The Great Negotiator
Rich vs. Poor
The Blame Game
Am i the only one who’s head nearly exploded last night?
Millions are looking for work, have been for some time, and the spending binge going on in Washington is a big part of the reason why.
Spending/Investment by Washington serves to create jobs. Not destroy them. Saving the US Auto industry being a case in point.
The House passed “cut, cap and balance” with “bipartisan support.”
It had 5 Democratic votes vs 234 GOP Votes. This is hardly Bipartisan.
“Here’s what we got for that spending binge: a massive health care bill that most Americans never asked for.”
Actually, the Affordable Care Act saves taxpayers billions of dollars. That’s the opposite of a “spending binge.”
A ‘stimulus’ bill that was more effective in producing material for late-night comedians than it was in producing jobs.”
In reality, the stimulus helped stop the bleeding, while creating growth and millions of jobs.
“A national debt that has gotten so out of hand it has sparked a crisis without precedent in my lifetime or yours.”
The national debt is perfectly manageable at its current size. The unprecedented crisis is from Boehner and his caucus; not the debt itself.
“The president has often said we need a ‘balanced’ approach — which in Washington means: we spend more, you pay more.”
Actually, Obama has called for trillions in spending cuts.
I want you to know I made a sincere effort to work with the president
Right, by walking out and cutting off negotiations on more than one occasion.
“The president is adamant that we cannot make fundamental changes to our entitlement programs.”
Boehner’s plan, unveiled yesterday, makes no fundamental changes to our entitlement programs. Obama, meanwhile, has presented several offers that make significant cuts to entitlement programs. That’s not opinion; it’s just reality — which Boehner is no doubt aware of.
“The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today.”
Obama isn’t asking for a “blank check.” The nation needs a debt-ceiling increase to pay for the things we’ve already bought.
Noteworthy, is Paul Craig Roberts, Assistant Secretary of the Treasury under Reagan and his criticism of the Republicans intransigence on debt.
A few hours after Boehner debunked his own lie, the Speaker’s big plan for avoiding a default crisis has been rejected by conservative groups from FreedomWorks to Americans for Prosperity to the Club for Growth, as well as Boehner’s supposed ally, Republican Study Committee Chairman Jim Jordan (R-OH)
Boehner described Republican conditions for an increase in the debt limit in terms of what Americans demanded — namely reduced spending and reforms. Several White House proposals have now offered deeper cuts than the Republicans dared propose, which they then said no to.
A particular highlight of Boehner’s speech was his assertion that Obama “created” the “crisis atmosphere” that has the U.S. on the brink of default. The reality is that the president inherited a projected deficit of more than $1 trillion, and the recent surge in debt is mostly the result of the fruitless Bush tax cuts and the wars in Afghanistan and Iraq. This weekend, the New York Times published a chart comparing the costs of policies enacted by the last two administrations:
Boehner — along with Majority Leader Eric Cantor (R-VA) and Budget Chairman Paul Ryan (R-WI) — voted for the policies that caused the deficit to explode under the Bush administration. According to Bloomberg:
House Speaker John Boehner often attacks the spendthrift ways of Washington. [...]
Yet the speaker, House Majority Leader Eric Cantor, House Budget Chairman Paul Ryan and Senate Minority Leader Mitch McConnell all voted for major drivers of the nation’s debt during the past decade: Wars in Afghanistan and Iraq, the 2001 and 2003 Bush tax cuts and Medicare prescription drug benefits. They also voted for the Troubled Asset Relief Program, or TARP, that rescued financial institutions and the auto industry.
Republicans voted for the big drivers in creating the massive debt in the first place. Just like they voted to increase the debt ceiling with nary a twinge nine times during George W. Bush’s presidency.
Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that the U.S. economy is a giant Ponzi scheme.
But many on Wall Street and in D.C. – and many investors – believe that we should just “go with the flow”. They hope that we can restart our economy and make some more money if we just let things continue the way they are.
But the assumption that a system built on fraud can continue without crashing is false.
In fact, top economists and financial experts agree that – unless fraud is prosecuted – the economy cannot recover.
