Category: Economy

As the next Congressional fight over payroll tax extensions and unemployment benefits and pipelines gets set up in the next few weeks for either its final chapter or to be kicked down the road a bit farther, one or the other, you’re going to hear a lot from our Republican friends about how much they value work and workers; most especially, they’ll tell you, they value American jobs for American workers.

After all, they’ll say, creating American jobs is the most important thing of all.

But if we were to look back over just the last few months, some would tell us, we could quickly find examples of how Republicans promote ideas that don’t seem to value work or workers at all, much less American jobs.

Well as it turns out, “some” seem to be right; to illustrate one of those examples we’ll look back a month or two or three to a time some Republicans might wish was long, long, ago, in a galaxy far, far away.

Cross posted from The Stars Hollow Gazette

The New York City Occupiers took back Zucchotti Park a couple of hours before midnight on New Year’s Eve despite the presence of NYPD and private security:

About 100 people arrived at the park at about 7 p.m., according to witnesses, and someone put up what was described as a small multicolored tent, about two feet tall, made for a child. Two young girls, who were at the park with their mother, began playing inside.

Though the New York City Police Department had officers fanned out throughout the city for the holiday, there were police officers lined up across the street from Zuccotti Park, at the ready alongside private security guards. They stepped in.

Police officers and security guards, who stood at the ready across the street, told protesters to remove the tent, saying it violated rules issued by the park’s owner, Brookfield Properties. Meanwhile, an officer and a guard blocked other protesters, and at least one reporter, from entering the park. Some people disregarded their instructions and squeezed through the spaces between metal barricades along other parts of the perimeter.

That number swelled to over 500 by 10:30 as text messages and signal went out across the city. They draped the piled barricades with Christmas lights and the lighted Christmas tree was wrapped with the Occupy Wall Street banner as the OWS “bat signal” was projected on the side of a building. As the protesters were chased from the park, they took to the nearby streets, drumming and chanting as they marched. Most of the arrests were of demonstrators who were obeying police directions or walking peacefully on the side walk. Many of the protesters and others not involved in the demonstration were “kettled” into groups then arrested for obstructing pedestrian traffic or for moving as directed by the officers. Even legal observers and the press were again arrested and threatened by the NYPD. The observer from the National Lawyers Guild was later released.

Welcome to the United Police State of America where you can be “legally” detained indefinitely on the president’s word.

Cross posted from The Stars Hollow Gazette

While he is on vacation in Hawaii, President Barack Obama will ask Congress to raise the debt ceiling for the third and last time under the agreement that was negotiated last August. The increase, which is expected to be made by December 30, can only be stopped by passage of a “resolution of disapproval” which the President can veto. That isn’t likely since the last resolution was blocked by the Democrats in the Senate and since Congress in recess until the end of January, well past the 15 days Congress has to vote in the resolution of disapproval.

Pres. Obama is expected to ask for authority to increase the borrowing limit by $1.2 trillion which is within $100 billion of the current cap of $15.194 trillion. The motivation to request this raise now is mostly political and tied to the election next November, as noted by David Dayen at FDL:

In numbers that came out earlier this month, the deficit under current law for Fiscal Year 2012, ending September 30, is set to be right around $1 trillion. That doesn’t leave a lot of wiggle room for the White House to get to the next election without having to deal with the debt limit again, especially if new measures like the payroll tax go unfunded. [..]

That seems to be the motivating factor here. The White House simply does not want to go through another bruising debt limit fight again before the election. That places a limit on borrowing in the next fiscal year. It explains why the “fight” over the American Jobs Act wasn’t that major a fight, because passing all of the measures without paying for them immediately would require raising the debt limit again. And paying for them immediately would make the stimulative effect irrelevant. A couple of the measures, like the payroll tax and unemployment benefits, could conceivably pass while allowing the Treasury to squeeze past the elections under the debt limit. But the numbers are pretty close.

David Weigel at Slate points out, with some amusement, another reason to make the request now:

Both parties like to vote against debt limit hikes, when they can — makes for good TV ads. The problem this time is that they may never get a chance. The Washington Post‘s sharp congressional reporter Felicia Sonmez points out that Congress is actually out of town until January 17. [..]

Congress is still playing the unconstitutional game of pro forma sessions to prevent the president form making recess appointments. Technically, the resolution could be passed but it would have to be by unanimous consent and that is just not going to happen. So as Weigel notes unless some renegade congress critter demands a vote, even Congress keep from getting near the “burning wreckage” of this fight.

Cross posted from The Stars Hollow Gazette

I long ago stopped with the Holiday shopping and spending madness that now starts in September. I can’t remember the last time I set foot in a store the day after Thanksgiving. There isn’t anything that my family needs that badly that I would subject myself to obsessed drivers vying for the parking spot closest to the doors if over crowded shopping centers. Or to the rudeness of shoppers, young and old, who will do just about anything from pepper spraying you to walking over your dead body to get to one of the 24 pairs of Nike Air Jordan’s on the shelf, or some other heavily discounted item, that they have waited countless hours for with a thousand other shoppers.

