Barack Obama

How to Score a Foreclosure Fraud Settlement Deal

Richard Eskow — Mon, 06 Feb 2012 14:47:17 -0500

Once again we're hearing that a foreclosure fraud deal is about to be announced between major banks, the US government, and most or all of the states. We've heard that before, only to have the deadline pushed back so that holdout Attorneys General can be brought on board with the agreement.

Deal, or no deal? We're not sure, but it's certainly possible we'll hear something today, tonight, or tomorrow.

How will we know if it's a good deal for the American people? After all, this is an issue with a lot of moving parts. It includes all of the states and multiple agencies within the Federal government, and involves a multitude of allegations involving several different kinds of crime that come under different jurisdictions. Even the statutes of limitations are a moving target.

That doesn't mean we don't know enough to judge the deal, if and when it's announced. There are well-established facts to guide us, and the principles involved are clear.

Moral and Legal Context

We keep hearing about what is and isn't possible, practical, or politically feasible. Media discussions of the topic keep mixing the quotidien problems of the process with the underlying principles involved. So let's take a second to perform a moral and legal reset and put this issue in the right context.

Legally, banks stand accused of securities fraud, investor fraud, racial discrimination, tax evasion, defrauding borrowers, and perjury (in the filing of false "robo-signed" documents). Each of the major banks has already settled charges with the SEC involving these crimes and more.

Banks committed a number of moral offenses, too, some of which may also have been illegal. Here's a quick overview:

We know that bank executives fueled the housing bubble, convinced borrowers to take out loans based on inflated home values, sold deceptively packaged mortgage-backed securities to investors (including state and local governments and working people's pension funds), concealed their true financial situation from investors while taking massive secret assistance from the Federal Reserve, were bailed out by taxpayers, took huge bonuses anyway ...

.... and never even said they were sorry.

That's what we're dealing with here. But if that's the context, how do we evaluate a settlement proposal?

Five Principles

Any deal should be measured against five basic principles: openness, justice, restitution, deterrence, and reconciliation.

Openness: Do we know what happened? Has the truth been brought to light? Do we finally understand what happened to us, why it happened, and who's responsible?

Justice means exactly what it says: Is the deal just? The American people should be able to review it and know in their hearts that justice has been served. The guilty have been held responsible, laws have been upheld, and we know once again that we live in a society of laws.

Restitution: Have those that were wronged been made whole?

Deterrence: Has the punishment been proportional to the crime? Is it severe enough to deter future criminal behavior?

Reconciliation: When major crimes disrupt a nation, the final element is reconciliation -- the restoration of social calm, renewed trust between the parties involved, and a return to confidence in the institutions of government.

These goals may be too much to ask of a single settlement deal, although we shouldn't accept that without a convincing argument. Either way, they form the moral constellation by which any deal should be scored. The fact that we can never achieve perfection - perfect justice, perfect truth, or whatever - doesn't mean we should abandon our search for justice and truth, does it?

So let's take a look at what we know of the proposed deal so far. (We'll update this as further information becomes available.)

Openness

A great deal of information has come to light about bank misdeeds. Some has come from excellent shoe-leather reporting. The Financial Crisis Inquiry Commission and the Levin Subcommittee have also provided troves of useful information on the subject.

But there's a lot that we don't know about bank malfeasance, and specifically about the roles of individual executives in condoning, approving, or encouraging these crimes.

Every time I see a banker on television complaining about his industry's bad reputation - and by implication his own - it occurs to me how easy it would be to clear his name: Just subpoena his emails and phone records, especially during the times that his bank was engaged in the fraudulent behavior for which it has already paid huge settlements through the SEC.

Any settlement that prevents further investigation into bank crime should get a much lower score. The ideal settlement would be one where banks agree to cooperate with ongoing investigations as part of the deal.

And remember: Good DAs use information about one or two crimes - in this case there are more than that - to sweat their suspects, and especially lower-level ones, into revealing information about all their criminal behavior. Any settlement that removes this leverage should be scored very low on Openness.

Indicators: Continuation of ongoing investigations; commitment of major Federal resources to the Schneiderman co-chaired Task Force and other investigative bodies.

Justice

A lot of people got shafted by the banks: borrowers, mortgage investors, and bank shareholders. Housing Secretary Shaun Donovan suggested this weekend that mortgage investors - many of whom are state and local governments, or the retirement funds of ordinary working Americans - will have to take the lion's share of the loss as part of the deal.

They've already been screwed once by bankers. That could mean the deal does it to them again. And justice isn't served when third parties pay the price for the misdeeds of others.

What's more, government settlements have almost always been paid by the bank itself, which means that shareholders foot the bill. Many of those shareholders bought bank stocks because they'd been deceived by bank executives, who lied to investors and then pocketed their bonuses. Any settlement should force bankers to pay the cost out of their own pockets.

Neither banks nor individual bankers should be given blanket immunity, either civil or criminal.

And speaking of those deceived shareholders: Why haven't any of them pressed their Boards of Directors to fire the executives that drove their banks - and the economy - into the ground? You were deceived once, folks, but there comes a point when it's caveat emptor time.

Indicators: Immunity/non-immunity from criminal prosecution for individuals; immunity/non-immunity from civil suits; financial penalties for individuals.

Restitution

Borrowers who were misled or defrauded - all of them- must have what was taken from them returned to them. Most official estimates say that homeowners are paying $700 billion in nonexistent value back to the banks, as mortgage payments on nonexistent home value. (I think that number could be low.)

We keep hearing that "greedy homeowners" are to blame, but most of these homeowners believed their banks - and the pundits who reinforced the banks - when they were told that housing values would keep going up. Many homeowners were also misled by bank-friendly appraisers who overstated the value of their homes.

In that context, how much does $17 or $20 or $25 billion achieve in restitution?

Some will argue that the restitution in this settlement should be limited to the harms caused by robo-signing. The strategy should be this: When you have a wrongdoer dead to rights, clear evidence of a crime is leverage. If this settlement doesn't use that leverage - or if it can't, for reasons yet to be revealed - it should leave the door open for future investigations, prosecutions, and/or negotiations.

The deal must also insured that banks themselves don't dispense the funds. That's like asking a pickpocket to go back on the subway and give all the wallets back.

Indicators: Scope of settlement relative to misdeeds being settled; ability for further civil suits; as much as possible, avoid having third parties pay for the misdeeds of others; retain as much leverage as possible to obtain additional restitution.

Deterrence

The principle here is simple: Bankers will keep committing crimes and other misdeeds over and over, until some of them pay a price that's severe enough to make them think twice. Those misdeeds will hurt customers, investors and, sooner or later, the entire economy.

What is price is severe enough? Criminal prosecution and the seizure of ill-gotten gains.

Without the threat of prosecution and the certain knowledge that they'll lose the money they've made if they're caught, bankers will never change.

Indicators: Ongoing criminal investigations; added resources to aid criminal probes; deal is structured so that bankers can be personally fined if found guilty.

Reconciliation

South African officials committed many crimes under apartheid. Many observers were astonished by the generosity and clemency displayed by President Mandela and his government after apartheid ended.

But that reconciliation was only made possible because the Truth and Reconciliation Commissions were not empowered to grant forgiveness to anyone who didn't admit what they'd done wrong.

By contrast, banks have repeatedly been able to settle criminal allegations with huge financial settlements in which they "neither admit nor deny wrongdoing." That's unacceptable.

The institutions of government have also been soiled by this process. Most Americans believe that their government has failed them under both political parties, as far as Wall Street is concerned - and they're right. Our faith in government, and in the political process, will not be restored with another unjust deal for bankers.

Indicators: Agreement requires banks to admit wrongdoing; Federal government pledges additional resources for investigation; rules for ongoing behavior are announced which include improved government oversight.

The Real World

The deal has to be negotiated in the real world, not on some idealized Aristotelian plane. We understand that. A 100-percent deal may be impossible.

But remember this: Right now the only ones who have all the facts are the banks. That means that any deal they sign, no matter how aggressive, is better than what would happen if the truth came out.

So the deal must push them, and push them hard.

More importantly, these principles and ideals offer a way to interpret and measure whatever deal is announced. The deal may not be perfect, but it will have to be a whole lot better than the ones that have been proposed over the past few months or it will be completely unacceptable.

The politicians and others who are negotiating this deal understand the "real world" of bankers, bank influence, and obstacles that make it hard work at times to prosecute bank fraud. But the world of justice is the real world, too. So is the world of morality. And those obstacles didn't prevent the conviction of thousands of people after the much-smaller savings and loan scandal of the 1980s.

Our society hasn't become so debased that people have stopped caring about moral principles. Public outrage over Wall Street greed proves that. These angry Americans are part of the real world too - and they'll be watching.

