountain pens. And if we have to bail them out to limit the damage to the innocent, the least we can do is tax the money they made off with to pay the bill.

Phil Gramm Is Conservatism

Bill Scher — Fri, 11 Jul 2008 09:33:24 -0400

Phil Gramm thinks that the economy is wonderful and those that feel otherwise are mistaken. This is does not make Gramm uniquely callous. It just makes him a conservative.

For several years, conservatives have been mightily trying to insist the economy tastes great, so shut up and eat it.

At the end of 2004, the National Review's economic editor Larry Kudlow proclaimed, "The U.S. economy is hitting on all cylinders as 2004 passes into 2005 ... Most in the mainstream media steadfastly refuse to give the economy a break." He railed that "amidst all this economic good news," a "declinist rant" was being perpetrated by "big-media."

15 months later, Kudlow regurgitated:

It’s always amazing to listen to conventional demand-side economic pundits and mainstream reporters who try as hard as they can to minimize the excellent performance of the American economy ever since lower marginal tax-rate incentives were put into place almost two-and-a-half years ago. ... Of course, you can’t please the worrywarts.

In December 2005, Fox News' Fred Barnes also pointed a finger at "the media" for marring the pretty picture:

...gas prices have fallen, I think new home sales, maybe it was old home sales, anyway, one of them set a record last month. And, and this 4 percent growth has been going on month after month after month after month. It’s really an extraordinary economy.

And yet, when you look at the polls you’re so fond of, they show that the American people think they’re fine, but that the rest of the people in the country are doing poorly economically. Why is that? ... Because, obviously people know how they’re doing, but they have to rely on the media to tell them how the rest of the economy is outside their neighborhood. And the media has been entirely negative.

A year later, just before the 2006 congressional elections, Barnes lamented in the Weekly Standard: "The economy, strong as it is, hasn't produced a feeling of prosperity."

In June 2007, Washington Post columnist George Will concluded that Democrats had a "Prosperity Problem," based on Will's world of cherry-picked stats:

In the 102 quarters since Ronald Reagan's tax cuts went into effect more than 25 years ago, there have been 96 quarters of growth. Since the Bush tax cuts and the current expansion began, the economy's growth has averaged 3 percent per quarter, and more than 8 million jobs have been created. The deficit as a percentage of gross domestic product is below the post-World War II average.

Democrats, economic hypochondriacs all, see economic sickness.

And in January of this year, the National Review's David Gitlitz could only explain the looming recession on something other than economic reality:

If the U.S. is capable of talking itself into an economic downturn, we may be on the cusp of the first recession in history caused by a bad mood ... it’s not difficult to understand why the economic mood of the country is so bad. It’s nearly impossible to avoid the media’s constant deluge of economic negativism...

This is conservatism. The dismissal of economic burdens from others making less money than you. The belief that an ideal economy can thrive with a small boat of winners and a giant sinking ship of losers. The insistence that your economic dissatisfaction is illegitimate, and can only be explained by a brainwashing from the media or politicians.

Gramm's only unique remark was expanding the blame beyond "big media" and "the Democrats" to ... everybody. Calling America "a nation of whiners" only made glaring the fundamental elitism of conservatism.

But make no mistake. Gramm is conservatism.

It is precisely his attitude that has shaped conservative economic policies throughout the Bush Era. Massive tax giveaways to those earning more than $250,000. No investment to make education, clean energy and health insurance affordable to all citizens and businesses. No effective oversight of irresponsible corporations plundering the middle-class.

With the Bush Era ending, the choice is ours whether we want to continue being condescended to by conservatism in the coming years, or decide it is time for a progressive vision that puts our government and economy back in our own hands.

Why NAFTA Is An Anger Point Fueling The Uprising

David Sirota — Sun, 15 Jun 2008 16:50:06 -0400

I'm home for a day and a half here in Denver before heading out for the Midwestern leg of THE UPRISING book tour.

One of the things I've been finding when talking to groups is a palpable anger at our current trade and globalization policies - an anger from both progressives and conservatives that I meet. And yet, we continue to get this kind of nonsense from Serious Thinkers in major newspapers:

"All discussions of the victims of trade ignore the considerable benefits: the exports we sell and the lower prices for consumers at home. Since poorer Americans spend a higher proportion of their incomes on low-wage imports (shoes from China, for instance), trade can also be seen as favoring the less well off. If only politicians would stop preaching to them otherwise."

In reading this, our reaction should be if only insulated journalists would stop preaching fact-free rhetoric, perhaps we could actually have a discussion about the real impact of our current trade policies.

You'll notice that the author of the piece, Roger Lowenstein, offers no actual facts to back up his assertion that so-called "free" trade "favors the less well off" - other than a flippant Freakonomics-ish reference that seems smart merely by being counterintuitive. Yes, we are led to think - corporate lobbyists are crafting trade deals to help poor people. Of course that has to be true if someone as Serious as Lowenstein is writing something so absurd. If it's that absurd yet in a major newspaper, it just HAS to be true, right?

Wrong.

What Lowenstein and other Serious Trade Thinkers refuse to discuss is how inflation has been outpacing wages during the era of "free" trade. What that empirically proves is that, in fact, ordinary workers are losing out in the "free" trade deal.

The "free" traders' argument says that while NAFTA-style policies drive down wages and eliminate jobs, those policies are ultimately a good bargain for all workers because the wage-cutting, environment-destroying competition brought on by these policies lowers the price of goods.

However, if inflation (aka. the price of goods) is outpacing average wages (aka. how much workers get paid), that means on the whole workers are losing out in the deal. Sure, some goods may be priced lower because slave labor in China is now making more goods, but domestic wages here are EVEN lower than that, meaning the whole scenario screws over ordinary people. Wages, after all, are only as good as their purchasing power.

