At Least One Country With Big Banks is Not Afraid of Them

Posted: 24 Apr 2011 11:00 PM PDT

This development, which was cited in last week’s Eurointelligence, has not gotten the attention it warrants:

The Swiss government wants to impose capital requirements on their two internationally active big banks UBS and Credit Suisse that by far exceed what European or American regulators intend to ask their banks to do, Frankfurter Allgemeine Zeitung reports. According to a draft law those two institutions should be required to keep 19% of their capital as a cushion of which 10% has to be core tier one capital. Part of those 19% is a surcharge on big banks of 6% which can be covered by contingent capital (cocos). That measure alone will cost both banks €18bn respectively, the paper claims. The government justified its proposal by saying that nowhere else banks had a comparable weight in the economy as in Switzerland where the balance sheets of UBS and Credit Suisse are equivalent to about five times the national GDP.

Note that their recommended capital level is very similar to the one suggested by Anat Admati:
Funny how a country that is arguably very dependent on finance also correctly sees itself at risk. Switzerland, which had to undertake a very costly bailout of UBS, required the bank to bring in independent advisors and prepare a report of what it had done to get in trouble. Most of that report was released to the public. Had every bank in the world that was rescued been required to write similar reports, we’d all be further down the curve and various investigators would have been far more focused and effective.
Now this would seem to put paid the idea that governments need to roll over and play dead when big banks bark. While the heads of some boutiques within firms may be able to bolt, like hedgies and private equity types, anyone too close to the capital market engine is going to be less mobile. You need a credible central bank to back you up (and Japan and China are not about to welcome foreign entrants, thank you very much) and you also need to be close to clients (financial centers have big network effects). You could in theory split the traders off from client facing staff but in practice there is a reason salesmen and traders typically sit in close physical proximity: the information advantages run both ways.
Richard Smith also noted:

The second interviewee has heard some rumours. Well, so have I, and mine say that Zug’s full up with expat hedgies, Geneva’s full up with expat hedgies, and they all come dashing back at the weekend anyway for the home comforts of London. There’s more to attractiveness than your tax rate. Let’s see someone carve a whole new anglophone Canary Wharf, City of London, and Mayfair out of the bare rock somewhere in a European time zone.

