Tag Archives: bank bailout

How We Pay Wall Street to Screw Us

Our taxes, paid into the public treasury, have gone to bail out Wall Street. And what do bankers  do with the taxpayers’s money? They turn around and lobby for more. It’s called the “never give a sucker an even break” strategy. These statistics, prepared by Public Citizen, speak for themselves:

  • Amount financial industry has spent on lobbying this year: $251 million
  • Amount Citigroup spent on lobbying during the first half of 2010: $3 million
  • Amount Goldman Sachs spent on lobbying in the first half of 2010: $2.7 million
  • Amount Bank of America spent on lobbying in the first half of 2010: $2.1 million



Lessons from the 1930s: “Big Business Must Be Controlled If Our Democracy Is to Survive”

The Progressive, which is currently celebrating its 100th year, is running on its web site “a series of excerpts from The Progressive magazine in the 1930s that are especially relevant today.” I think these documents from the Depression era are especially resonant for us members of the Silent Generation, because they speak the language of our childhood. But these days, of course, they also speak the language of the present moment.  

All of the selctions are worth reading, but one of them stands out for the downright eeriness with which it captures our current predicament. It recalls the government bailout of banks and corporations that took place in the early years of the New Deal, and the swiftness with which those corporations and Wall Street executives bit the hand that had fed them.

In 1937, the economy went through a renewed downturn that FDR’s critics have referred to as “the Roosevelt Recession.” Conservatives blamed the slump on the administration’s hostility to big business and its Keynesian economic policies, and argued for rollbacks of government spending and regulation. Some spending cuts were made, to no good effect, and Roosevelt became convinced that the banking industry and other corporate interests were determined to scuttle the New Deal. 

Secretary of the Interior Harold Ickes led the counterattack. The following piece by Ickes was published on January 8, 1938. Because the excerpt is so long I am not setting it off as a block quote (no one want to read that much italics), but it’s better still to follow this link and read the whole thing, since for reasons of space I had to leave out some choice insults. 

Economic power in this country does not rest in the mass of the people as it must if a democracy is to endure. Wealth is not equitably distributed nor do its owners in the main even manage and control it. On the contrary, wealth has become so great and so concentrated that as a matter of fact, it controls those who possess it.

About one-half of the wealth of this country is in corporate form, and over one-half of it is under the domination of 200 corporations, which in turn are controlled by what [has been] referred to as “America’s 60 Families.”

[Up until the 1929 crash], America’s 60 families had held in their hands…complete dominion over the economic and political life of the country. They had lulled the American people into the conviction that if the people would grant conditions in which these 60 families…[could] do as they pleased, the 60 families would put capital to work; enterprise would boom, wages would rise, stocks would soar and there would be two cars in every garage.

The people gave the 60 families this confidence; gave the 60 families this trust in their benevolent despotism—in short, gave the 60 families then what they ask for today, and what happened? Out of their divinely claimed genius as managers of private enterprise the 60 families promptly led the American people into the worst peacetime catastrophe ever known.

Then the disillusioned people changed the government [electing Roosevelt in 1932].

The new government bailed the 60 families out of the consequences of their own mesmeric miscalculations and their unintelligent leadership of the system of private enterprise of which they had pretended to be master managers. It preserved the corporate structures in which their capital was invested from going through the wringer of bankruptcy and reorganization and stock assessment.

As an inevitable by-product of preserving the capital structure…[it also] preserved the management structure from going through the wringer to squeeze out incompetence and big salaries. Then government sought to modify the way in which the business of the nation was done so that business confidence would be based upon the well-being and purchasing power of 120 million people at the bottom standing on their own feet rather than upon the license of the 60 families at the top and upon their premises, in return for that license, to permit the gravy of their benevolence to trickle down upon the exploited millions at the bottom.

Government did get the economic system back on its feet; did succeed in doing a job where the 60 families had failed.

Government had the system back on its feet so well at the time of the elections of 1936 that, as the president said…the patients—over their panic and raising their salaries—felt strong enough to throw their crutches at the doctor.

And last spring government had the business of the country turning over so well that it thought it could safely heed the pleas of private enterprise to government and abandon the economic initiative.

Pursuant to these pleas government cut down public expenditures…in order to meet the insistence of private enterprise that business confidence would be greater if government would take steps to balance the budget—assuaged the fears of the head of the biggest bank in the United States about runaway inflation—and turned over to the managers of private enterprise the responsibility they had said that they were eager and willing to assume.