Job Numbers Hype: It's Bad Politics and Worse Policy

Richard Eskow — Fri, 03 Feb 2012 21:18:30 -0500

The reaction to January's jobs report shows how tragically our expectations have fallen, especially among some Democrats and their supporters. Their cheerleading isn't just bad policy or bad politics, although it is both of those things. It's also callous and insensitive to the misery of millions.

It's important to keep explaining what needs to be done to end that misery. To do otherwise is to serve, however unintentionally, an insidious agenda from the right that would lower our expectations until these tragic levels of unemployment are seen as the "new normal."

An increase in jobs is a good thing, of course, even if it's far from what's needed. Here's something else that was good about the report: Conservatives keep telling us that manufacturing jobs have moved offshore permanently, but 50,000 of them were created last month. Now we can put that argument to bed and can get to work creating more of them.

The Good, the Bad, and the Urgent

But millions of Americans - including minorities and the young - have already endured years of catastrophe, with years more to come if nothing is done. Why won't more people express support for their plight and explain what needs to be done to help them?

Here's the real story: Government intervention has created millions of jobs. But those interventions were too small, so we're still years away from fixing the problem. To claim anything else is to reinforce the delusions that created the problem in the first place.

If the President and his supporters make that case clearly and forcefully, the country will be able to choose between competing visions in November. It's more likely to choose an end its misery. The pitch is pretty simple, really: The medicine's working, but let's not stop before the patient gets well. And despite this month's report, the patient is still very, very sick.

Help is needed urgently.

The New Abnormal

At December's rate of job growth (200,000 jobs) we won't reach an acceptable level of employment until 2024. At this month's rate of growth (243,000 jobs) it will still take us until 2019. Even if we accelerated that rate of growth to 400,000 jobs per month, it would still take us until 2015 to get back to our customary and normal rate of employment.

There would be room for celebration - cautious celebration - if we were protected from more economic shocks, which could come at any time from our under-regulated and too-big-to-fail banks. But we're not. Or if the Republicans and 'centrist' Dems (including the President) weren't pushing to cut government jobs, which will slow the rate of growth even more. But they are. Or if the President were pushing for bigger initiatives, on the scale that's really needed, while making the case for the kind of short-term help we need to get this country on its feet again.

But he isn't.

The President's current jobs proposals would help somewhat, but they're still much too small. What's more, they're filled with policies that are too easy for Republicans to poke holes in. Unless he comes up with a bolder, simpler, and stronger plan, Republican rhetoric will regain a credibility it doesn't deserve - and the government solutions that have always worked in the past will be discredited through half-measures that fail to solve the problem.

If that happens, our abnormal level of pain really will become the "new normal."

Economic Apartheid

This month's reported unemployment level dropped to 8 percent for adult males. But women gained only 89,000 jobs, which is a little more than a third of the total. (They got 42 percent of the jobs in the private sector, but were heavily affected by government cutbacks brought on by misguided austerity thinking - thinking that the President has sometimes encouraged with his rhetoric.)

The seasonally adjusted white unemployment rate for January was 7.4 percent.

For young people 16-19, it was 23.1 percent.

For African Americans, it was 13.6 percent.

For young African Americans, it was 38.5 percent.

To be clear, all of those numbers have seen some reductions. But those who say the current pace of recovery is acceptable are also saying that a devastating job situation for young people, African Americans, and those who are both, is an acceptable state of affairs for years to come. That means untold harm to human wellbeing, career opportunities, future health, lifetime earnings, and entire communities across the country.

It also means endorsing a state of "economic apartheid" that's unlikely to change for the foreseeable future. That's not the kind of country that the Democrats or their supporters should be tacitly endorsing, even if only by failing to consider the long-term consequences of what's being done and said today.

And in an equally devastating finding, long-term unemployment figure was still 5.5 million. These Americans have been thrown from a life of earning and security into hopelessness and spiraling poverty - and they're being ignored.

Falling Behind

The numbers tell another story, too: People with jobs are falling behind. That's why the middle class really is in a process of slow decay. This chart tells the story:

After a period of long-term stagnation, wages only grew by 1.9 percent and there's no sign that will change. There are lots of working people who will find nothing to celebrate in this report.

Champagne Corks

Nevertheless, a number of Democrats and allies took a premature and ill-considered victory lap today. That won't help the country get the policies it needs, and it won't help them politically either. When sympathetic writers like the one quoted by Ezra Klein write of "champagne corks popping at the White House," the image seems inappropriate at best and Marie Antoinette-ish at worst.

The President, his party, and their allies need to send a clear message about these job numbers: that they disprove the conservative argument, but that whole segments of the population were left out of the good news and we're facing many years of pain and stagnation unless government steps up its efforts.

That means they must face facts and make the only argument that will resonate with the American people: That what President and his party have done has helped, but not nearly enough, and that what he is proposing will also help, but not nearly enough. His job creation proposals will be blocked by the Republicans either way, so why not use them to tell the American people what needs to be done?

The President has learned a lot, politically and economically, from the pressure he's received from the left. He's getting better at making the rhetorical case for economic justice. Now he needs to get better at losing, by losing Congressional battles with a set of solutions that the public will understand and support. It's incomprehensible that Republicans would oppose a jobs bill for veterans, but they will.

But it's equally incomprehensible that a Democratic President would offer small responses to such a large disaster. (I include the Jobs Act in the category of "small responses," since such a large chunk of it is dedicated to ineffectual tax cuts for business. But it would help.)

And it's a measure of our mad times that CNN is able to call the proposal for veterans' employment as "hefty" with a straight face. At these levels of unemployment, its estimated $5 billion price tag is almost homeopathically small.

Recovery Winter

Some people are talking about a "recovery winter," an ironic reference to the Administration's premature declaration of "recovery summer" in 2010. For too many Americans, "recovery winter" feels like more like nuclear winter.

The young people and minorities who weren't invited to the party last month can feel it. What's more, this good news could shift dramatically in coming months - if Europe collapses, if a major US bank goes down, or if the periodic recessionary cycle that's built into our under-regulated system strikes again this year.

Nevertheless, some liberals are celebrating. Ezra Klein waxes enthusiastic at the Washington Post, writing that the January report "is pretty much all good." C'mon, Ezra. All good? 23.1 percent for young people? More than 13 percent for African Americans and more than 38 percent for young African-Americans?

Klein is right when he says that revised figures for earlier periods "are positive,"at least where jobless figures are concerned. But adjusted population figures added 1.7 million people to the workforce, which means we need even more growth - and quickly. It means that overall labor force participation is at the unacceptably low level of 63.1 percent.

Klein correctly cites most other areas of concern, including lost public sector jobs and the gap between needed job growth and current figures. But he writes that " this isn’t just a good jobs report. It’s a recovery jobs report." He couldn't be more wrong, in my opinion - unless he's talking about a recovery in 2019.

And I hope Democrats don't listen when he calls these results "the sort of numbers that win elections." Current projections show unemployment rising to 9 percent again before November. This lagging recovery will give credibility to the President's opponents while discouraging his opponents, especially young people and minorities.

Steve Benen of the Maddow Blog understands what's going on behind the figures, yet still says "it's hard not to feel good about the surprising strength" of this report - a sentiment that few of the long-term unemployed would share. Jamelle Bouie of the American Prospect called the report "blockbuster" and said "the economy is looking good."

All this cheerleading feels more than a little unseemly in the face of so much misery - especially when the misery's likely to continue for years if more isn't done.

Some media types might want to be more cautious, too. A headline writer for McClatchy, which has often distinguished itself with terrific financial reporting, missed the mark by writing "January jobs report sizzles ..."

The body of McClatchy's article is much more accurate and objective, correctly noting that the figures were "better than expected" and quoting everyone from a market analyst who cheerleads the numbers for different reasons, to the President and House Speaker John Boehner. But the title's pure hype - unless they meant "sizzle" as in that old expression about "separating the sizzle from the steak."

The Balance

It's time for Dems and their allies to stop partying like it's 2019.

It's not hard to strike the right balance between encouragement and admonition. Alan Krueger, Chairman of the President's Council of Economic Advisors, came close. “It is critical that we continue the economic policies that are helping us to dig our way out of the deep hole that was caused by the recession that began at the end of 2007,” wrote Krueger, who called the report "an encouraging sign."

“Nonetheless," Krueger added, "we need faster growth to put more Americans back to work.”

That wasn't hard. Jared Bernstein struck the right balance, too, calling on Congress to "seal the deal" and saying "let's not screw this up." (Although I wish he had explained what a full recovery plan could do.)