Satyajit Das: Dead Hand of Economics

Posted: 20 Apr 2011 01:26 AM PDT

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (Forthcoming September 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)
John Quiggin (2010) Zombie Economics: How Dead Ideas Still Walk Among Us; Princeton University Press, Princeton and Oxford
R. Christopher Whalen (2011) Inflated: How Money and Debt Built the American Dream, John Wiley, New Jersey
Michael E. Lewitt (2010) The Death of Capital: How Creative Policy Can Restore Policy, John Wiley, New Jersey
“Mortmain”, derived from medieval French meaning “dead hand”, refers to legal ownership of property in perpetuity. Jurisprudence, to varying degrees, has sought to prohibit the control of property by the “dead hand”. Unfortunately, economic thinking seems to be controlled by dead economists or as John Quiggin, himself an economist, argues – “living dead” economists.
In “Zombie Economics”, Professor Quiggin takes aim at a number of “dead” ideas – the Great Moderation; Efficient Markets Hypotheses; Dynamic Stochastic General Equilibrium; Trickle Down Economics; Privatisation. The central thesis underlying “Zombie Economics” is that the global financial crisis (”GFC”) exposed the weaknesses of these ideas, which underpin free market or neo-liberal economics. But as William Faulkner argued: “The past is never dead. It’s not even past.” Worried that these ideas continue to live on in the minds of economist and politicians influenced by them, Professor Quiggin wants to kill them off.
Clever titled, with a wonderful and very un-academic cartoon cover and written without excessive use of technical jargon, “Zombie Economics” provides an elegant critical introduction and analysis of some of the key ideas of modern economic thought. The arguments are generally thorough, though lack depth reflecting the brevity of the work (around 200 pages). Professor Quiggin’s personal sympathies, which are politically left of centre, are never hidden.
Two recent books – John Cassidy’s (2009) “How Markets Fail: The Logic of Economic Calamities” and Justin Fox’s (2009) “The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street” – cover similar territory. Professor Quiggin’s economics training makes “Zombie Economics” far less character or narrative driven and far more interesting in its understanding and criticism of the theory.
The most interesting thing about “Zombie Economics” is actually its lack of interest in why the weaknesses in the theory, much of which has been recognised for years, does not preclude its acceptance. The answer most likely lies in politicians and ultimately the electorate need for simple painless remedies and nostrums. For example, Professor Quiggin’s criticism of privatisation of infrastructure does not seem to recognise the obvious driver of this policy – political expediency of circumventing public finance constraints.
The interesting thing, of course, is that any “new” idea that takes the place of the “zombie” ideas is not likely to be an improvement. Perhaps homo economicus and homo politicus is like David St. Hubbins in the satiric film This is Spinal Tap: “Before I met Jeanine…my life was cosmologically a shambles. I would use bit and pieces of whatever Eastern philosophy would drift through my transom.”
Christopher Whalen’s “Inflated” deals with one aspect of zombie economics – inflation. Changes in price level are ambiguous at best. Even measuring it can present considerable challenges – some years ago, Argentina consciously decided to exclude items where the price rise was particularly high on the basis that no one could afford to buy such products, justifying their irrelevance to the measured inflation rate. Government everywhere, similarly, manipulate inflation measures.
The real issue about inflation, however measured, is its use as a policy tool. The popular economic narrative assumes that inflation is an outcome of economic activity. In reality, it is a key weapon in policy maker’s armoury. Throughout history, governments have used inflation to wipe out excessive debt, a practice that is now central to the policy of the Bernanke Fed to reduce systemic leverage.
Mr. Whalen, a former banker and co-founder of Institutional Risk Analytics, provides an interesting history of inflation in the US. His objective is to use the past to seek insights into the 2008 financial crisis.
Highly opinionated, “Inflated” uses a series of episodes of American economic history to outline the work’s central thesis – the US has traditionally financed its economic objectives through debt, governmental, corporate and personal, using periodic bouts of inflation to manage its leverage. A phenomenon that Mr. Whalen argues is driven by “a national agenda and standard of living that is beyond our current income” and one which is at odds with American’s self image as “reasonably prudent and sober people.”
The book is strongest in some of the earlier chapters when it covers debate about a national bank in the late 18th and early 19th centuries, the issuance of paper money to finance the Union effort during the Civil War and the panic of 1893 and 1907. The book is less successful in its coverage of modern times – from the stagflation of the 1970s and the period of banking and financial deregulation, leading up to the GFC. The coverage of recent events seems to be driven by the author’s personal repugnance of excessive government indebtedness and sloppy monetary management.
“Inflated” contributes to the important current debate on public finances. Mr. Whalen’s call to arms –the distinction between “real economic growth and the illusions of growth created by inflation and credit-driven speculation” – is central to any logical reappraisal of economic policy. Unfortunately, this reviewer and perhaps Mr. Whalen doubts whether it will take place. As William Faulkner remarked: “Facts and truth really don’t have much to do with each other.”
In “The Death of Capital”, Michael Lewitt, an investment professional and editor of the HCM Market Letter, explores the ultimate effect of “zombie economics”. Mr. Lewitt’s thesis focuses on the outcome of these economics, in particular, the rise of financialisation, debt and speculation and its effect on the real economy.
“The Death of Capital” is robust in its arguments, especially in it denunciation of Wall Street practices which he views as unproductive and morally reprehensible. The book makes the case that financialisation ultimately has the effect of undermining the fundamental role of capital in societies and financial markets as a mechanism for saving and channelling funds into real businesses. Drawing heavily on the work of Adam Smith, Karl Marx, Keynes and Hyman Minsky, Mr. Lewitt outlines his thesis clearly.
His solution seems curious, in the light of the trajectory of his critical argument – greater regulation, imposition of a tax on speculative transactions (in effect, a Tobin tax) and “principle based” reform. It is unclear why the proposed reforms can or will work, given that the very forces that propelled the financialisation that Mr. Lewitt criticises would be charged with implementing them. As Scottish philosopher David Hume knew: “All plans of government, which suppose great reformation in the manners of mankind, are plainly imaginary.”
The reality is that economics and economic relations are an adjunct to a larger process – the process of broad social control. Marx wrote about the fetishism of money, arguing that “the money-form of the world of commodities … actually conceals, instead of disclosing the social character of private labour, and the social relations between individual producers”. Human beings and societies are unable to see their own products and social relationships for what they are and become slaves to powerful forces.
French philosopher Michel Foucault identified a carceral continuum, the system of cruelty, power, supervision, surveillance and enforcement of acceptable behaviour affecting working and domestic lives. Economics and economic systems are part of this system of power. In Lewis Caroll’s Alice in Wonderland, Humpty Dumpty understood the issue: “The question is which is to be master – that’s all.”
Economics and economist have been always been part of the mechanism of social control and power. The rest is just noise.

Koch Industries Tells Its 50,000 Workers How to Vote

Posted: 20 Apr 2011 09:50 PM PDT

The immediate concern in the wake of the Citizens United decision was that corporate funding would play such a dominant role in election campaigns as to trounce all other interest groups (as if that hadn’t already occurred in large measure).
But a story in The Nation, “Big Brothers: Thought Control at Koch,” by Mark Ames and Mike Elk points to a second channel of influence: major employers pressuring their staff to vote for the company’s pet candidates. Never mind that most workers live in an employment at will regime, so the business has no loyalty to the troops, or that business and wage slave interests are seldom aligned. As the Nation piece depicts, employees of Koch entities like Georgia Pacific are repeatedly told who they should vote for. This is new: before Citizens United, companies could only proselytize its officers and shareholders.
Consider what passes the smell test now:

The election packet starts with a letter from Robertson dated October 4, 2010. It read: “As Koch company employees, we have a lot at stake in the upcoming election. Each of us is likely to be affected by the outcome on Nov. 2. That is why, for the first time ever, we are mailing our newest edition of Discovery and several other helpful items to the home address of every U.S. employee” [emphasis added].
For most Koch employees, the “helpful items” included a list of Koch-approved candidates, which was presented on a separate page labeled “Elect to Prosper.” A brief introduction to the list reads: “The following candidates in your state are supported by Koch companies and KOCHPAC, the political action committee for Koch companies. We believe these candidates will best advance policies supporting economic freedom.”…
After guiding employees on how they should vote, the mailer devoted the rest of the material to the sort of indoctrination one would expect from an old John Birch Society pamphlet (the Koch Brothers’ father, Fred Koch, was a founding member of the JBS). It offers an apocalyptic vision of the company’s free-market struggle for liberty against the totalitarian forces of European Union bureaucrats and deficit-spending statists….
With Citizens United, it seems, the country is heading back to the days of court-enforced corporatocracy. Already, workers at a Koch subsidiary in Portland, Oregon, are complaining about being subjected to political and ideological propaganda. Employees at Georgia-Pacific warehouses in Portland say the company encourages them to read Charles Koch’s The Science of Success: How Market-Based Management Built the World’s Largest Private Company and to attend ideological seminars in which Koch management preaches their bosses’ “market-based management” philosophy.
Travis McKinney, an employee at a Portland Georgia-Pacific distribution center, says, “They drill into your head things like ‘The 10 Guiding Principles of Koch Industries.’ They even stamp the ten principles on your time card.”

The article provided a sample of one of the mailings, so you can see for yourself how prominent the voting recommendations are.
Koch Industries isn’t alone in these efforts. Dave Dayen reported that employees of a McDonald’s franchise in Ohio were given instructions to vote Republican in a local election, along with their paycheck. And if you think that suggestion was already none-too-subtle, the insert said:

If the right people are elected, we will be able to continue with raises and benefits at or above our present levels. If others are elected, we will not.

This sort of thing does violate Ohio election law, and other states are apparently taking steps to limit election propagandizing by employers. But they have yet to be tested in court.
In the meantime, welcome to the ever more intrusive thought police.
via: NakedCapitalism/Yves Smith

Beyond Foreclosure-Gate...it gets uglier!

Michael Collins

The ForeclosureGate scandal poses a threat to Wall Street, the big banks, and the political establishment. If the public ever gets a complete picture of the personal, financial, and legal assault on citizens at their most vulnerable, the outrage will be endless. (Image)
Foreclosure practices lift the veil on a broader set of interlocking efforts to exploit those hardest hit by the endless economic hard times, citizens who become financially desperate due medical conditions. A 2007 study found that medical expenses or income losses related to medical crises among bankruptcy filers or family members triggered 62% of bankruptcies. There is no underground conspiracy. The facts are in plain sight.
ForeclosureGate represents the sum total illegal and unethical lending and collections activities during the real estate bubble. It continues today. Law professor and law school dean Christopher L. Peterson describes the contractual language for the sixty million contracts between borrowers and lenders as fictional since the boilerplate language names a universal surrogate as creditor (Mortgage Electronic Registration System), not the actual creditor. Other aspects of ForeclosureGate harmed homeowners but the contractual problems that the lenders created on their own pose the greatest threats.
When the Massachusetts Supreme Court upheld a lower court ruling that the actual creditor must named in the mortgage agreement (a legal requirement that the banks forgot to meet in their contracts), there was consternation on Wall Street. What would happen if a class action lawsuit challenged these flawed mortgages? Isn't the Massachusetts decision the latest of many attacking the legal basis of the shoddy business practices and boilerplate industry contracts? What if homeowners started walking away from their underwater mortgages based on the legally flawed contracts? If there were a viable prospect of a class action suit against financial institutions threatening to invalidate these contracts, wouldn't that crash the stock values of the big banks and some Wall Street firms?
The big banks and their partners on Wall Street need a preemptive strike to derail the legal process that threatens their existence. They may get a temporary reprieve through pending consent decrees from the United States Department of Justice and consortia of state attorney's general. If that protection fails, big money will make every effort to buy a bill from Congress that absolves them retroactively, en masse. The consent decree might cost them a few billion dollars. That's much better than owing the trillions in lost home values due to their contrived real estate bubble and stork market crash.
As bad as this is, it gets worse.
Beyond ForeclosureGate
The surface scandal is about fraudulent business practices and a systematic assault on homeowners by lenders, servicers, and the legal system. A much broader picture must be viewed in order to understand the utter contempt that the ruling elite has toward citizens and the depraved tactics used to express that contempt, all to serve endless desire to accumulate more money and power.
The set up began when we heard about the ownership society in the 2004 presidential election. President Bush defined ownership as taking the government out of our lives so more people could own homes and control their destinies. The foundation was home ownership. As Bush said on the campaign trail, "We're creating a home -- an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property" October 2, 2004.