And what happened?

Two things. First, the 60 families that were masterminding private enterprise proved to have learned nothing nor forgotten nothing since 1929 about the management of business under modern conditions. They made the same mistakes they had made before 1929. They ran the stock market up and helped it get started down. They did little or nothing to increase the purchasing power of labor to make up for the government withdrawals and then ran prices to the sky so that the consumer refused to spend what they graciously let him earn.

Second, the 60 families, unwilling to learn to do business upon the democratic terms of 1937, began to make demands and threats.

To Franklin D. Roosevelt…[they have made] a threat that they will refuse to do business at all unless the President and the Congress and the people will repeal all that we have gained in the last five years and regrant them the suicidal license they had enjoyed in 1929….

To the 120 million people of the United States they have made the threat that, unless they are free to speculate free of regulations to protect the people’s money; unless they are free to accumulate through legal tricks by means of corporations without paying their share of taxes; unless they are free to dominate the rest of us without restrictions on their financial or economic power; unless they are once more free to do all these things, then the United States is to have its first general sit-down strike—not of labor—not of the American people—but of the 60 families and of the capital created by the whole American people of which the 60 families have obtained control.

If the American people call this bluff, then the America that is to be will be a democratic America, a free America.

If the American people yield to this bluff, then the America that is to be will be a big-business Fascist America—an enslaved America….

Big business must be controlled if our democracy is to survive….The new America must be a land of free business, not of ruthless business—a land of free men, not of economic slaves.

Congress Reaches Its Credit Limit

Flanked by local residents who have wrenching stories of crippling debt, President Obama today staged an event in Albuquerque, New Mexico, to persuade Congress to pass the tougher credit card regulations now being hashed out in the Senate. While the push makes a welcome change from the government’s traditional reluctance to crack down on the industry, Congress is willing to go only so far. As some consumer groups have pointed out, the legislation remains riddled with loopholes for heavyweight banks.

Bad credit card debt may be the next big crisis looming on the economic horizon, many financial analysts say. Credit card debt in the United States now totals more than $960 billion, with default rates nearing 10 percent for some lenders. Many of the biggest credit card lenders are the same institutions that have only escaped collapse thanks to massive infusions of government bailout funds. Most of that money was used to help banks recover from their losses in the mortgage meltdown, and won’t cover additional shortfalls if credit card defaults reach the record-breaking highs that some experts project. According to Bloomberg, defaults could wipe out 40 to 50 percent of the annual profits of American Express, Bank of America, and JPMorgan, and cause further losses for Citigroup.

In response, lenders are squeezing what they can from those borrowers who are still trying to pay their debts—cutting back on credit limits, jacking up interest rates, and shortening the time to pay bills. By drafting legislation that won’t take effect until 2010, Congress has simply encouraged banks to accelerate their predatory lending practices before the bill comes due. 

But the legislation has bigger problems than timing. The Federal Reserve will be responsible for writing the rules to put the legislation into practice. Not only has the Fed turned a deaf ear to consumer problems for years, stringent credit card regulation goes against its institutional interest. The Fed’s main job is to pump-prime and oversee banks. Why should the bankers who run the Fed strip their client banks of credit card profits when those banks already need billions from taxpayers to stay afloat?

Once written, the new rules will be enforced by the utterly supine Office of the Comptroller of the Currency in the Treasury Department. This unit has rarely imposed public penalties on big banks, although it has managed to fend off critics by claiming that it hands out penalties in private. Whether it actually does so, and what kind of penalties it enforces, remains anyone’s guess.

A more effective alternative to this inherently flawed plan would be to hand regulatory power to a financial products safety commission, a concept advocated by Harvard professor Elizabeth Warren, a longtime critic of the credit card industry who is running the bailout oversight board. “The Federal Reserve, the Office of the Comptroller of the Currency, and other financial regulatory institutions are not currently charged to protect consumer safety,” Warren explained to me in 2007. “The primary responsibility of the regulatory agencies is to assure the profitability of the banks and other lending institutions, not to protect consumers from deceptive and unsafe products.”