The Republicans struggled to respond today."These numbers are encouraging," said Eric Cantor, "especially for those millions of Americans out of work, but we should aim even higher.”

Great, the President should say. I'll take you up on that.

The Message

The right message is clean and simple:

1. What we did worked. But we need to do more of it.
2. So let's stop the bleeding of public jobs. We've seen the damage that's caused in Europe and we don't want that here.
3. The deficit is a legitimate concern - after we address today's crisis with "the fierce urgency of now."
4. The best way to cut deficits in the long term is to put Americans back to work so they can pay their taxes and buy things that create even more jobs.
5. We tried to compromise with our opponents, because we thought they'd be reasonable. They weren't.
5. So here's what it takes to get that done, with no games or pretense. Let's go to work, and if the Republicans won't help, please vote for people who will.

See? The right message is simple, clean, honest, and easy to deliver. It's cheap, too: No champagne corks necessary.

Michael Hudson Interview: Fraud, Folly & Mortgages at GE, Whose CEO Heads the President's Jobs Council

Richard Eskow — Tue, 31 Jan 2012 00:01:21 -0500

This is the audio clip of an interview I did for The Breakdown this weekend with journalist and author Michael Hudson, who did a terrific piece on GE Capital's mortgage crisis called Fraud and Folly: The Untold Story of General Electric's Subprime Debacle:

Hudson's a thorough and sober-minded journalist, so it's striking to find a paragraph like this in his reporting:

"What GE got in the bargain, former WMC employees say, was a place where erstwhile shoe salesmen, ex-strippers and even a former porn actress could sign on as sales reps and make big money pushing home loans. WMC's top salespeople earned a million dollars a year or more and lived fast, swigging $1,000 bottles of Cristal and wheeling around in $100,000 Ferraris and Bentleys."

Makes you wonder who did the due diligence for GE: Larry Flynt? Things don't get better once GE takes over.

The activity described in this interview and in Hudson's article includes retaliations against internal auditors who attempted to do their jobs, a culture of punishing whistelblowers,and reports of fraud which are now reportedly being investigated by the FBI. There are seven important facts to bear in mind as you listen:

They took place in a corporation headed by Jeffrey Immelt, who also leads President Obama's Jobs Council - that is, we're discussing events that occurred after the acquisition and which involved GE executives and employees;
Immelt's GE paid $50 million to settle charges that it made "materially false and misleading" statements four times, which is fraud;
Immelt's GE settled charges of defrauding investors over Jack Welch's retirement package in 2004;
Robert Khuzami, who now co-chairs that fraud task force with Eric Schneiderman, allowed GE to settle fraud charges after saying GE "broke accounting rules to the breaking point," which is another way of saying it broke those rules, which is another way of saying "fraud";
investigators felt strongly they had identified specific individuals in the accounting department who had committed fraud, and were reportedly astounded when the Justice Department failed to prosecute;
GE stands accused of participating in the Iraqi oil-for-food bribery scandal;
and that officials in Washinton bent the rules so that GE, which is not a bank, could receive at least $75 billion in aid from the US taxpayer.

See "GE Capital: In the Dark" for more information.

My commentary on the interview is here:

COMMENTARY ON MICHAEL HUDSON

Michael Hudson is a staff writer for The Center for Public Integrity and author of The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—and Spawned a Global Crisis.

For a State of the Union Home Run, the President Should Stand Up For Social Security

Richard Eskow — Sun, 22 Jan 2012 17:23:18 -0500

Like a lot of former Obama voters, I've had my issues with the President. Sure, it helped when he sang that Al Green song at the Apollo Theater last week. (Good job, Mr. President! Good pitch and an appropriately understated delivery.)

But in a time of uncertainty people are looking for certitude. In a time of great battles people are looking for strength. They don't just need to hear the words when they listen to their leaders. They need to feel the music.

The State of the Union Address is scheduled for this Tuesday night. The President can go a lot further toward winning over voters who are disappointed, doubtful, or just unenthusiastic, if he chooses an issue that's vitally important to them and offers a clear, strong and unequivocal defense.

Social Security is the ideal issue. It's one of many, according to polls, where both parties are out of step with voters. After seeing their savings, pension plans, and housing values destroyed, people are frightened about their retirement security. They don't hear anybody in Washington offering to protect their benefits.

And to borrow a phrase from Rev. Al, they're tired of being alone.

People's Choice

Last year the President narrowly averted political disaster in his State of the Union address. He bowed to outside pressure and abandoned an ill-conceived plan to propose cutting Social Security benefits and a partial lifting of cap on payroll taxes that fund them. But a form letter from the White House illustrates the Administration's still-squishy position on both Social Security and Medicare.

The White House is clearly preparing for an economically-themed, pro-99 percent speech this week. A chart is clearly visible on its SOTU website, although its still just a preview, showing the difference in pay between the average worker and the average CEO. In a short video, Presidential advisor David Plouffe tells viewers that charts and other information will be available there after the speech.

As President Obama continues his electoral-year pivot toward populism, Tuesday night's offers the perfect chance for a home run. There's no better way for the President to start the year than with a vigorous, unambiguous defense of Social Security - and Medicare, too.

Poll after poll has shown that Americans - including most Republican voters and Tea Party members - oppose cutting Social Security to balance the Federal deficit. So it's a good thing that the President scrubbed that proposal from last January's SOTU. Republicans would have rejected it and then spent the next two years running as the defenders of Social Security, much the same way they ran as defenders of Medicare in 2010.

(Sure, that's insanely hypocritical from the party of the radical Ryan proposal to dismantle Medicare. But that's never stopped them before, and it won't stop them this year either.)

Evasive Maneuvers

Yet for some reason - perhaps because they believe Republicans will have a change of heart and cut a deal on Social Security, and don't realize how hated such a deal would be - the President and his team continue to equivocate on Social Security. They continue to say only that they won't "slash" the program - although the proposals they've considered are pretty slashing for recipients.

A recent form letter, received by a friend who expressed concern about proposed Social Security cuts, shows that the equivocation and evasion hasn't stopped. "Dear Friend," the letter said, "I have heard from many Americans who are concerned about their retirement savings ... Retiring with dignity is a promise we must keep to all Americans, and I am working hard to strengthen our retirement system."

The letter goes on to say:

"That is why I am committed to protecting Social Security and addressing Americans' concerns. Social Security cannot be subjected to risky privatization plans because the future of hard-working Americans should not be left to the fluctuations of financial markets."

To better secure their retirement and prepare for unforeseen circumstances, Americans must also save for their future in other ways. We are laying the foundation for all individuals to participate in workplace retirement accounts. Employees would be automatically enrolled in pension plans and could opt out if they choose. Simple and automatic enrollment makes it easier for people to plan for retirement. This would assist the 75 million working Americans-about half the workforce-who lack access to retirement plans through their employers ...

Thank you, again, for writing.

Sincerely,

Barack Obama"

Anger Management

My friend's reaction wasn't what they were looking for. She was furious. She hadn't written to express her concern about her "retirement savings," but to ask for the President's reassurance that he won't cut Social Security.

The GOP privatization plan is off the table and she knows it. And the paragraph about opt-out pension plans confused her. "Isn't that the Republican privatization plan?" she asked.

She's paid her Social Security contributions all her life, and she was asking if her benefits would be there when she retired. Instead she felt she'd gotten the runaround, with an evasive run of double-talk, with a little lecture about her own moral failings ("Americans must also save ...") thrown in for good measure.

Real Bipartisanship

This is a problem but it can be fixed, and the State of the Union is the perfect place to do it. People are anxious to hear a rigorous defense of Social Security and Medicare. Here's why this issue is a winner for the President:

Social Security isn't in danger. He can explain why during Tuesday's speech, and then back it up with information on graphics on his SOTU website. He can use the work of Ronald Reagan's chief Social Security actuary to reinforce his point.

The President can push his favored bipartisanship theme, but this time he'll have a truly bipartisan position. Most Republicans want Social Security preserved. He can link to this report, prepared by a bipartisan panel of experts under Republican President Dwight D. Eisenhower, to rebut the most common (and completely false) anti-Social Security talking points. (They were around in 1958, and in 1935 too.)

President Obama can also use this as an opportunity reinforce the fact that government has a vital role to play in our society, and that there are some things it can do better than private businesses can. He can point to the military, the police, public health, education - and to private benefits like Medicare and Social Security.

Soul of a New Machine

The Administration's SOTU website displays its mastery of form, which now needs to be matched by a mastery of content. That means simple, direct and clear statements like "We will not tolerate any cut to Social Security - not on my watch." And "We won't let them be cut directly - or indirectly, by raising the retirement age or lowering the already-inadequate cost of living increases people receive."