Then Federal Reserve Chairman Alan Greenspan was uncharacteristically coherent when he laid the foundation for the swindle earlier that year. Greenspan told the Credit Union National Association that the fixed rate mortgage was "an expensive way of financing a home." He was clear when he advised lenders that, "consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage." February 2, 2004. Home equity through exotic mortgage products fueled consumption and became the new "margin account."
The Chairman of the Federal Reserve and the president ratified the real estate bubble, already underway at the time, as political and financial doctrine. The advice was clear. Get an ARM, own your piece of the American Dream and spend that equity. Housing prices never go down, right?
Freddie Mack, Fannie Mae, Wall Street and the big banks provided the back room. Mortgage Backed Securities (MBS) derivatives were vastly expanded. This made it easy for more homebuyers to qualify for mortgages they might not otherwise get, credit standards dropped. Those with good credit saw an array of tantalizing zero interest loans and other mortgage products to maximize available cash and feed the stock market.
It was all good until it wasn't.
The real scandal is the unfathomable loss of wealth and opportunities by the vast majority of citizens and the vicious attack on the most vulnerable citizens as a part that process. The attack continues and is worthy of review.
Foreclosure and Bankruptcy
Foreclosure is the down side of the ownership society. When you're sold a bill of goods, a property that you were told you were qualified to buy, and you lose it, you are evicted from ownership island.
Before Congress passed the 2005 bankruptcy reform act, homeowners could avert foreclosure in many states by filing for bankruptcy. Not just anyone could qualify. The process of qualifying was difficult and, oftentimes humiliating. But homes were saved and families were preserved with a chance to start over.
A myth emerged of the bankruptcy abuser, a high-class sort of welfare cheat. These reckless people worked the system to rack up large debts that were subsequently wiped clean through bankruptcy. The alleged abuse of the system became the excuse for a major overhaul of bankruptcy law. The legislation passed the Senate with 74 yes votes and soon became law.
The changes since the 2005 legislation provide substantial benefits to creditors. Morgan et al summarized the direct benefits to creditors in a forthcoming publication in the New York Fed's Economic Policy Review. Before bankruptcy reform, the filer of a bankruptcy claim used to determine Chapter 7 or 13 filing status. That makes a difference in the amount and type of debt relief. The legislation imposes means test that determines precisely which chapter (7 or 13) filers must use. Significantly, chanter 13 filers retain more debt from medical and other unsecured credit.
Legal costs ranged from $600 to $1500 before bankruptcy reform. Legal fees now range between $2800 and $3700. Previously, there was no requirement for credit counseling prior to filing.
Filers must now document approved credit counseling six months before filing or face dismissal of their case(Morgan et al.). This counseling requirement can lead to unwarranted dismissals or inordinate delays in filing at a time when filers need relief.
Under the old law, only bankruptcy trustees appointed by the federal court could file claims of abuse by the filer. Under the new legislation, anyone can file a claim of bankruptcy abuse, which can lead to a dismissal of the cause. This is a huge benefit to lenders who wanted to keep citizens from realizing debt relief.
The Real Benefit for Big Money - Delayed Bankruptcy Filings
The new law makes it harder to file a claim, doubles costs, and gives the creditors a say in claiming fraud on the part of those who file claims. Significant delays in filing for bankruptcy became the norm.

From Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors, Lawless et al., American Bankruptcy Law Journal, Vol 82, 2008

Time is money for loan servicers. A long delay before a bankruptcy filing, allows servicers the opportunity to add on special fees, many of which the borrower can't comprehend. One thorough study showed that many of these fees were questionable. The longer it takes, the greater the revenue opportunities. Delay benefits creditors since loan payments continue at their original level.
What happened to those big spending, reckless bankruptcy abusers that were the rationale for the 2005 reforms? The following graph from the Consumer Bankruptcy Project shows that there is virtually no difference between the incomes of filers before and after bankruptcy reform. The majority of filers made between ten and forty thousand dollars a year before reform. That has remained virtually unchanged. The big spending abusers were and remain a mythical construct; the centerpiece of a diversion strategy to keep attention away from this never-ending gift to creditors.

From Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors, Lawless et al., American Bankruptcy Law Journal, Vol 82, 2008