Sen. Richard Durbin (D-Ill.) and Rep. Bill Delahunt (D-Mass.) are sponsoring legislation to set up this type of commission. But although they’ve won the backing of senators Ted Kennedy (D-Mass.) and Charles Schumer (D-N.Y.), plus outside support from more than 50 consumer, labor, and civil rights groups, the proposal undoubtedly faces an uphill struggle.
The same is true of legislation that would ban excessive interest rates, or usury. A proposal to cap interest rates at 15 percent, and 18 percent in emergencies, failed in the Senate on Wednesday, winning just 33 votes. “Credit unions have been under [such a] law for 30 years which says the maximum rate is 15 percent except under unusual circumstances, in which case it goes up by 3 percent,” said Sen. Bernie Sanders (D-Vt.), one of the measure’s cosponsors. “We want to do for private banks what we have been doing with credit unions.” Laws against usury were common in many states until they were essentially abolished by a banking-law loophole in the early 1980s. “The problem with instituting a new usury law is politics,” Warren said. “The credit industry hires a lot more lobbyists than the consumer advocacy groups, and the creditors have been almost uniformly opposed to any usury laws.”

In fact, the industry’s clout has repeatedly stymied efforts to prevent lenders from gouging consumers. In 2005, Congress passed bankruptcy legislation with the support of 18 Democratic senators, many of them targets of generous support from the banking industry. The law made it far more difficult for anyone to clear debt by declaring bankruptcy. Ed Mierzwinski of US PIRG notes that after the law passed, companies began to deploy some of their most noxious practices more frequently. These included the so-called universal default, in which credit card companies raised cardholders’ rates not only if they paid their own bills late, but if they paid any bill late.

Rep. Carolyn Maloney (D-N.Y.) tried to remedy the situation with a Credit Cardholders’ Bill of Rights Act. But the legislation got watered down before it was passed by the House in April. The Senate version of the credit card bill being shepherded through the banking committee by its chair, Sen. Christopher Dodd (D-Conn.), is considered slightly stronger, for two main reasons. First, it only permits credit card companies to raise rates on existing balances when a cardholder’s payment is 60 days late, whereas the House bill specifies 30 days. (Consumer groups say that during the economic downturn, some 10 million people have been paying their credit card bills late in the first month, while in 60 days the number of overdue payments drops off dramatically.) Second, the Senate bill states that those cardholders whose rates have been raised due to late payments must be given a means to return to a fair interest rate if they make timely payments for six months. Both bills would restrict universal default (though language banning  ti altogether was diluted in bipartisan negotiations), limit banks’ ability to hike interest rates on existing balances, and call for simpler disclosure of terms.

Still, credit card companies shouldn’t exactly be shaking in their shoes. The law that Congress ultimately produces will certainly leave the big banks plenty of room to make money from the same consumers whose taxes are bailing them out. As Bernie Sanders put it, “They are taking money we give them and charging us 30 percent interest rates.”

Irish Pensioner Eggs Banking Boss

The recipient of Unsilent Generation’s Radical Geezer of the Week Award is Gary Keogh, who  Broken_egg_orangesmuggled eggs into a shareholders’ meeting of the Allied Irish Bank and lobbed them at its chairman, Dermot Gleeson. Unfortunately he seems to have missed. His faulty aim, however, does nothing to detract from Keogh’s qualifications to be a Radical Geezer of the Week, which consist of being mad as hell and not taking it any more. As the TimesOnline reports:

Keogh, a pensioner and a shareholder in AIB, was removed from the building after throwing the eggs at Mr Gleeson at the end of his address to the meeting.

Mr Keogh, 66, from the Blackrock area of South Dublin, told the board: “For the past number of years we have been told to put our money into the banks–now we have no pensions. I have no pension. My pension now is wiped out because of AIB. I cannot sell the shares because they are useless.

He added: “The whole board should be replaced by Mickey Mouse and Donald Duck.”

Mr Keogh then became more angry and said: “If we didn’t live in a tolerant society, the chairman and the rest of the board would be hanging by their necks with piano wire out on the road.”

Keogh’s feat was captured by the BBC–watch the video here. Asked by a reporter why he threw the eggs, Keogh replies, “Because I can’t throw my shoes.”

Photo: Luca Volpi, Wikimedia Commons

Send your nominations for Radical Geezer of the Week to me at ridgeway.james@gmail.com.

Phony Social Security “Crisis” Is Fueled by New Report

Yesterday I wrote about the new rounds to come in the phony crusade to “save” Social Security from bankrupting the country and destroying the lives of our grandchildren. This manufactured crisis has gained new traction during the recession. It is likely to be used by conservatives (apparently with some cooperation from the Democrats) in a quest to cut old age entitlements–in effect taking money away from elders to pay for the Wall Street bailout.