The President's team has a truly impressive mastery of political technology. Now they need to infuse that technology with a simple, forceful message that resonates in the heart.

David Plouffe tells viewers that the speech will be about a government that "works for the middle class," around the themes of "a fair share, a fair shake, and fair play." Social Security is a perfect fit for that message:

A "fair share" is asking the wealthy to pay a more proportional contribution for Social Security and Medicare.

A "fair shake" means not cutting benefits for people who have worked all their lives.

And "fair play" means not punishing the rest of the nation because a radical upward distribution of income has created an easily fixed long-term imbalance in Social Security.

The President has a great opportunity on Tuesday night. By defending Social Security - and making a firm commitment to ensuring that benefits aren't cut - he can tell voters that, in Al Green's words, "You ought to be with me."

If he does, come November they'll be more likely to say "Let's Stay Together."

(Now it's time for Rev. Al - in his decidedly pre-Reverend days - to remind us what we're all really looking for.)

This post was produced as part of the Strengthen Social Security campaign.

The Obama Administration's 'New' Bank Fraud Deal: Still Unfair, Still Unjust, Still Unbalanced

Richard Eskow — Tue, 10 Jan 2012 23:22:54 -0500

The Obama White House continues to push for a settlement that would let bankers avoid being punished - or even investigated - for a wave of mortgage-related crimes that includes perjury, tax evasion, and several types of fraud.[1]

Despite the President's new-found populism - rhetorically, anyway - officials in his Administration continue to push an unfair deal designed to conceal the financial Crime of the Century.

The Financial Times reported on new details of the proposed settlement, whose stated purpose is to punish banks and reduce the amount of money owed by underwater homeowners. But it's increasingly clear that the deal wouldn't help homeowners very much and wouldn't punish bankers at all.

Banks could lower those loan balances by reducing the amount owed on mortgages owned by investors and not by the bank itself. That's what Bank of America is accused of doing as part of an $8 billion settlement it reached in 2008. This deal would set the stage for a repeat performance.

This proposed deal is still unfair, unjust, and very unbalanced. And it has the Administration's fingerprints all over it.

Unfair

Banks deceived investors into buying bundled mortgages (mortgage-backed securities) that they knew were worth far less than they were paying. Now, as part of this settlement deal, they could shaft those investors again. Many of the investors are from the 99 percent, not the one percent. As the head of the Association of Mortgage Investors told the Financial Times, "It would be a pyrrhic victory to settle the mortgage crisis with the money of public institutions, pension funds and seniors."

The proposed deal would force banks to meet a certain dollar limit for reducing mortgage principal. But it's designed to let them use other people's money - mortgage investors' money - to reach that limit. They would have to reduce principals by a larger amount if they were using someone else's money.

Taking $1.00 off their own books might get them $1.00 closer to their goal, while using investors' money money only "earn" them fifty cents. Is that really supposed to encourage them to do the right thing?

Ask yourself: What if you were given a choice between spending a thousand dollars of your own money to pay a fine - or two thousand dollars of someone else's? (And remember: You're a banker, so don't let conscience influence your decision.) What would you do?

The money should come out of the banks' balance sheets, not those of mortgage investors that in many cases they've already defrauded. Even that isn't entirely fair: Many pension funds and other institutional investors hold bank stock, too, as do unwary private investors. They've also been defrauded by bank executives. But someone has to pay the price for trusting these bankers and tolerating their continued presence in the executive suite.

Guess whose shares have soared since details of this proposed deal emerged? Bank of America. The rest of the country may suffer under this day, but the leaders of its worst-run bank (and that's saying something) will make out like ... well, like bandits.

Unjust

Justice: 1. the maintenance or administration of what is just, especially by the impartial adjustment of conflicting claims ... the administration of law; especially the establishment or determination of rights according to the rules of law or equity. 2 the quality of being just, impartial, or fair.
-Merriam-Webster

And speaking of bandits: The evidence of banker crime is overwhelming. For any group of citizens but bankers, the investigations and prosecutions would have started years ago.

Justice isn't served by the suppression of information. (Neither is the free market.) Justice isn't served by letting an entire group of wealthy and powerful individuals remain above the law. And justice isn't served when millions of Americans continue to pay the price of financial ruin or hardship for crimes that will forever remain unpunished.

In fact, justice won't be served unless bankers themselves are forced to pay personally. Many of them made millions by deceiving homeowners, shareholders, and investors. Unless they're required to reimburse their victims they have no reason not to keep defrauding them again and again.

And do we really think that the country's screwed-over homeowners will find justice under this deal? The Administration's Making Home Affordable program was supposed to help homeowners who had missed two or more payments, but new Treasury Department reports show that less than 20 percent of the 4.6 million people who fit that description will even be considered eligible for the program.

Is this bank-managed program likely to do any better, especially with the design flaws we've heard about already? (There are bound to be others that haven't been reported yet.)

Here's the most unjust thing of all: Under this deal,crooks will get away with their crimes without even suffering the embarrassment of being investigated. Whoever said "crime doesn't pay" will have to eat their words - again.

Unbalanced

The entire amount of the deal is $25 billion, and we now know that even some of that will be payable out of other people's funds. Let's put that figure in perspective:

American homes have lost more than ten trillion dollars in value as a result of the bank-fueled bubble and crash. $25 billion is one-fourth of one percent of the lost value.

Americans owed $750 billion in principal for non-existent real estate that evaporated after the crash, as of the last study. That's money borrowed against values that were artificially inflated by the banks, which made bankers rich and left homeowners holding the bag. That figure has risen since then.

But even if we don't adjust for additional losses, $25 billion is a little more than 3 percent of the amount that's owed for nothing - that is, for bank-inflated and now nonexistent home value.

There were more than 11 million underwater mortgages in this country as of last report. The number is higher now, but even at the artificially low figure of 11 million homes, this settlement would only provide about $2,200 for each mortgage. Does that sound right to you?

The "good news" for 2011 was that US homes only lost an estimated $681 billion in value. That's down from the $1.1 trillion lost in 2010. But even at last year's slower rate of loss, know how long it would take for US homes to lose the entire $25 billion amount of this settlement in value?

Less than two weeks.

PS: It's Unwise,Too

It's possible that the President and his advisors don't understand the level of outrage the public feels - outrage over being fleeced by banks, who kept telling them that real estate was a 'can't lose' investment even as they artificially inflated its value; and outrage over the lack of prosecutions for the bank crimes that have caused such damage to their lives.

If so, they're acting very unwisely. The President's popularity has risen since he's started adopting the rhetoric of populism and economic justice. How long would it take to fall once his Administration puts a deal like this into place?

But politics isn't the biggest problem with this deal. Fair play would take a beating under this settlement, making a mockery out of our system of justice. But even that might not be its biggest problem.

If it goes through, we may look back at this agreement someday and decide that this was its biggest problem: Bankers who get away with breaking the law always do it again. When they do, another financial crisis is sure to follow.

And next time our economy may not survive.

__________________

[1] See
- That $335 Million Bank of America Settlement: The Good, the Bad, the (Very) Ugly
- Wall Street: Guilty as Charged
- Mr. President, Stop Protecting Bankers ...
- Pictures Of MERS, Part 1: Corporate Documents Illustrate The Mortgage Shell Game
- Fix Foreclosure Fraud With A Borrowers' Bill Of Rights
- Getting Medieval On Your Assets: Four Reasons Foreclosure Fraud Really, Really Matters

Recess Appointments: Backlash to Blackmail

Leo Gerard — Tue, 10 Jan 2012 09:54:26 -0500

In America, when gangs of bullies torment school children, pushing them around and extorting their lunch money, parents know only one response effectively counters the abuse: confrontation. Running, whining, negotiating -- none of that works.

For the past year, since Republicans took the majority in the U.S. House of Representatives, they’ve behaved like young thugs, extorting Democrats to get what they wanted. Employing the blackmail techniques of schoolyard gangs, House Republicans repeatedly threatened to hurt the American people and the American government if Democrats didn’t submit.

Then President Obama confronted them. In recent weeks, he finally internalized and implemented the advice of American parents on dealing with bullies. He stood his ground. He called the GOP bluff on the payroll tax. And they backed down. He recess appointed four officials, defying GOP attempts to thwart service to American workers and borrowers.

Apparently, it’s a new day in Washington, one in which Democrats, who control the presidency and the majority in the U.S. Senate, are fed up and not going to take GOP extortion anymore.

For a year, Republicans leveraged their demands with blackmail. If Democrats didn’t accept draconian and economic recovery-starving budget cuts, Republicans would shut down the government. If Democrats didn’t agree to slash the budget by exactly the amount Republicans required, the GOP would destroy the country’s credit rating.