Lowenstein's rhetoric is merely one drop in the ocean of fact-free propaganda in our economic debate today. As economist Ha-Joon Chang shows in his book "Bad Samaritans," despite the well-known history of our country (and every other industralized country) using fair trade policies and strategic tariffs to build our economy into the powerhouse it is, we continue to be told that "free" trade is the only way forward.

But as I said to start this post, the public is starting to figure out just how much it is being lied to on trade and globalization. Polls show rank and file Republicans and Democrats are angry at the NAFTA nonsense from the media and from politicians - and that anger has become one of the impulses fueling the uprising I write about in my new book. The question now is whether that uprising is going to force the next Congress and the next president to change.

This is an ongoing blog series from the national book tour of The Uprising. You can order The Uprising at Amazon.com or through your local independent bookstore.

Issue No. 1: The Economy

Isaiah J. Poole — Wed, 19 Mar 2008 15:59:28 -0400

Given the headlines of the past few weeks, it's perhaps no surprise that the number one issue on the minds of Take Back America participants is the economy, according to a poll done by Greenberg Quinlan Rosner Research and Politico.com.

"The economy and jobs" was considered by 30 percent to be the issue that "the president and Congress should be paying the most attention to." At last year's conference, 34 percent said the war in Iraq was the top issue and 13 percent said the economy. This year, 24 percent rated the war as the top issue. More than 700 Take Back America attendees participated in the poll.

Other issues rated as important by TBA participants are health care (15 percent) and energy and global warming (12 percent). Other issues listed in the poll fell below 5 percent.

The headline for the political reporters at the conference was which presidential candidate drew the most response from the conference participants, and there the answer was not a surprise, either: Illinois Sen. Barack Obama was the choice of 72 percent of the conference, while New York Sen. Hillary Clinton was supported by 16 percent. "Either" got 12 percent of the vote.

Last year, Clinton had the support of 17 percent of the TBA participants who were polled at a time when there were eight candidates in the primary and a non-candidate (Al Gore) who had significant support. The result indicates that Obama has convincingly won the support of activists who were in the camps of the other presidential candidates.

The Conservative Plan for Social Security Is “An Absolute Disgrace”

Isaiah J. Poole — Mon, 14 Jul 2008 11:54:31 -0400

THE POLITICS

Last week, Sen. John McCain called the system for funding Social Security "an absolute disgrace." [YouTube] Apparently, McCain was completely unaware that the way Social Security is funded has remained the same for more than 65 years. Yet, there is an absolute disgrace in the debate over Social Security—it's the right-wing fear-mongering that Bush, McCain, and other conservatives have used to stir up support for privatization schemes.

THE FACTS

Social Security is the cornerstone of retirement in America. More than 49 million Americans receive Social Security benefits, including more than 90 percent of the elderly. Social Security provides 73 percent of the typical retiree's income, compared to 17 percent from pensions and 10 percent from savings and other sources. [Economic Policy Institute] Without Social Security, more than 35 percent of Americans aged 65 and older would be living in poverty. [AARP]

The Social Security "crisis" is a right-wing myth. The nonpartisan Congressional Budget Office projects that the Social Security trust fund will run a surplus until 2019. The fund's assets, held in the form of U.S. Treasury securities, will last another 38 years. [Congressional Budget Office] Compared to our nation's trade imbalance; the price of oil; the lack of quality, affordable healthcare; and the war in Iraq, Social Security is hardly a crisis.

The right-wing "solution" of privatization does not even address the supposed problem. Privatization means diverting workers' Social Security deductions from the Social Security trust fund into private accounts. This would cause the trust fund's surplus to run out much sooner. Consequently, most privatization schemes would cripple the trust fund. [Century Foundation]

Privatization sacrifices security. The whole point of Social Security is to ensure a minimum income for retirees, not just to benefit individuals but also to protect society. Pushing millions of Americans into the stock market guarantees that the number of seniors living in poverty will multiply. Even in a bull market there are losers, and in a bear market almost everyone suffers. A Securities and Exchange Commission report found that the average current investor is extremely uninformed about stocks and bonds. [Century Foundation] Encouraging more, even less informed Americans to play the market will inevitably bring tragedy.

THE ARGUMENT

Every American deserves a secure retirement. Retirement security is an essential part of the American Dream. Today, less than half of workers participate in a retirement plan, and only a fraction of them have access to a traditional kind of pension that guarantees income in retirement. [EPI] So a strong Social Security system is now more important than ever.

Social Security needs an adjustment, not an overhaul. Contrary to John McCain's repeated claims, Social Security is not going bankrupt. There is no scenario in which Americans would stop receiving checks. Instead, it is projected that Social Security checks would have to be cut by 20 or 25 percent if nothing is done. Social Security has been adjusted many times over the years, and it simply needs another adjustment.

Privatization schemes are designed to enrich Wall Street at the expense of Main Street. Privatizing Social Security would deliver hundreds of billions of dollars to financial services corporations on Wall Street. They would, in turn, charge Americans billions of dollars in brokerage and management fees.

THE PROGRESSIVE SOLUTION

Social Security is financed by workers and employers, each paying a flat tax of 6.2 percent of a worker's salary. This payroll tax currently applies only to the first $102,000 a worker makes; any earnings above that are tax-free. The progressive solution is to apply the tax to some or all earnings above $102,000. Sen. Barack Obama has suggested that the payroll tax should apply to earnings above $250,000 per year, which would affect only the wealthiest 3 percent of Americans. [Boston Globe]

LINKS

For more information about Social Security, click here.

To subscribe to future CAF Making Sense 2008 talking points, click here.

To see the 2006 Senate vote on establishing private accounts, click here.

July 14, 2008