Necessary, But Not Sufficient

Congress finally passed the Stimulus Package last week, and President Obama will sign it into law Wednesday. The consensus from economists (and everyone else, for that matter) is that this step is necessary but not sufficient. Paul Krugman has the same relative take. What's needed now is massive, continued federal intervention in the private economy. We need infrastructure, we need make-work jobs, and we need assurance that those items will be forthcoming for years. We do not need tax cuts, and unfortunately the Stimulus Package is laden with them...up to 40% of the nearly $800bn total. We'll definitely need another shot in the arm, as this severe recession may last 5 years or more. It's time to bring Keynes back into our national dialog.

The Bush Recession: Worst Job Market Since the Depression

2008 ended as the worst year for job losses since the demobilization from WWII. The widely-stated (but wildly undercounting) U3 index jumped to 7.2%. Some economists are expecting annualized GDP decline of 2.5% for the next 18-24 months. Others expect U3 to hit 10%, which is roughly approaching depression-level numbers, since U3 discounts discouraged and underemployed workers.

We're in serious trouble here, folks. The rampant speculation, the bubble economies of the last 18 years, the financialization of the US economy, offshoring and the destruction of American productivity & value add have led us to this point. Our current problems weren't caused by dumb banks making bad loans to people who bought houses they couldn't afford...that's just a symtom of a larger problem. The real issue is that America doesn't produce anything...we haven't added any real value to the world economy for decades. Instead, we've let the corporate behemoths take advantage of cheap production of goods (and, increasingly, services) overseas, and we've invented bubble after bubble for the US economy, essentially borrowing to keep our living standards high. Ridiculously low taxes, especially on the wealthy, have led to budget deficits (financed by foreign countries), a complete lack of investment in infrastructure and education, a less productive (in real terms) US workforce, and a stagnation and shrinking of the middle class...all while the plutocracy enriched themselves. An ownership society, indeed.

Actually, the past 18 years look more like a giant Ponzi scheme. Bernie Madoff's got nothing on Reaganomics. Horation Alger is dead.

Romer to Head CEA

Barack Obama has chosen Cal Professor Christina Romer to head his Council of Economic Advisers. This selection hits close to home for me...Romer's husband was my favorite professor at Cal.

Another Parting Gift from the Bushies

Treasury Secretary Henry Paulson has quietly given US banks a tax cut windfall of $140 billion:

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The ruling, which is arguably illegal, is focused on whether banks are allowed to buy other banks in order to claim their losses for tax purposes:

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.

Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.

But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world.

Yet another gift to the corporate world from the most corrupt and criminal administration in our nation's history. Let's hope President-Elect Obama orders his Treasury Secretary to reverse this ruling. Our national trasure has already been bled dry by tax-cheating corporations and the rich who control them. This kind of crap has to stop.

In related news, the Bushies are refusing to disclose which banks have sought financial aid. That's your government in action: more graft, less disclosure.

No Pay Cuts for Wall Street Execs

American financial services firms may have had their worst year since the Great Depression, but you could never tell that by looking at how they're compensating their executives. Many of the biggest banks are preparing to pay their execs as much as they did in 2007 or more. Citigroup has cut 23,000 jobs, paid out over $25 billion in 2009. And they're getting almost a trillion dollars of our money. Ridiculous.

America - WTF?

It's a quandary. America's economy is faltering in a way not seen in generations. We've got simultaneous wars in the middle east draining our public coffers. We're torturing people now, with the blessing of our so-called leaders. Many people weren't saving at all, and those who are saving have seen those savings dwindle significantly as the bears take over on Wall Street. The middle class has seen stagnating wages for nearly 30 years, while the total amount they pay in taxes, fees, and other charges, while the rich have seen greater returns and lower taxes. Health insurance premiums have risen many times faster than wages under our privatized health care system. And I'm out of coffee.

How is it that we came to this point? How did the empire come so close to falling? How has the most productive, innovative, and charitable nation in the world get to this point? How could we have elected a series of "leaders" who brought us to this juncture? Our political system is broken. That, in turn, has broken our economic system. We've voted for greed, corruption, xenophobia, and against the public good for over 30 years. We've treated America not as a society, but as a market. We all want to be Paris Hilton, even though that's not likely. We're living in a state of denial.