In December, House Republicans overplayed. Initially, they’d opposed President Obama’s proposed extension of the payroll tax break that puts about $1,000 a year back into the pockets of working Americans. Just before the holidays, they changed their minds and said they’d accept a one-year extension, if it were offset by cuts in the federal budget. A dispute ensured between Democrats and Republicans about what to cut. As time ran out before the scheduled holiday break, the Senate compromised and passed a two-month extension, with the remaining 10 months to be settled later. The approval was overwhelming, 89 to 10. The Senators went home.

That bi-partisan action in the Senate left House Republicans with the choice of approving a two-month extension of a tax break they claimed to support or rejecting it, which would increase payroll taxes for 160 million workers.

For days, House Republicans refused to accept the Senate measure, threatening workers with a tax increase. The House Republicans claimed they wanted a one-year extension, but what they really wanted was a one-year extension paid for by cuts they chose without Democratic input. They demanded Senators return to Washington and vote on cuts to support a one-year deal. Or they’d increase taxes.

The Senate refused. Obama refused. They confronted the bullies.

And the bullies blinked. The House passed the two-month extension.

Before they left town, however, the House Republican majority refused to allow the Senate to recess for more than three days. The Constitution permits each chamber to deny the other the ability to adjourn for more than 72 hours. The result is charade sessions in which a lawmaker, every three days, smacks down a gavel, declares the chamber open for business, recites the Pledge of Allegiance, then strikes the gavel again to close and leaves.

No lawmaker actually works for the people during these “sessions.” But the political dance allows a chamber to claim it’s not recessed. And that’s supposed to stave off recess appointments by the President.

In this case, Republicans intended to block recess appointments to the National Labor Relations Board (NLRB) and the Consumer Financial Protection Bureau. By New Year’s, NLRB membership had dwindled to two, denying the organization the quorum that this group, whose function is to protect workers’ rights, must have to make decisions.

The Consumer Financial Protection Bureau, by law, could not fulfill all of its duties to protect borrowers from fraudulent lending practices until it had a director. Using blackmail again, Republicans said they would filibuster the appointment of any proposed director, no matter how qualified, until they got what they wanted – which was measures to weaken the Dodd-Frank Wall Street Reform and Consumer Protection Act, legislation designed to prevent another Wall Street collapse.

Republicans created what appeared to be a foolproof scam to cripple implementation of the law. The legislation wouldn’t be fully effective without a Consumer Financial Protection Bureau director and Republicans refused to approve a director unless Democrats agreed to dilute the law. In addition, the GOP would block recess appointments by never officially recessing.

Obama rebuffed this abuse. He called a legislative session that opens for three minutes every 72 hours while 99 Senators are vacationing what it is – recessed. And he made the appointments. He explained:

“When Congress refuses to act and, as a result, hurts our economy and puts people at risk, I have an obligation as President to do what I can without them. I have an obligation to act on behalf of the American people. I will not stand by while a minority in the Senate puts party ideology ahead of the people they were elected to serve. Not when so much is at stake. Not at this make-or-break moment for the middle class.”

Give ‘em hell, Barack!

Well Done, Mr. President! Now About That Foreclosure Fraud Settlement ...

Richard Eskow — Thu, 05 Jan 2012 12:23:34 -0500

Congratulations, Mr. President. This week you followed your increasingly populist rhetoric with some decisive action on behalf of the middle class.

Republicans have been waging a sabotage campaign against the lawful functions of government. With these recess appointments you've shown that you'll use your Presidential authority to stop them. Unfortunately, your Treasury and Justice Departments are still running interference for the big banks.

Your officials are pushing a foreclosure settlement that thwarts justice and potentially leaves criminals in positions of wealth and power. If this settlement is finalized it would undo all your recent efforts, leaving the distinct impression that your Administration works for bankers and not the public.

It's time to call off these officials and instruct your Administration to pursue wrongdoing wherever it may be found.

Republican Fifth Column Sabotages America

Obstructionist Republicans have been blocking the appointment of anyone to direct the Consumer Financial Protection Bureau (CFPB) for nearly a year, preventing it from assuming its full regulatory powers under law. They've also been refusing to confirm anyone to seats on the National Labor Relations Board (NLRB), which has paralyzed that agency.

That's not an accident. Republicans on Capitol Hill have had a long-term strategy of paralyzing the government from within in exactly this manner: by refusing to approve nominees to carry functions that were passed into law by Congress itself.

The CFPB is a case in point. Once it was created by Dodd/Frank (with two Republican Senators voting "aye"), forty-four Republican Senators signed a letter say they would refuse to confirm any Director until the bureau was made considerably weaker. Two Senators who had the bill watered down in return for their votes, Olympia Snowe and Susan Collins, then turned around and signed the letter.

Burning Down the House (and Senate)

See what they did there? The law was passed according to due legislative process,and these Republicans immediately announced their intention to paralyze the bureau with a technical trick. That's sabotage, and the saboteurs included two Senators who won concessions in return for their votes and then worked to undermine the very deal they'd accepted.

As for the NLRB, Dave Johnson recently observed that Republicans paralyzed it by using the same tactic - refusing to confirm anyone for seats on its board. As a result, American employees were left without government-sponsored workplace protections.

Republicans also set about to deliberately obstruct and hinder the functioning of the Financial Crisis Inquiry Commission, a bipartisan panel created by Congress to investigate the causes of the financial crisis that has harmed tens of millions of people. As internal emails and other evidence soon made clear, several Republican appointees made it their business to obstruct the Commission's actions. Then they fought to discredit the Commission's final report. (See here and here.)

That's sabotage, pure and simple.

The Turnaround

Faced with such brutal obstructionism, it's been remarkable at best that this President has used his recess appointment power much less than his predecessors. That has seemed like a remarkably passive response to a concerted Republican campaign designed to paralyze the lawful functions of government.

Now it looks as if the President is beginning to fight back. CFPB Director Richard Corday is promising aggressive action and the NLRB can go back to work protecting Americans who work for a living. This action caps a two-month period in which the President has begun using the populist rhetoric of Teddy Roosevelt and Occupy Wall Street, and has promised at long last to stop dancing with an obstructionist Congress and take bold action to address our ongoing economic crisis.

He's being rewarded for it in his poll numbers, too. He's still in big trouble compared to his predecessors - even Jimmy Carter was doing much better at this point in his Presidency - his approval ratings have jumped since he began following some of the advice he's been getting from the much-decried "institutional left."

That shouldn't be a surprise: Poll after poll has shown that the vast majority of voters (often including a majority of Republicans) wants to see higher taxes for millionaires, safeguards for Social Security and Medicare, and an end to the cushy treatment of Wall Street wrongdoers. Appointing Cordray will help him address that last issue.

If he keeps this up the President could paint a 2012 narrative that's straight out of a Sam Peckinpah movie: He was reasonable - maybe too reasonable, some folks said.

I can see the poster now. But everybody has their limit ...

The artlessness of the deal

But any good will the President may have earned could be evaporated in an instant if a cushy foreclosure fraud settlement is reached with the big banks. There is a mountain of evidence suggesting that bankers deliberately committed widespread fraud against homeowners by filing false court documents (perjury), avoiding local and state filing fees (tax evasion), and deceiving investors about the quality of mortgage-backed securities (fraud; securities fraud).

The public has watched with frustration and fury as the SEC negotiates deal after deal with big banks to settle their criminal activity with fines that are paid by others (often the same investors who were defrauded by bank executives) while the Justice Department does nothing to investigate or indict bankers. A few courageous state Attorneys General have been investigations that could uncover the extent and nature of the banks' criminal fraud and put some malefactors behind bars.

Nevertheless, officials in the Obama Administration are still aggressively pushing for a deal that would allow the banks to pay a relatively small sum, given the scope of their crimes. It would shut down those state investigations, too. That would prevent the public from every learning the extent and nature of bank crimes, and would protect possible criminals from the consequences of their actions.

There's still time

Imagine what will happen if a settlement deal is announced in the next few weeks or months, and that deal allows bankers to walk away scott-free while homeowners suffer. The President's poll numbers will plunge. Occupy demonstrators are likely to target banks, the Justice Department, the White House, and every Democratic precinct headquarters in the country.

And that's not the tragedy here. The consequences for American homeowners would be the real tragedy: No justice for people who were deceived into borrowing money on homes that the banks knew would drop in value. No justice for people whose homes were over-valued by bank-friendly appraisers. No justice for states who were defrauded out of their bank fees, or for investors who were deceived into losing money.