These newly empowered creditors were the same creditors who hired debt collectors to try and frighten people out of their filings. A major study found that 24% of filers reported that debt collectors told deliberate lies to avoid bankruptcy. They herd that filing for bankruptcy would lead to jail, job loss, or an IRS audit. Some were told that it was illegal to file for bankruptcy. Lawless, et al. Did the Bankruptcy Reform Fail? An Empirical Study, October 2008
The deck was stacked early against citizens and protection from creditors disappeared under the new law. The creditors, who so recklessly precipitated the economic collapse, came out on top. They were free to profit in any way they could from their new market,
What Causes Bankruptcy - Financial Shocks from Medical Expenses
Prior to the new law, the major cause of bankruptcy stemmed from medical care expenses and the resulting disruptions to families. Rather than the mythical big spender contrived by Congress, for nearly half of filers, major medical expenses, family tragedies, were the tipping point to a loss of financial viability.
The Consumer Bankruptcy Project audited a representative sample of bankruptcy filers in 2001. The audit found that 46% cited a "major medical cause" for bankruptcy. This includes the direct cost of uncovered medical bills for major illness or injury, lost work due to the same, and the need to mortgage the family home to cover medical costs.
Did Congress review this data? Were they intent on making it harder to file bankruptcy as a result of illness? When bankruptcy is delayed or simply not attainable, less money is available for needed medical care. Were the members supporting bankruptcy reform indifferent to the suffering compounded by their thoughtless legislation?
The situation is worse now. A comprehensive survey of those who filed bankruptcy in 2007 showed the increasing desperation of those faced with medical problems. When individuals or family members are in dire need of medical care, do they just sit home and suffer?

From Medical Bankruptcy in the United States, 2007: Results of a National Study, Himmelstein et al., American Journal of Medicine, 2009:04

Nearly two thirds of bankruptcies result from medical care that people can't afford or losses in income from medically required leave. Where are the big spending cheats?
Nihilists at the Helm

The big banks, Wall Street, the politicians they own, and the Federal Reserve Board created the real estate bubble in bad faith.
They knew or should have known:

• that the real estate bubble was unsustainable;
• when the bubble deflated, many homeowners would hit a financial wall; and, that
• when homeowners hit the wall, to maintain viability for their families, they would need relief of some sort.

What did the nihilists of the financial elite and their hit men walking the halls of power do with all this knowledge? They went ahead with the real estate bubble, fostered it, deregulated meaningful controls on the financial industry, and crafted a new bankruptcy law to stick it to filers. They knew or should have know that data from 2001 showed a very high rate of filings due to the financial stress of medical care. Did they care? Do they care now? Has anything been done to correct this injustice?
While citizens suffer in financial distress, often due to illness, at the behest of influential bankers and investors, the Department of Justice crafts a settlement with lenders and their representatives to relieve them of the stern justice due for their specific crimes and the larger horrors they visit upon citizens, all in the name of short term profit.
We are most emphatically not a nation of laws. We are a nation where the law is used by a very few for their own purposes, without regard for the well being of the nation or its citizens. We are a lawless nation

END

This article may be reproduced entirely or in part with attribution of authorship and a link to this article.

http://www.economicpopulist.org/content/beyond-foreclosuregate-it-gets-uglier

In Economic Populist, also see:
ForeclosureGate Deal - The Mandatory Cover Up by Michael Collins
The Arc of Justice - The Ibanez Case Ruling by Numerian
An Update on the Foreclosure Mill by Robert Oak
Is Residential Real Estate a Ticking Time Bomb? By Robert Oak

• Michael Collins's blog
• 2087 reads

via:Naked Capitalism/Yves smith

Musings on Plutocracy

Posted: 21 Apr 2011 01:05 AM PDT

I trust readers don’t mind that we are a bit heavier than usual on the political-related postings tonight, since this is a slow news week. But that may be useful, given that the big new subtexts at the INET Conference were the importance of “political economy” (three years ago, that expression was seen as having a decidedly Marxist color to it) and the rising wealth and power of the top 1%.
One nagging question is how the increased concentration of income and wealth in the top strata came to pass. The story that this group and their hangers-on would have us believe is that it is all the result of merit and hard work. Two offerings raise doubts about that line of argument.
One is from Robert Scheer in “The New Corporate World Order,” which points out the too-often-ignored fact that US taxpayers support a very high level of military spending, which makes the world safe for US corporations. Do you think US companies would have put plants in China in the absence of a strong US military? Expropriation is always a possibility with an authoritarian government, particularly since they can use trumped up charges to make the process look legitimate (labor or environmental violations that lead a plant to be seized and auctioned to locals, for instance). As Scheer notes,

General Electric, which was bailed out by taxpayers and which stored so much of its profit abroad that it paid no taxes for the past two years, was forced to tighten up, but while cutting its foreign workforce by 1,000 it cut a far more severe 28,000 in the United States….consumer purchasing power is down in the U.S. thanks to the devastating collapse of a housing bubble GE Capital fed with suspect mortgage financing that provided the company with well over half of its profits before the crash…
Of course it will be argued that multinational corporations have the right to arrange their business as they see fit in order to maximize profit. But if that is the case, do beleaguered American taxpayers have to foot the bill? When those corporations run into trouble overseas because of financial hustles or hostile locals and need the diplomatic and military might of the U.S. government to protect their interests abroad, it is again the U.S. taxpayer who must pay to maintain this new world order….. If the companies don’t feel that way, let them operate under the flag of Liberia or the Cayman Islands.
No less important than U.S. military muscle is the power of the American government to construct and enforce a worldwide trade and finance structure to the advantage of U.S.-based multinational corporations. That is why the companies spend so much money lobbying Congress on matters ranging from regional trade agreements to international banking regulations. It is precisely the impact of trade agreements like NAFTA that has facilitated the erosion of well-paying jobs. And it was the deregulation of international banking standards, led by the U.S. Treasury Department under the past five presidents, that created the conditions for the recent disastrous housing and banking meltdown…
Corporate lobbyists attest with their every breath that big government and big business are bedmates in a bountiful venture that impoverishes the rest of us. It is time to admit that we are, in practice if not surface appearance, close to the Chinese communist model of state-sponsored capitalism that sacrifices the interests of ordinary workers, be they in the public or private sector, for the exorbitant profits of the superrich.