Fraud Leads to a Break Down in Trust and Instability in the Markets
As Alan Greenspan said recently:
Fraud creates very considerable instability in competitive markets. If you cannot trust your counterparties, it would not work
Similarly, leading economist Anna Schwartz – co-author of the leading book on the Great Depression with Milton Friedman – told the Wall Street journal in 2008:
“The Fed … has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible.”
So even though the Fed has flooded the credit markets with cash, spreads haven’t budged because banks don’t know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is “the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue.”
Today, the banks have a problem on the asset side of their ledgers — “all these exotic securities that the market does not know how to value.”
“Why are they ‘toxic’?” Ms. Schwartz asks. “They’re toxic because you cannot sell them, you don’t know what they’re worth, your balance sheet is not credible and the whole market freezes up. We don’t know whom to lend to because we don’t know who is sound. So if you could get rid of them, that would be an improvement.”
And economics professor and former Secretary of Labor Robert Reich wrote in 2008:
The underlying problem isn’t a liquidity problem. As I’ve noted elsewhere, the problem is that lenders and investors don’t trust they’ll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years — the derivatives, credit default swaps, collateralized debt instruments, and so on — has undermined all notion of true value.
Robert Shiller – one of the top housing experts in the United States – said recently that failing to address the legal issues will cause Americans to lose faith in business and the government:
Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt — is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.
Nobel prize-winning economist Joseph Stiglitz says about the failure to prosecute Wall Street fraud:
The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.
I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.
Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.
Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:
“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”***
Fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.
Economics professor James Galbraith says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
No wonder Galbraith says that economists should move into the background, and “criminologists to the forefront”
Failure to Stop Fraud and Prosecute Criminals Causes a Loss of Trust in Government, Which Makes Government Less Effective
As Shiller stated in the quote above, the failure of government officials to stop fraud and prosecute the financial fraudsters has caused a lack of trust in government itself.
A psychologist wrote an essay published by the Wharton School of Business arguing that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:
According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. “Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.” The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.”
People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.
He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. “She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.
“By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,” Sachs said. “In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.”
Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to “hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.” In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.
Government regulators know this – or at least pay lip service to it – as well. For example, as the Director of the Securities and Exchange Commission’s enforcement division told Congress:
Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.
If people don’t trust their government to enforce the law, government will become more and more impotent in addressing our economic problems. If government leaders take action, the market will not necessarily respond as expected. When government leaders make optimistic statements about the economy, people will no longer believe them.
Trying to Cover Up the Truth Extends Financial Crises
Elizabeth Warren, William Black and others say that attempting to cover up the truth extended Japan’s financial problems into an entire “Lost Decade”.
As Joseph Stiglitz said about Wall Street fraud:
So the whole strategy of the banks has been to hide the losses, muddle through and get the government to keep interest rates really low.
As long as we keep up this strategy, it’s going to be a long time before the economy recovers ….
Pam Martens – who worked on Wall Street for 21 years – writes:
The massive losses by big Wall Street firms, now topping those of the Great Depression in relative terms, have yet to be adequately explained. Wall Street power players are obfuscating and Congress is too embarrassed or frightened to ask, preferring to just throw money at the problem and hope it goes away. But as job losses and foreclosures mount and pensions and 401(k)s shrink, public policy measures to address the economic stresses require a full set of unembellished facts…
It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress … must now resume in earnest and with sworn testimony if we are to escape a similar fate.
To the extent that the government tries to cover up – instead of openly discuss – financial fraud, it will only extend America’s economic malaise.
Failing to Prosecute Fraud Encourages Financial Players to Take Bigger and More Blatantly Illegal Actions
Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future. Joseph Stiglitz, Professor Black, and many others agree. See this, this and this.
It was largely fraud which brought down the financial system in 2008. Unless we prosecute the fraudsters, they will do even bigger, stupider and more blatantly illegal things in the future which will lead to even bigger crises.
Failure to Prosecute Fraud Exacerbates the Sovereign Debt Crisis
The governments of the world have spent trillions trying to paper over the fraud and prop up the big, insolvent banks, instead of forcing them to restructure and forcing bondholders and shareholders to take a haircut.
A study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent drives up the costs to the country:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.
All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.