Even people who were foreclosed upon illegally wouldn't be guaranteed justice, since the administrator of the restitution fund would be hired and supervised by the banks. (There would be oversight by government regulators, but how has that worked out so far?)

Don't do it, Mr. President. Don't let your Administration be the architect of a lousy deal like this. There's still time to do the right thing. There's still time to use your Administration's resources to help the states uncover crimes, wherever they occur.

Most of all, there's still time to issue a directive to the Treasury Department and Justice Department: No cushy deal for bankers.
_________________________________

That $335 Million Bank of America Settlement: The Good, the Bad, the (Very) Ugly

Wall Street: Guilty as Charged Mr. President, Stop Protecting Bankers ...

Pictures Of MERS, Part 1: Corporate Documents Illustrate The Mortgage Shell Game

Fix Foreclosure Fraud With A Borrowers' Bill Of Rights

Getting Medieval On Your Assets: Four Reasons Foreclosure Fraud Really, Really Matters

For a Sane Economy in 2012, How About a Little Shame?

Richard Eskow — Mon, 02 Jan 2012 16:17:11 -0500

The other day I was asked what one single thing could do the most to save our economy. What one idea or tool might help us create a more just society? My answer was "shame."

Shame isn't always a wasted or negative emotion. On the contrary, it can perform an important and socially useful function. Shame enforces our moral values even when legal and political institutions are too broken or corrupt to do so. Our society must learn to develop a "moral economics," and morality is often enforced through shame.

We live in a society where it's no longer considered shameful to oppose spending $6 billion to save nearly 8 million lives, even though that's less than $800 apiece. This kind of cynicism is so accepted, in fact, that even the more liberal political party doesn't dare suggest it. We live in a society where it's not shameful to let crooked bankers go unpunished while asking everyone else to pay the cost of their illegal enrichment. Nowadays even the lawbreakers aren't ashamed of themselves!

Incredible.

Perhaps no single change to our culture could do more to improve our lives than the rediscovery of the shame we used to attach to vile, greedy, selfish, and corrupt behavior. Consider how far we've fallen:

Not long ago a person would have been ashamed to appear in public if they had shattered the global economy by cheating millions of innocent people, accepted the outstretched hands of the same people they'd cheated by accepting an unconditional bailout, and then cheated them again.

Not long ago a politician who accepted the corrupting dollars of known criminal bankers immediately paid a steep price. (See the Keating Five, for example.)

Not long ago political figures and pundits were ashamed to openly advocate the deaths of millions of people just to provide tax advantages for the wealthy or ensure more favorable market conditions for predatory corporations.

In 2012, it's time for shame to make a comeback.

Where would it be useful? Here are just four examples out of thousands to choose from:

1. We should be ashamed that we don't give more to fight global AIDS.

A new medical study showed that developed nations could save 7.9 million lives in the next eight years by increasing AIDS funding for developing countries by $6 billion. That comes out to about $760 for each human being whose life would be spared. As an added benefit, an estimated 2.5 million people would never be infected with AIDS at all.

George W. Bush began the anti-AIDS program known as PEPFAR in 2003, and funding grew steadily every year until President Obama took office. It then flatlined in the first year and dropped in the second year, before increasing slightly in the third Obama budget:

Image source: Kaiser Family Foundation

An ethical society -- not just ours, but of all developed nations -- would find it unacceptable to deny these programs the funding they need. Six billion dollars sounds like a lot, but the top 25 U.S. hedge fund managers made $22 billion last year. Taxing them at the same rate they paid under Ronald Reagan would cover the entire amount and would save all those lives.

But the Republican Party opposes anything like that, and President Obama hasn't asked for more.

2. Leaders of serial corporate criminal banks should be ashamed of themselves.

Jamie Dimon, CEO of JPMorgan Chase, makes it a habit to publicly express his resentment at the very mild and genteel criticisms that lawbreaking bankers must endure in our society. He does so with a combination of disingenousness and genuine self-deception that is a marvel to watch. In his latest outburst, Dimon complained about Occupy Wall Street by saying, "Acting like everyone who's been successful is bad and because you're rich, you're bad, I don't understand it. Sometimes there's a bad apple, yet we denigrate the whole."

Maybe those "bad apples" would provoke a different reaction if executives like Dimon weren't personally supervising such a large barrelful of 'em. Shortly after Dimon expressed his outrage, his bank and a number of its employees went on trial in Italy for allegedly deceiving a municipality into deliberately and deceptively purchasing bad investments. And while this Business Week article carefully points out that these alleged crimes took place before Dimon became CEO in 2006, he was already president and COO at the time of the worst allegations

As president and COO, Dimon also presided over an institution that paid hundreds of millions of dollars after it bribed municipal officials in Alabama and misled investors in a fund called Magnetar. Under Jamie Dimon's leadership, JPMorgan Chase (or rather, its investors and insurers) paid a fine for breaking the law while promising not to do it again -- and then promptly did, at least three more times.

Similarly, GE Capital keeps breaking the law under CEO Jeffrey Immelt. In its latest settlement, a division of GE paid (or rather, its investors and insurers) paid $25 million after being charged with what the SEC described as "fraud for participating in a wide-ranging scheme involving the reinvestment of proceeds from the sale of municipal securities."

This is merely the latest in a GE crime spree that includes misleading investors, bribing Iraqi officials in the "oil for food" scandal, and what the SEC described as "fraud, deceit, or deliberate or reckless disregard of regulatory requirements [that] resulted in substantial loss, or significant risk of substantial loss, to other persons."

And yet Immelt, like Dimon, walks in polite society. He even leads President Obama's recently renamed "Jobs Commission."

Nobody is saying "because you're rich, you're bad." Nobody's calling Warren Buffett bad, for example. They're not even saying that about megamillionaire Jimmy Buffett -- and after the 6,000th hearing of "Margaritaville," that's pretty damned generous if you ask me.

But here's why words like "bad" get attached to executives like Dimon and Immelt: because they or their subordinates keep breaking the law, and either they don't care about it or they aren't competent enough as managers to stop it. Their arrogance and pronounced lack of remorse suggests it's the former rather than the latter. But either way, they're in no position to lecture others, especially since the lawbreaking keeps fattening their personal bank accounts.

They should be ashamed.

3. Officials and bankers should be ashamed that "too-big-to-fail" banks still exist.

As Simon Johnson notes, "Big banks represent the ultimate in concentrated economic power in today's economies. They are able to resist all meaningful reform that could really change their compensation schemes. Their executives want to get all the upside while facing none of the true downside. But capitalism without the prospect of failure is not any kind of market economy. We are running a large-scale, nontransparent, and dangerous government subsidy scheme for the benefit primarily of a very few extremely wealthy people."

The top U.S. banks now control more of the economy than they did before the Great Recession. The Fed is secretly bailing out Europe's too-big-to-fail banks as this is being written. And nobody's doing anything to change that.

They should be ashamed.

4. It's shameful to preach welfare for bankers and austerity for everyone else.

Meanwhile, in the great capitals of Europe and North America, the talk is of austerity economics. That means drastic cutbacks in government services that the public has paid for, like Social Security, that form the backbone of a prosperous, fair, and humane society. Leaders are calling these cuts "unavoidable" even as economists warn that they're already creating a new European recession.

It is, as Paul Krugman observes, something that will appear remarkable to future historians (if any history departments survive the austerity cuts to preserve the profession). They're not prescribing the "hair of the dog"; they're forcing the entire dead animal down the public's throat.

Why would Europe's leaders propose a set of policies that is already demonstrably making the economy worse? In part, probably because it's the easiest way to prop up the current financial system. Comprehensive economic reform would threaten the institutions they feel sworn to protect. Conventional thinking is also a big part of the problem -- and conventional thinking makes no room for a "moral economics."

For that they should be deeply, deeply ashamed. The Hall of Shame includes Angela Merkel of Germany, Nicolas Sarkozy of France, David Cameron of Great Britain, and -- at times -- Barack Obama of the United States. And if they're not capable of shame, the society around them must express that shame for them. It's already moved Obama's rhetoric, and we need more of the same in the coming year.

For those who preach the radical dismantling of the government that made our society great -- especially the Republicans of the United States -- no amount of shame can be enough. And for someone like Mitt Romney, who knows how to read financial reports and clearly knows better, it's worth noting that the eighth circle of hell is reserved for those who knew better and yet did wicked things anyway.

Let's make 2012 the Year That Shame Returned to the Economic Debate.

2011: The Year of Resistance to Conservatism's "War of the Words"

Richard Eskow — Sat, 31 Dec 2011 15:36:50 -0500

Our lives are defined by invisible wars, wars whose theater of combat is the human imagination. These economic and political wars are waged year in and year out, decade after decade, century after century.