Many readers probably agree with Scheer’s assessment. But it does not tell us how we got into this situation where the very richest have gotten such a stranglehold on policy. The recent book Winner-Take-All Politics by Jacob Hacker and Paul Pierson offers an explanation. Per David Runciman in the London Review of Books (hat tip Michael Thomas):

The real beneficiaries of the explosion in income for top earners since the 1970s has been not the top 1 per cent but the top 0.1 per cent of the general population. Since 1974, the share of national income of the top 0.1 per cent of Americans has grown from 2.7 to 12.3 per cent of the total, a truly mind-boggling level of redistribution from the have-nots to the haves. Who are these people? As Hacker and Pierson note, they are ‘not, for the most part, superstars and celebrities in the arts, entertainment and sports. Nor are they rentiers, living off their accumulated wealth, as was true in the early part of the last century. A substantial majority are company executives and managers, and a growing share of these are financial company executives and managers.’
Hacker and Pierson believe that politics is responsible for this. It happened because law-makers and public officials allowed it to happen, not because international markets, or globalisation, or differentials in education or life-chances made it inevitable. It was a choice, driven by the pressure of lobbyists and other organisations to create an environment much more hospitable to the needs of the very rich. It was even so a particular kind of politics and a particular kind of choice. It wasn’t a conspiracy, because it happened in the open. But nor was it an explicit political movement, characterised by rallies, speeches and electoral triumphs. It relied in large part on what Hacker and Pierson call a process of drift: ‘systematic, prolonged failures of government to respond to the shifting realities of a dynamic economy’.

Yves here. I’m not certain I buy the drift theory; the push to the right, meaning for deregulation, less progressive taxation, a reduction in social welfare programs and weakening of labor bargaining power, was the result of an orchestrated effort by an extreme right wing long keen to dismantle the New Deal, and also got some support from large corporations. The big problem of the 1970s was that only a few Keynesian economists decried the big budget deficits of the late 1960s, which with the economy already running in high gear, was certain to cause serious inflation. And then two prominent Keynesians, Samuelson and Solow, further discredited the reigning orthodoxy by declaring that the Philips curve (which has limited empirical support) meant you could not have high inflation and high unemployment at the same time (note I am not a fan of Keynesians; Keynes himself would have been very opposed to a budget deficit in a boom). But such major errors in succession and the perceived severity of the malaise (compounded by the appointment of a particularly weak Fed chairman, Arthur Burns) opened the policy field to new ideas.
Back to Runciman:

One of Hacker and Pierson’s complaints about the way we usually regard politics is that we miss what’s really going on by focusing on the show of elections and the competition between parties. This is the theatre of electoral politics…‘This is no doubt why politics as electoral spectacle is so appealing to the media: it’s exciting and it’s simple…
It is easy to assume that if the rich have been winning in recent decades, the process must have started with the election of the pro-big business, anti-big government Ronald Reagan in 1980 (and concomitantly, Margaret Thatcher in Britain in 1979). But Hacker and Pierson argue that the real turning point came in 1978, during the presidency of Jimmy Carter. This was the year the lobbyists and other organised groups who were pushing hard to relax the burden of tax and regulation on wealthy individuals and corporate interests discovered that no one was pushing back all that hard. Despite Democratic control of the White House and both Houses of Congress, 1978 saw the defeat of attempts to introduce progressive tax reform and to improve the legal position of trade unions. Instead, legislation was passed that reduced the tax burden on corporations and increased the burden on their employees (through a hike in the payroll tax, a regressive measure). All this happened because the politicians followed the path of least resistance – as elected politicians invariably do – and the better organised and better-funded resistance came from the representatives of big business, not organised labour.

Yves here. ECONNED also depicted the Carter Administration as the where the policy shift took place. Back to the article:

What took place in the 1980s was therefore an extension of the Carter years, not a reversal of them. The process of deregulation and redistribution up the chain accelerated under Reagan, who was broadly sympathetic to these goals. Yet it happened not because he was sympathetic to them, but because his sympathies were allowed free rein in a political environment where the opposition was muted and the expected coalition of interests opposed to the changes never materialised.