How do we get all of this? Electing Barack Obama is a fair first step, but it won't solve anything by itself. Giving Obama a strong mandate for change will help too. But we won't start doing better until we get down to the real work: reform elections, encourage savings, provide health care to all Americans, quell the pain of losing a job, stop spending money on unnecessary wars, stop locking people up for minor crimes, and focus government help on all of society...not just the rich.

Play That Fiddle, Nero, Redux

Rome is burning. Wall Street panics, our retirement savings are gone, the national debt is growing, our home values are falling, and people are losing jobs. And George W. Bush and his cronies...the very people who started this mess...are playing the fiddle. When will people start calling him The New Hoover?

In 7 days many people have seen more than half of their retirement savings disappear. Gone. They've gone from the prospect of a comfortable retirement in their homes to the prospect of living out their golden years in the streets begging for change. This is the collective legacy of 30 years of laissez-faire policies and market fundamentalism gone awry. Speculative bubbles...financial derivatives whose value is based not on actual value, but on market psychology...greater downside risk. It's beginning to look a lot like 1929...now if we could just get stockbrokers to start jumping out windows.

Thanks a Lot, Repugs

We're in the midst of the biggest financial crisis since the Great Depression. Equity markets are in turmoil. Creditors aren't lending. Retirement savings have disappeared overnight. And the pain is going to hit the poor and middle class hardest. This, my friends, is the legacy of deregulation and market findamentalism that started in the Reagan era, continued through Clinton, and has finally come to a head during the worst presidency in our nation's history.

It's time for this nation to stop trusting the bought-and-paid-for politicians who pushed us into this mess. Anybody preaching a market "solution" to our current problems should be thrown out of the public square, tarred and feathered, and ignored ever more. Their credibility is now nil. In short, it's time for a return to rational thought.

Bailing Out the Miscreants

I've been trying to formulate an opinion on the massive financial upheaval in US markets this week, but it hasn't been easy. On Monday and Tuesday came news of collapsing firms in the insurance and banking/brokerage industries. Then the guv'mint stepped in and rescued AIG...the very same government that for so long has shoved the idea of "free" markets down our throats. And now comes word of a $700 billion plan for the Treasury to buy up troubled mortgage holdings from banks.

The plan is huge in size, and is alarming in its lack of transparency:

The proposal was stunning for its stark simplicity: less than three pages, it would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, allowing the Treasury to buy and resell mortgage debt as it sees fit.

So the Treasury gets a blank check to buy troubled mortgages and mortgage-backed securities from the largest and most powerful financial institutions in the country...the very same institutions that lobbied for the repeal og Glass-Steagal, the creation of the securitized mortgage market, and almost total deregulation of financial markets. In other words, the very same firms that created this mess in the first place. And the free market idealogues like Bush, McCain, and the Grover Norquist types infesting Washington are looking more and more like complete idiots every day. Taking the hands of government off the marketplace didn't lead to freedom and prosperity for all...it led to disaster, while those who were already rich got away with even more money. Simply put, they were wrong.

The next question is how we're going to pay for all of this. That problem will likely fall to the next president...and it certainly means higher taxes, but for whom? If McCain is elected, my bet is on the middle class and poor shouldering the entire burden through fewer deductions, increasing use of regressive taxes, and perhaps even an increase in their tax rates. Under an Obama administration, I'm not sure what would happen, but I suspect the burden would fall more heavily on those who can afford it. Another option for footing this bill? Stop the Iraq war. From the article:

A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. It represents more than $2,000 for every man, woman and child in the United States.

Can we afford to continue the pointless war of choice in Iraq with a financial crisis breathing down our necks? Should I have to pay $2000 for the mistakes of rich people and an administration I didn't elect? Or should we simply end this idiotic adventure in Mesopotamia, cut our considerable losses, impeach George W Bush, and focus on our own significant problems? The writing's on the wall, folks. We ignore it at our own peril.