I mentioned that, contrary to the overheated rhetoric, Social Security was projected to remain solvent for at least three decades (the exact number was 32 years, until at least 2041). Today, according to the AP, that figure has been downgraded to 28 years. The trustees for Social Security and Medicare now project that the trust fund could run out in 2037, due to the reduction in payments into the fund as a result of the recession’s job losses.

This means that in terms of solvency, the giant government program is still running 28 years ahead of Citibank, Bank of America, and the other behemoth private financial institutions run by the high-paid geniuses of Wall Street (and much longer, if you count the years when the bubble was expanding). In addition, the Social Security trust fund is still in better shape than it was a decade ago, according to the Center for Budget and Policy Priorities

As for Medicare, which actually is in pretty bad shape–that cannot be “fixed” by even the mot draconian cuts to the health care of the nation’s elders. The only long-term solution to the Medicare shortfall must come through comprehensive reform that reduces the private profits of the health care industry.

In spite of these fact, the trustees’ report is already being brandished by proponents of entitlement cuts. Within hours of the report’s release, a new post on the Cato Institute’s blog was warning that it “shows that the program’s financial crisis is growing worse while Congress has continued to duck the issue.” As for the solution–even the financial meltdown that has decimated all of our 401(k)s is not enough to avert the likes of Cato from its true agenda:

critics of personal accounts for Social Security have pointed to the decline in the stock market over the last few years as an argument against allowing younger workers to privately invest a portion of their Social Security taxes. Yet as the new Trustee’s Report shows, the same poor economy that hurts the stock market, hurts Social Security’s ability to pay its benefits.

In the end, there are only three possible solutions to Social Security’s problems. Taxes could be raised (and the Social Security payroll tax would have to be nearly doubled to keep the program afloat). Benefits could be cut. Or younger workers could be allowed to invest privately.

And there we are: In two easy step, we’ve returned to the most cherished–and most discredited–domestic policy objective of the Bush Administration, the privatization of Social Security.

Social Security Give-and-Take Leaves Old Folks in the Hole

Spring has come to recession-era America, which means that all across the nation, millions of old people are emerging from hibernation and hobbling out to their mailboxes in search of their long-awaited Social alan balgowlah-heights-mailbox-hoops-umSecurity stimulus checks. The first round of payments, which were provided by the American Recovery and Reinvestment Act, have just been mailed out. So while the big banks may be raking in their trillions, U.S. elders–along with recipients of SSI and veterans’ benefits–will soon have a whopping $250 to protect them from the ravages of the economic meltdown. 

 And it looks like we’d better make it last, since it’s the last addition to our monthly checks that we’re likely to see for a long, long time. Federal forecasts show that for the first time in more than three decades, there will be no increase in Social Security benefits next year. In fact, the Congressional Budget Office projects that because of low inflation caused by the recession, there will be no cost-of-living adjustment (COLA) to Social Security until 2013.

As the New York Times reports, “In theory, low inflation is good for people on fixed incomes.” In the current circumstances, however, “The absence of a cost-of-living adjustment, calculated under a formula set by law, will be a shock to older Americans already hit by plummeting home values, investment losses and rising health costs.” While Social Security levels remain frozen, the premiums and co-pays for the Medicare Part D prescription drug program will no doubt continue to rise steeply, as they have every year since the program began. For at least a quarter of Medicare beneficiaries (including working geezers like myself), Medicare Part B premiums will go up as well.

And if we don’t watch out, it might not stop there: The straw man of Social Security “reform” is yet again raising his scruffy head, this time courtesy of Congressional Democrats. As Roll Call reported last week:

In a year already jam-packed with major legislative initiatives, House Majority Leader Steny Hoyer (D-Md.) is breathing new life into the idea of tackling Social Security reform….Hoyer signaled that Democratic leaders may take steps to act on Social Security reform in the fall after Congress advances its two biggest priorities: health care reform and climate change legislation.

“Of our entitlement programs, I believe we would have the easiest challenge in reforming Social Security,” Hoyer said. “Frankly, I believe Social Security is not very difficult mathematically. It may be difficult politically, but not mathematically.”