The American banks and government have certainly pretended that all of the big banks are solvent. As ABC wrote in October 2009:
The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, [the special inspector general for the Troubled Asset Relief Program] states in a new report released today.
Similarly, the stress tests were a complete and utter sham.
The government has given the giant banks huge amounts in loans and guarantees based upon their false representations about their financial health. The Fed has larded up its balance sheet with toxic assets from the banks.
Debt levels are also getting dangerously close to the level that they become a drag on the economy. See this and this. When Keynesian economists argue that debt does not harm the economy, they are talking about debt incurred to pay for stimulus and productive things for the economy. But throwing trillions at the giant banks – who are mainly using the money to gamble – is not stimulus. It helps the executives of the big banks and their shareholders and bondholders, but not the broader economy.
Indeed, attempting to prop up big, insolvent banks is preventing stimulus from getting out into the economy.
Fraud Causes Growing Inequality, Which Undermines the Economy
Growing inequality is very harmful to our economy. Indeed, if wealth is concentrated in too few hands, the “poker game” ends, as only too few fat cats are left with all of the chips. See this, this, this and this.
Fraud benefits the wealthy more than the poor, because the big banks and big companies have the inside knowledge and the resources to leverage fraud into profits. Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market. The giants (especially Goldman Sachs) have also used high-frequency program trading (making up between 40- 70% of all stock trades) which not only distorts the markets, but which also lets the program trading giants take a sneak peak at what the real traders are buying and selling, and then trade on the insider information. See this, this, this, this and this.
Similarly, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country’s derivatives risk, and 96% of the exposure to credit derivatives. They use their dominance in the market to manipulate the market.
Fraud disproportionally benefits the big players (and helps them to become big in the first place), increasing inequality and warping the market.
Fraud Increases the Severity of Boom-Bust Cycles
Professor Black says that fraud is a large part of the mechanism through which bubbles are blown.
Without strong laws against fraud, bubble after bubble will be blown, guaranteeing that the financial system cannot be stabilized in a fundamental sense.
Failure to Prosecute Fraud Is Worsening the Housing Crisis
In case you never figured it out
It is a slow day in the small Saskatchewan town of Pumphandle, and streets are deserted.
Times are tough, everybody is in debt, and everybody is living on credit.
A tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.
As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op.
The guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner.
The hotel proprietor then places the $100 back on the counter so the traveler will not suspect anything.
At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves.
No one produced anything.
No one earned anything…
However, the whole town is now out of debt and now looks to the future with a lot more optimism.
And that, ladies and gentlemen, is how a Stimulus Package works.
From John Aravosis
At what point will Democrats on the Hill learn that this man is not their friend. He singlehandedly brought down Democratic control of the House, and now he’s still playing the “pox on both your houses” game.
This is a blueprint for this President’s approach to any problem. Rationalize, then cave. He actually thinks he’s a hero. The problem is that this President doesn’t understand that he keeps agreeing to deals that are far less than he could have gotten had he simply tried.
It’s not about not preferring compromise, and anyone who thinks that that’s what this is about is a fool. It’s about always preferring compromise, and worse, compromising with yourself. It’s about always striving for less because you just can’t bring yourself to fight for anything.
In brief remarks Monday evening, Obama said he was disappointed that the deal would extend breaks for the wealthiest households, but he warned Democrats not to make good on threats to allow all the cuts to expire, as an expression of the party’s opposition to preserving the top-rate cuts. “Sympathetic as I am to those who would prefer a fight to compromise — it would be the wrong thing to do,” the president said. “The American people didn’t send us here to wage symbolic battles.”And that is the problem, isn’t it. The President just can’t conceive of actually fighting for anything, and in fact, he seems to view the notion with distaste.
So, yes, if you’re afraid/don’t know how to/don’t believe in fight(ing), you would per se see any fight as symbolic because you know you’re going to lose, simply because you’re opening strategy is always to throw the fight.
Symbolic battles. Try symbolic presidency.
Lawmakers may embrace plans by President Barack Obama’s debt commission to curb the costs of Social Security and $1 trillion in tax breaks even as comprehensive deficit reduction hinges on whether both parties seek confrontation or accommodation.Gee, who’da thought? (Sucker.)