Words are the weapons of choice in these wars, and the corporate-backed radical right adds new ones to its arsenal every year. This year was no different. From "entitlement reform" to "triggers," the corporate oligarchs couched their aggression in decoy language that made it possible for Democrats as well as Republicans to launch them on an unsuspecting public.

But something was different this year. This was the year that the people came up with some words of their own, outside the corporate- and billionaire-funded think tanks of conservatism. For the first time in many years, the right-wing warriors of language ran into heavy resistance. That's an important development that should be celebrated -- and repeated.

War of the Words

The corporatists own the Republican Party, and large swathes of the Democratic Party too. Most Americans disagree with their ambitions, but they've been so good at designing and using these linguistic weapons that the public hasn't had a chance. Major media journalists have used these words as mantras, while too many Democrats have embraced them for their own selfish purposes.

That's why they keep winning so many battles, no matter who's in power.

Some people make the mistake of underestimating the importance of these wars, because they're fought with words and not actions. But people's actions are shaped by what they believe, and what they believe is shaped by words.

Nobody understands that better than the corporate interests and their minions. That's why Newt Gingrich wrote a political memo in 1996 entitled, "Language: A Key Mechanism of Control."

Now there's a word that should strike fear in the heart: "Control."

Control

For the past five decades our national dialogue -- and therefore our thinking -- has been warped by the use of words as weapons of economic war. From "death tax" to "job creators," the public has been saturated with prefabricated words and phrases that reshape the thinking of millions of people in an Orwellian way.

Teachers, police, bus drivers and firefighters became "special interests" while mega-corporations became "people" who were being "deprived of their rights." The values that had inspired all of our nation's leaders for a century, Republican and Democratic, were suddenly "radical," "extremist" and "treasonous."

And rather than resist, Democratic leaders like the Clintons and Barack Obama chose to embrace too many of these inversions in order to serve their own ambitions, a Faustian bargain with terrible implications. (And as it turns out, not a very good way to pursue their own ambitions either -- unless you have an Internet bubble or housing bubble to sustain the illusion that "centrism" works.)

There are times when compromise is needed. But you don't need to reinforce your enemy's false ideas in order to compromise. With every Democratic concession to corporate-designed Orwellianisms the struggle to create a more effective society suffers another defeat.

Weapons of 2011

The language factories of the Right have been working overtime over the last couple of years to destroy public faith in Social Security and Medicare, destroy the government's ability to stimulate the economy when it's needed most, and absolve our political leaders of responsibility for their own actions.

What were the Right's favorite word-weapons of 2011? Here are a few of the big ones:

"Entitlement Reform:" This phrase is used over and over to describe proposals that would "reform" nothing, but instead would gut the highly popular programs that support seniors and the disabled -- Social Security and Medicare. The use of the word "entitlement," along with the formulation that seniors who collect money from a program they've contributed to all their lives are "greedy geezers," is designed to persuade the public that an elderly woman living on $800 per month is a social parasite - but the hedge fund manager who pays 15% tax rate on his billions is not.

It made some people uncomfortable when we wrote that "Entitlement reform" is a euphemism for letting old people die, but we cited extensive studies that support exactly that conclusion.

Sadly, the Obama Administration has embraced this formulation, along with other anti-safety-net linguistic weapons like "surgical cuts" and "technical adjustments" for devastating benefit reductions like the "chained-CPI" cut.

"Deficit Crisis:" This is another formulation that was accepted by the White House, rather than resisted. 24 million un- or under-employed Americans is a "crisis." The government's deficit spending is a long-term concern, not a "crisis."

"Technocrat:" National politicians in both parties have been co-opted by corporate interests, and have tried to suggest that the collaboration between them -- which is designed to force corporate-backed policies on a reluctant public -- are the best "technical" solution to our fiscal problems. They aren't caving in to billionaires' money, get it? They're "technocrats" who are rising above their petty differences to solve the nation's problems.

"Technocrat" was 2011's "bipartisanship," and was equally bogus.

"Ideology:" Both parties have delighted in demonizing those who resist needless, savage government cuts as "ideologues." That's straight out of Gingrich's 1996 memo. When did "ideology" become a dirty word? Merriam-Webster's first two definitions of ideology are "visionary thinking" and "a systematic body of concepts, especially about human life and culture."

The truth is, virtually everybody has an ideology. We believe that freedom is better than slavery; that theft and murder are evil; that democracy is a better system of government than totalitarianism. In the Right's Orwellian Newspeak, having beliefs and values is evil, but cynically serving corporate interests is noble.

My ideology knows better.

"Triggers:" Politicians in both parties have attempted to implement unpopular cuts by designing "trigger" programs that automatically cut programs the public wants preserved. We're about to see "triggers" in action if the so-called "sequestration" process goes forward as agreed upon by the President and Republican leaders in Congress.

As we wrote earlier, "triggers" are "economic IEDs" designed to explode once their political assemblers have left the scene. But the public has a long memory.

The Resistance

The first half of 2011 looked hopeless. Each of the corporate Right's word-weapons seemed on its way to being enshrined by willing collaborators in Washington and in the media. But then came a flood of new words: "Occupy." "The 99 percent." "The 1 percent."

And very quickly after that came more: "Income inequality." "Fairness." "Justice for Wall Street," or more concisely, "prosecutions for Wall Street."

Like those of the Right, these are just words. Nothing more. But these words changed the political debate. The president set aside the rhetoric of the right and began using these words instead. (Action will hopefully follow.) The news media was forced to respond to the movement, both with coverage of its actions and coverage of the issues it has raised. There still isn't nearly enough coverage, but any exposure is more than we had seen before the Occupy movement arose.

Is it enough? Will we look back at 2011 as a turning point or as a moment of resistance on an inexorable path toward total corporate domination of our world and our lives? The future remains unwritten, and it's up to us to rewrite it.

But I will say this: On July 4 I was hoping against hope that someone would "declare independence" from corporate politics and politicians. A few short months later, miraculously, an entire movement has done it. That gives me enough hope to wish for more of the same in 2012.

But it's up to us, of course. If we want to take control of our own lives, we'll need to keep taking control of our language.

Myths, Scares, Lies, and Deadly Innocent Frauds, Updated: Part One

Joseph M. Firestone — Tue, 20 Dec 2011 23:54:33 -0500

(Author's Note: This post updates Part One of a series reviewing Warren Mosler's book: The 7 Deadly Innocent Frauds of Economic Policy. The updating is prompted by a post by Hannah at DailyKos offering a “. . . a Review Sort of” of Warren's book.

Hannah's post begins by stating Warren's “deadly innocent frauds” (DIFs), and then goes on to point out that they are not innocent and then to make a number of claims about Warren's beliefs which clearly indicate that she neither read his book, nor researched his actual positions stated frequently on his web site, nor bothered to note Warren's economic truths that his book counterposes to his DIFs. My point here is not to beat up on Hannah for a careless treatment of Warren Mosler's views, but rather to point out that his actual views were given very short shrift in her piece which also gave no hint of how important they are to progressives and to economics. My original three post review of his book tried to convey the significance of his work, and so I thought it would be appropriate to update these posts now, and remind people of the full scope and importance of what Warren has to say in this easily accessible book.)

One characteristic of modern political and economic discourse is frequent asserting of beliefs about economics and money that have been variously described by some observers as 'myths', 'scares', 'lies', 'innocent frauds', and 'deadly innocent frauds'. 'Innocent frauds' was the courteous labeling of such beliefs by John Kenneth Galbraith in his last book, The Economics of Innocent Fraud. Warren Mosler, an economist, presidential candidate, and sometime co-author of James Galbraith, has added the modifier “deadly” to Galbraith the elder's name for this belief. Mosler's label is particularly relevant today because, given the various problems and crises currently faced by the United States, and the way it has faced them since the Fall of 2008, acceptance of these beliefs or “deadly innocent frauds,” could well doom the United States and its people to a bleak future of economic, political, social, and cultural instability.

The once proud land of opportunity could well be reduced to a gray land of despair and submergence of most of its people in a wholly unnecessary age of lost hope and increasing despair for American parents as well as their children. We see this age taking shape through the economic policies of the Obama Administration and their impact, and through the reaction of the Occupy Wall Street (OWS) movement to economic events. We can now see clearly, in a way that we perhaps could not in early 2009, that America and its dreams could well be sacrificed to a harsh fiscal and economic discipline based wholly on deadly innocent frauds, scares, myths, and outright lies. I'll now, following Warren Mosler's treatment, examine some of the most influential of these, and also rely in part on the earlier work of Cavanaugh, Boettger, and Eisner.