The Washington Post confirmed that Hoyer is looking to create “a bipartisan consensus” for “overhauling the Social Security system.” Democrats, the Post reported, “have found a willing partner in the Senate,” alan como-mailbox-painting-flowers-umwhere South Carolina’s Lindsey Graham “has stated his desire to work with President Obama to make changes to keep Social Security solvent.”

Graham has long been a supporter of Social Security privatization. But after what’s happened to people’s 401(k)s in the last year, even Graham has had to admit that dog won’t hunt. Instead, he now presents Social Security reform as a “math problem”: “You can do a combination of things, give a little here and give a little there, and get it done,”  he said. 

Anyone who supports the program that lifted millions of elders out of poverty should still be concerned by the ongoing disconnect between the “reform” rhetoric and Social Security’s actual fiscal soundness. (The nation’s private financial institutions, as Dean Baker has pointed out, only dream of being as solvent as the Social Security system.) Following Hoyer’s announcement, the National Committee to Protect Social Security and Medicare commented

given the long list of critical challenges this nation faces right now…it’s hard to imagine why Social Security would share space at the top of the legislative priority list ….After all, Social Security is able to pay full benefits for at least 30 more years….

Some worry Social Security will be used as a bargaining chip in the healthcare debate, others see this as part of ongoing efforts to balance the budget through entitlement program cuts.

As I’ve written before, there are still plenty of powerful voices on the right who woulalan belfield-mailbox-long-umd like to preserve the myth of Social Security as a ticking time bomb that will one day land in the laps of the young. In doing so, they can create a phony intergenerational conflict that deflects attention from the true villains in our economic mess, while at the same time achieving their long-cherished dream of cutting entitlements. As William Greider has written, these forces are getting a new boost from the recession:

Governing elites in Washington and Wall Street have devised a fiendishly clever “grand bargain” they want President Obama to embrace in the name of “fiscal responsibility.” The government, they argue, having spent billions on bailing out the banks, can recover its costs by looting the Social Security system.

By now, we’re all used to witnessing these kinds of bait-and-switch tactics. But according to yet another Washington myth, we’re not supposed to see them coming from the Democrats.

Photos: Alan Wadell, Walk Sydney Streets

Photos: Alan Waddell, Walk Sydney Streets. (Alan was actually Australian, but these photos were too great to pass up. Find out more about Alan Waddell and his walks at http://www.walksydneystreets.net.)

Crybabies of Wall Street

 The new issue of New York Magazine features a cover story called “The Wail of the 1%.” The piece describes what a bummer it is for rich Wall Street execs to have to put up with all the populist rage that’s being levied against them–just because they helped bring down the world economy, and got paid seven-figure salaries while doing so. It’s especially difficult for the poor bankers and brokers to endure all these bad vibes while they’re having to tighten their own hand-tooled Italian leather belts due to lost jobs and lost bonuses.

This isn’t the first time we’ve heard this sort of peevish lament from the rich–I’ve written about it before on this blog. But the article’s author, Gabriel Sherman, gets some truly shameless quotes out of these guys (most of whom refused to use their names). A few examples:

“No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague.

“I’m not giving to charity this year!” one hedge-fund analyst shouts into the phone, when I ask about Obama’s planned tax increases. “When people ask me for money, I tell them, ‘If you want me to give you money, send a letter to my senator asking for my taxes to be lowered.’ I feel so much less generous right now. If I have to adopt twenty poor families, I want a thank-you note and an update on their lives. At least Sally Struthers gives you an update.”

There’s nothing surprising about greed, of course. What’s remarkable is the fact that after all the damage they’ve done, these execs still believe that they were entitled to everything they got, including a multi-trillion-dollar bailout from the very people they screwed. As Sherman notes, their statements reveal 

the belief shared on Wall Street but which few have dared to articulate until now: Those who select careers in finance play an exceptional role in our society. They distribute capital to where it’s most effective, and by some Ayn Rand–ian logic, the virtue of efficient markets distributing capital to where it is most needed justifies extreme salaries—these are the wages of the meritocracy. They see themselves as the fighter pilots of capitalism.  

Now that they aren’t flying so high, these executives see themselves as victims, their wings clipped not by their own incompetence, amorality, or avarice, but by an overbearing government and an envious proletariat. “Why are you being punished for making a lot of money?” one asks.

If you require an antidote (or a barf bag) after reading the article, I suggest this musical response from Gene Burnett. [Warning: Contains (appropriately) strong language.]