Note this list of names, from Digby. Suspects all:
This view about Social Security is backed up by Peter Orszag, recently departed from the administration (and reportedly headed to Citi), Dick Durbin, the president’s proxy in the Senate, ex-labor leader Andy Stern along with numbers of Democratic Senators, signaling that Social Security really is on the menu.Orszag is a known quantity, a made man. But Durbin and Stern still have some cred. Watch them carefully, especially Durbin. He’ll be re-burnishing lib-cred shortly. Don’t be dazzled.
You knew this was a war, didn’t you? Gird up; it’s (sadly) the times we were born to. Others have had it this bad; it just bad luck. When the Romans marched in, everything changed, and no one got a vote on it. Sucks to be us, but hey.
Note of hope — watch the House. If they have to re-vote on what the Senate vomits up, things could get interesting. Got a local “Democrat” representative? Sharpen those quills (politely, of course) and write.
UPDATE: Cave confirmed. Sam Stein of Huff Post is on Countdown now (hosted by the intelligent Sam Seder) calling the deal a “capitulation.”
UPDATE 2: Conyers is opposed, and Sanders (via The Ed Show) may filibuster. One can only hope.
And by the way, Ezra and others continue to misunderstand what the Republicans were really after here. As I’ve said ad nauseum they want the tax cuts to be temporary because they want to have this fight over tax cuts to continue into the presidential campaign. If the President agreed to extend the tax cuts permanently, the issue would be off the table and that’s not to their advantage. (Believe me, the business community is not really *uncertain* about anything at this point.)
Yes, it’s better that they didn’t extend them permanently, but are liberals looking forward to this argument two years from now? (And will there ever be any circumstances that will make it easier for them to expire than there were in the spring of 2009?) It’s a missed opportunity, and one which I suspect was always planned to miss. The Bushies knew what they were doing when they rigged this one and it would have taken a Democratic party and a president much more brave and populist than the ones we have to undo it.
I mean, I get that unemployment benefits could stand an extension, to be certain. Why not put that to an up-or-down vote on its own merits and let the Teabaggers and their relatives see what they have wrought?
Why not, for deficit reduction sake, let the goddamn moronic Bush tax cuts just die and pass a new set of targeted tax cuts?
Senate Minority Leader Mitch McConnell (R-Ky.) and Sen. Jon Kyl (Ariz.), the Republican whip, told different interviewers that they expect Congress to vote for the tax cuts, which have been in effect for almost a decade, to continue unaltered for at least several years in exchange for an agreement to extend an emergency unemployment program that expired last week for millions of people.“Obviously, the president won’t sign a permanent extension of the current tax rates. So we’re going to have some kind of extension. I’d like one as long as possible,” McConnell told host David Gregory on NBC’s “Meet the Press.” Moments later, he added: “I think we will extend unemployment compensation… We’re working on that package… I think we’re going to get there.”We are trading the long-term benefits of a tax increase on those who are doing quite nicely in the current economy, thank you, for a few weeks’ extension of benefits.We can do better. I think if we tied the unemployment benefits to a jobs creation bill (and there has to be at least one in the hopper now), it sends a far better message that Congress, this Democratic Congress, has the interests of the working and middle classes at heart, and then let the tax cuts die just to prove it.We’re going to have to restructure taxes next session anyway, and the Democrats, curiously, will have a bigger say in that, since they don’t have to wrangle 60 votes in the Senate.Weird to say, huh? They had a 60 vote minority, and the influence of asshats from sparsely populated states like Nebraska and Arkansas was grossly overstated because of it. Now, we can basically tell the Nelsons and Lincolns of the Congress to fuck off. (I know, Lincoln lost. Good riddance.) Your “services” are no longer required.We’ll fight this fight on ideology now.
After reading the details of the Obama/Republican tax cut deal, some Left leaning economists seemed at least not hostile to it. Yesterday morning, Jamie Galbraith skewered the President for agreeing to extend the Bush tax cuts exclusively targeting the wealthiest Americans, but by that evening, after the President announced details of the deal, he reportedly called the agreement “defensible“. Brad Delong suggested the tax proposal amounted to a new stimulus, and perhaps even a “big win” for Obama, though later he conceded the plan produced “relatively low bang-for-buck“.