Yves again. What they are missing is the concerted effort to change social values, which has started as a reaction to the 1960s. That was a big contributor to the lack of pushback. Adam Curtis’ four part BBC series, The Century of the Self, covers this nicely (I strongly recommend it, you can view it on Google Video), as does David Brock’s The Republican Noise Machine. Back to Runciman:

So where did the resistance go? This is the real puzzle, and Hacker and Pierson take it seriously because they take democracy seriously, despite its unhealthy fixation on elections. Democracies are meant to favour the interests of the many over those of the few. As Hacker and Pierson put it, ‘Democracy may not be good at a lot of things. But one thing it is supposed to be good at is responding to problems that affect broad majorities.’ Did the majority not actually mind that they were losing out for the sake of the super-rich elite?….Hacker and Pierson….see strong evidence that the American public do still want a fairer tax system and do still see it as the job of politicians to protect their interests against the interests of high finance. The problem is that the public simply don’t know what the politicians are up to. They are not properly informed about how the rules have been steadily changed to their disadvantage. ‘Americans are no less egalitarian when it comes to their vision of an ideal world,’ Hacker and Pierson write. ‘But they are much less accurate when it comes to their vision of the real world.’

Yves again. This actually does ring true. I was gobsmacked when I lived in Australia to see at all levels of income and education how much better informed people were about domestic and international politics. But many readers would probably disagree with the premise about democracies and instead argue that this is a classic Mancur Olson collective action problem. Back to the article:

Hacker and Pierson’s argument is really a return to a much longer-standing critique of democracy, one that flourished during the 1920s and 1930s but was supplanted in the postwar period by expectations of rational behaviour on the part of voters. This traditional critique does not see the weakness of democracy as a matter of the voters wanting the wrong things, or not really knowing what they want. They know what they want but they don’t know how to get it. It’s because they don’t understand the world they live in that democracy isn’t working. People aren’t stupid, but when it comes to politics they are ignorant, lazy and easily satisfied with pat answers to difficult questions. Hacker and Pierson recognise that it has become bad manners to point this out even in serious political discourse. But it remains the truth. ‘Most citizens pay very little attention to politics, and it shows. To call their knowledge of even the most elementary facts about the political system shaky would be generous.’ The traditional solution to this problem was to supplement the ignorance of the voters with guidance from experts, who would reform the system in the voters’ best interests. The difficulty is that the more the experts take charge, the less incentive there is for the voters to inform themselves about what’s going on. This is what Hacker and Pierson call the catch-22 of democratic politics: in order to combat what’s taking place under the voters’ radar it’s necessary to continue the fight under the voters’ radar. The best hope is that eventually the public might wake up to what is going on and join in. But that will take time. As Hacker and Pierson admit, ‘Political reformers will need to mobilise for the long haul.’
Yet time may be one of the things that the reformers do not have on their side…This, again, is one of the traditional critiques of democracy: while decent-minded democrats are organising themselves to make the world a better place, the world has moved on. In a fast-moving financial environment, it is usually easier to assemble a coalition of interests in favour of relaxing the rules than one in favour of tightening them. Similarly, it’s easier not to enforce the rules you have than to enforce them: non-enforcement is the work of a moment – all you have to do is turn a blind eye – whereas enforcement is a slow and laborious process.

This is a gloomy prognosis, but any realistic assessment is unlikely to be upbeat. I’d be curious to get reader input on both the Hacker/Pierson analysis and what remedies they see as viable.

 

“I think that wealth brings power, and the fact that the rich are getting much, much richer relative to everyone else means that the rich also exert increasing influence over the economy, government and society. I think income mobility and equality of opportunity have declined in America over the past 40 years, to the point where America is now more segregated by class divisions than many European countries. I think a major reason for these shifts has been the increasing dominance, since the Reagan era, of an ideology that is indifferent to or actively celebrates inequality of income. I think this ideology is bad: bad for the economy, bad for society, bad for art and culture, bad for the moral character of those who subscribe to it.”

—	The Economist (via Brad Boydston) Truth.

While it feels like a hundred years, today is actually John Kasich’s 100th day in office – and he thinks he has a lot to brag about. He recently told the Cleveland Plain Dealer with a wide smile, “we got a lot done. It’s pretty amazing.”

If working hard for 100 days to dismantle Ohio’s middle class is his idea of “getting a lot done,” then Mr. Kasich is right, he has indeed gotten a lot done. And, in a sadly perverse way, it is “amazing” that we have a Governor who has done so much to damage this state.

Here is a snapshot of what John Kasich has “done” in just 100 days:

*He has waged war on the middle class.

*He took away collective bargaining rights from our public servants.

*He proposed a state budget that will destroy communities, impose backdoor tax increases and cut vital services.

*He sent 16,000 infrastructure jobs to other states.

*He put a “For Sale” sign on Ohio – including our prisons and our Turnpike.

*He has run state government in secret.

*He showed disrespect for Ohioans from all walks of life by telling African American leaders “I don’t need your people.”

*He even called police officers “idiots” and said that our state isn’t “cool.”

But what is truly “amazing” about the last 100 days is not anything that John Kasich has done, but everything that YOU have done. Supporters like you have fought back against his agenda. Tens of thousands of you wrote letters, talked to friends and neighbors, attended rallies and made small-dollar contributions for the first time.