Our Sovereign Fiat Currency System and Our Inability to Involuntarily Run out of Money

First, all the DIFs are frauds in light of the changeover of the United States to a fiat money system during the Nixon Administration. As Warren describes it:

Historically, there have been three categories of money: commodity, credit, and fiat. Commodity money consists of some durable material of intrinsic value, typically gold or silver coin, which has some value other than as a medium of exchange. Gold and silver have industrial uses as well as an aesthetic value as jewelry. Credit money refers to the liability of some individual or firm, usually a checkable bank deposit. Fiat money is a tax credit not backed by any tangible asset. In 1971 the Nixon administration abandoned the gold standard and adopted a fiat monetary system, substantially altering what looked like the same currency. Under a fiat monetary system, money is an accepted medium of exchange only because the government requires it for tax payments. Government fiat money necessarily means that federal spending need not be based on revenue. The federal government has no more money at its disposal when the federal budget is in surplus, than when the budget is in deficit. Total federal expense is whatever the federal government chooses it to be. There is no inherent financial limit. The amount of federal spending, taxing and borrowing influence inflation, interest rates, capital formation, and other real economic phenomena, but the amount of money available to the federal government is independent of tax revenues and independent of federal debt. Consequently, the concept of a federal trust fund under a fiat monetary system is an anachronism. The government is no more able to spend money when there is a trust fund than when no such fund exists. The only financial constraints, under a fiat monetary system, are self imposed.

Mosler identifies 7 DIFs, all of which are related to the basic idea of fiat money or “soft currency.” The first of these is the idea that in order to spend money, the Government must first raise it through taxation, or borrow it. This is based on the idea that money is either a material thing or backed by a material thing having intrinsic value, which the Government possesses in limited quantities and may run short of.

However, fiat money is not like this. Put simply, the Government (encompassing the combination of the Congress, the Executive, and the Board of Governors of the Federal Reserve system) declares it into existence, in whatever quantity it likes. It can print it! It can credit some entity's account with as much of it as it likes! And it can withdraw it from circulation by taxing, charging fees, or confiscating it according to law. From the Government's point of view, the money it causes to exist is legal tender and all entities under its authority must accept it as legal tender in return for all goods and services for sale in the US, and as repayment for all debts incurred by the Government. The status of money as legal tender is backed by the Government's authority under the Constitution and ultimately by its legal monopoly of the instruments of physical coercion within the borders of the State.

Since the Government has unlimited authority to create its own non-convertible currency that has a floating exchange rate in international markets, it is obviously false to say that it is, or must be constrained in its spending, by its ability either to tax or to borrow. It can impose such constraints on itself if it wants to, of course. And, as it happens the United States foolishly does that, as do other nations sovereign in their own currencies, because they are still laboring under old conceptions of the nature of money, appropriate for a commodity rather than a fiat monetary system. Nevertheless, the belief that the Government is so constrained is the first of Mosler's 7 deadly innocent frauds, because the truth is that:

“Government Spending is NOT operationally limited or in any way constrained by taxing or borrowing.”

Now, if one can but accept this truth, it has many implications. One implication is that the Government never can have any solvency problem with respect to repaying debts it has incurred in its own currency.

It doesn't matter how large those debts are.

It doesn't matter how large its obligations are.

It doesn't matter, from the viewpoint of solvency, how frequently it has to fulfill obligations, or how much money it has to create to pay its obligations.

It never has to run out of money as long as it is willing to create it, and not to “obey” any constraints it has imposed on itself. The simple fact is:

it always has the capability to create the money it wants or needs to spend..

Another implication is that:

it never need be short of money to do or spend for things it either wants to do, or wants to facilitate, or cause or encourage to be done.

It is never true that “we don't have enough money to do x, or y, or z,” when “we” is the Government or the Nation. Rather, it is only true either that we don't 1) fully understand our power to create money or 2) want to do the things that people are asking us to do for reasons we don't want to talk about, so we use the excuse that money is limited instead.

Importance of the First Fraud

This first deadly innocent fraud is of great importance in our present political context. For example, why did President Obama limit the stimulus bill to around $800 Billion in size? And why did he take Medicare for All off the table, at the beginning of the health care reform process? I'm sure there were many reasons for both, but in both cases the idea that greater spending would create much larger federal deficits, and that in the face of these deficits he would either have to raise taxes or borrow more money, may have been a very important consideration.

Or, if he did understand that Federal spending is not limited by taxes or borrowing, he perhaps felt that he might not be able to escape the cultural influence of the first deadly innocent fraud, and explain to the American people that the increased deficit was nothing they had to worry about. Whatever the reason, Obama let Congress know that the "health care reform" bill had to be limited to less than $1 trillion in Federal Government expenditures over 10 years, a level that would have been dwarfed by Medicare for All, but also dwarfed by the amount of money the private sector would have saved if the Conyers-Kucinich Medicare for All bill, HR 676 had passed. He also let Congress know that the bill would have to pay for itself over 10 years according to CBO projections.

Why did Obama decide to limit the size of the stimulus package to roughly $800 billion, when some of the best macro-economists were telling him it needed to be at least twice that size? The answer, again, is either that he believed himself that government spending was ultimately limited by what the Government could raise by taxing or borrowing, or he thought that he couldn't explain to others that this is not true, and therefore also that he wouldn't have been able to defend himself politically against charges of irresponsible deficit spending coming from the Republicans and, perhaps, the blue dog Democrats.

More generally, why has President Obama, except in the case of the War and the financial system bailouts, approached other legislation from the viewpoint of deficit neutrality? Why has he applied that lens to reinventing the energy foundation of the American Economy, to legislation aimed at climate change and environmental protection, to infrastructure spending, to education, to new legislation aimed at creating jobs and lowering unemployment, and to temporary extensions of payroll tax cuts? It is either because he, himself believes in the first deadly innocent fraud, or it is because he thinks that the belief in it is so deeply ingrained in others, that he can't educate people to the truth about our soft currency money system, and can't defend himself or the Democrats against the old-time budget balancing religion, that past generations of Democrats thought they had overcome a long time ago.

Whatever the reason for Obama's adoption of the deficit neutrality point of view, we know now (see his speech at Brookings early on and his actions since) that he was fixing to apply it during the remainder of his Administration, with the exception of the wars, and bank bailouts. The Administration has been making noises about “entitlement reform” for a long time now, as well as continuing to express its fealty to the ideas of deficit neutrality in program spending, or "paying for" what it wants to do, and also long-term deficit reduction.

The MSM has responded with a constant drumbeat of articles and analyses raising the issue of the size of the deficits, the national debts, and the possibility that purchasers of US Securities will raise interest rates creating a burden the Government cannot handle. For more than two years now these predictions of higher interest rates in the US have proven false again and again, though this hasn't stopped columnists from such outlets as the Washington Post, CNN, the Wall Street Journal and numerous others from echoing the economic.fiscal world view and arguments advanced by Peter Peterson, David Walker and the Fiscal Times advocating fiscal austerity to counter the inevitability of inflation or even hyperinflation.

The MSM also often says things like: “It's unlikely that the nation will ever default, but neither is that any longer unthinkable,” a statement that, of course is based on belief in the deadly innocent fraud that the Government's resources are limited to what it can raise by taxing and borrowing, since if the Press understood that the Government's fiat money can be created in whatever quantity the Government needs (see here and here for example), it would clearly see that there never is any possibility of default, unless the Government has been captured by the belief in the deadly innocent fraud itself, and declares a default, when all it really has to do is to make the money needed and repay its debts in its own fiat currency.

Conclusions

And so the first deadly innocent fraud maintains its destructive grip on American society, economy, and politics. The old-time religion, represented by people like Mike Spence, Olympia Snowe, Paul Ryan, Ben Nelson, Max Baucus, Peter Peterson, David Walker, and yes, evidently, Barack Obama, expects us to reinvent out economy and its foundations and to adapt to the new challenges of the 21st century, while refusing steadfastly to use the tools we can apply under our fiat monetary system. In fact, it expects us to ignore that we have such a system, and to act instead according to the economic principles that governed us when we were still on the gold standard.

It expects us to seek a budgetary surplus relative to our fiat currency, and to forget about evaluating a particular Government expenditure by the proper standard of whether its balance of benefits to costs in the value or non-monetary sense is positive for us and American society. If we persist in obeying the dictates of this first deadly innocent fraud, American prosperity will never be re-captured. The American Dream will die, and Democracy in America will, increasingly, be replaced by plutocracy, a process that has now been going on for 33 years since President Jimmy Carter initiated it.

In the next installment in this series, I'll discuss some other deadly innocent frauds analyzed in Warren Mosler's book, and also their implications for current issues.