Will you continue to fight back against John Kasich’s agenda by making a contribution of $1, $10 or $100 today?

Like John Kasich, we at the Ohio Democratic Party, along with our allies in the Labor and progressive communities are working to “get a lot done.” But unlike John Kasich, we are working to protect middle class Ohioans. We are going to bring Senate Bill 5 directly to the ballot for an up or down vote. And we are confident that – with your continued help – John Kasich will find the results of that vote… “amazing.”

Sincerely,

Tax Day Actions to Protest Corporate Tax Dodgers

Politicians claim that our local, state and federal governments are broke, to justify cutting critical public services to working class communities.  But, we do not have a spending problem - we have a revenue problem!
Corporations like Bank of America, FedEx, and Verizon (and many others) enjoy massive tax cuts, and pay little to no taxes on their huge profits each year.  If they simply paid taxes on their income like the rest of us, we could reduce or eliminate the need to slash funding for programs that serve the majority of us.
Join actions in your city Monday, April 18th - Tax Day - to demand that these Corporate Tax Dodgers PAY THEIR TAXES!
To find an action near you, check out the lists of actions around the country hosted by our friends at US Uncut and the Right to the City Alliance.
From US Uncut and The Other 98%:


From Rainforest Action Network:

From Center for American Progress:

Bank Of America : "Pay Up"  FlashMob Action San Francisco
4/15/11

Flashmob action we did on Friday in San Francisco with US Uncut and Brass Liberation Orchestra.  And now the official action video is ready for your viewing pleasure!
Check out our version of Salt-n-Pepa's "Push It" re-mixed especially to tell Bank of America to quit cheating on their taxes and "Pay Up!"
Click the image to watch the video, then share it with all your friends!
And don't forget to join US Uncut or Right to the City for a Tax Day action near you this Monday!
Watch the video from our Flash-mob Action telling Bank of America to "Pay Up!"

Then join a
Tax Day Action near you this Monday!

 source Commondreams http://www.commondreams.org/view/2011/04/15-10

This Tax Day, Make THEM Pay

by Michael Moore

Friends,
Do you wonder (like I do) what the tax accountants and executives are doing over at GE this weekend? Frantically rushing to fill out their IRS returns like the rest of us?
Hardly. They're taking the weekend off to throw themselves a big party and have a hearty laugh at all of us. It must really crack them up to see us like suckers scurrying around to make sure we report everything to Uncle Sam -- and even send him a check, if necessary.
The joke's on us, folks. GE and tons of other corporations will have a tax bill for 2010 of ZERO. GE had $14.2 billion in profits in 2010. Yet they will contribute NOTHING to the federal government while every last dime is soaked from us.
In the latest budget deal, our politicians could have tackled the deficit by stopping the flow of these ill-gotten billions to corporations. Instead they cut billions from "wasteful" programs that do "wasteful" things, like create new jobs, drive economic growth, and help the needy and our nation's children. It's Democracy in reverse and it sickens me.
GE spends $20 million a year to lobby Congress to throw themselves this party. But do you know what speaks louder than $20 million? 20 million votes! 20 million people, and more, standing together and taking to the streets. That starts now, with you.
This coming Monday, April 18th is Tax Day -- and that's the day when "we the people" will demand our country back from these corporations in events all across the country. You can find the nearest event to you here.
MoveOn members -- along with union, community, and environmental allies -- will gather outside the headquarters and local offices of the biggest corporate tax dodgers to deliver tax bills from the American people. And we'll demand that our leaders make these corporate deadbeats pay.
We're doing this because we don't buy into the Big Lie: that greedy teachers caused the crash on Wall Street! That the selfish firefighters sent millions of jobs overseas! That pregnant woman, infants, and children are sending us into deficit!
No, it was the big corporations that did this. It was the CEOs and the top 1% of the country. THEY brought on the mortgage crisis. THEY made off with trillions of dollars from our economy. THEY are systematically destroying the middle class. And THEY have bought and sold the very people elected to represent us!
On Monday, we will have something to say to Exxon, Chevron, and the big banks that crashed our economy and got billions in bailouts, like Citigroup and Bank of America, who pay little or no federal income tax. In fact, the IRS will likely give them a tax REBATE. If that doesn't boggle your mind then nothing will.
The Tax Day events are about sending this message: We are coming after you, we are stopping you and we are going to return the money, jobs, and homes you stole from the people. This is your tipping point, Corporate America. And I, for one, am glad it's going to happen this Monday.
If you've never been to an event like this before, this is the time. And don't go alone, because none of us can win this fight by ourselves. Plus, it's more fun and exciting to go along with friends and family to be part of real democracy in action -- not the store-bought kind Big Business gets on Capitol Hill.
I really hope you can make it. This is our chance, my friends. Take the time on Monday to make your voice heard. I can guarantee you I will. Please join me.

Yours,
Michael Moore
MMFlint@aol.com
MichaelMoore.com

Michael Moore is an activist, author, and filmmaker.  See more of his work at his website MichaelMoore.com