This isn’t just shoppers behaving badly, this is pure insanity driven by greed.

Despite the all this spending frenzy, the economic outlook for retailers isn’t all the booming:

Half off at the entire store at Ann Taylor. Sixty percent at Gap. Forty percent off almost everything at Abercrombie & Fitch.

Aggressive last-minute deals in the days before Christmas are good for procrastinators, but they could be an alarm bell for the retail industry.

While scattered markdowns are standard every year, discounts across entire stores – which analysts say are more widespread than last year – suggest merchants are stuck with too much merchandise.

“It’s really a game of chicken,” said David Bassuk, managing director and head of the retail practice at the consultant firm AlixPartners.

Many retailers entered the season “with pretty optimistic plans” that shoppers would rush into stores and pay full price, Mr. Bassuk said. But that did not pan out, and the final days before Christmas have retailers being “much more aggressive in terms of promotions being offered,” he said.

Shoppers are filling their holiday lists against the backdrop of an uncertain year, with stubbornly high unemployment, increased food prices, volatile gas prices and unpredictability for stocks and Europe’s debt crisis. The government on Thursday said that third-quarter economic growth had not been as brisk as it previously estimated, because of a drop in consumer spending on services like health care.

The American worker is taking home less, if he’s even lucky enough to still have a job, with the real unemployment rate is 11%. The big deal in the news today is the House Republicans caved to demands for a two month extension of the payroll tax cut and unemployment benefits that will have to hashed out again when Congress comes back from their extended Winter vacation then end of January.  

Cross posted from The Stars Hollow Gazette

Another slap on the wrist by the government for the banks that caused the housing bubble and the crash that sank the economy world wide with unregulated derivatives and credit default swaps:

The Department of Justice has announced a $335 million settlement with Countrywide, the former subprime mortgage giant now subsumed into Bank of America, on claims of housing discrimination.

   The Justice Department on Wednesday announced the largest residential fair-lending settlement in history, saying that Bank of America had agreed to pay $335 million to settle allegations that its Countrywide Financial unit discriminated against black and Hispanic borrowers during the housing boom.

   A department investigation concluded that Countrywide had charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk. It also steered more than 10,000 minority borrowers into costly subprime mortgages when white borrowers with similar credit profiles received prime loans, the department said.

   The pattern and practice covered the years 2004 to 2008, before Countrywide was acquired by Bank of America.

   “The department’s actions against Countrywide makes clear that we will not hesitate to hold financial institutions accountable, including one of the nation’s largest, for discrimination,” Attorney General Eric H. Holder Jr. said. “These institutions should make judgments based on applicants’ creditworthiness, not on the color of their skin.”

I’m waiting for someone to hold financial institutions accountable for discrimination against every one of its customers, by defrauding them and destroying the residential home mortgage market. That’s obviously not going to happen here.[..]

Here’s the settlement agreement, and once again you see that Countrywide doesn’t have to admit wrongdoing for their crimes.

But the Department of Justice and the Securities and Exchange Commission will enthusiastically pursue the one agency that didn’t cause the crash but just inherited it, at tax payers expense:

The walls have closed in over the past couple weeks on mortgage giants Fannie Mae and Freddie Mac. The SEC charged former CEOs and executives at the companies with fraud. California Attorney General Kamala Harris sued them for imformation (sic)in a wide-ranging fraud investigation. And now we learn that the FBI is investigating them[..]

If Fannie and Freddie are guilty of misleading investors, they deserve to pay the penalty. And yet, I do sense more enthusiasm to go after these government sponsored enterprises than to go after the private banking firms which were far more responsible for subprime. This feeds a false narrative that government somehow caused the financial crisis by forcing lending to poor people. Fannie and Freddie followed the market in subprime and did not originate it.

Cross posted from The Stars Hollow Gazette

Round and round, downward, repeating the same mistakes, shoveling good money after bad, all to save themselves.

ECB lends Europe’s banks a massive €489 billion over unprecedented 3-year period

FRANKFURT, Germany – The European Central Bank flipped its credit tap wide open Wednesday to help Europe’s troubled banking system, allowing hundreds of nervous banks to take out a record €489 billion ($639 billion) in loans.

The move was the biggest ECB infusion of credit into the banking system in the 13-year history of the shared euro currency. It aimed to keep the Europe’s debt crisis from choking off credit to businesses – since a credit crunch could cause a continent-wide recession that would make the debt loads hanging over the 17 nations that use the euro even harder to pay.[..]

Although the ECB credits can help banks and the economy get through the crisis, they don’t attack the cause of Europe’s problems – too-large amounts of government debt – or convince markets that European governments can get a grip on their public finances. And it doesn’t remove one of the main reasons why banks remain wary of lending to each other – their thin levels of capital reserves against potential losses.

All that means despite the massive influx of cash, Europe’s debt crisis will still be churning in the New Year.

Spain awaits a painful dose of medicine

It was an election victory the polls had predicted. Second guessing what policies Mariano Rajoy will pursue has not been so easy. Behind his centre right party is a huge parliamentary majority, ahead of him what seems to be a contagious European disease, debt.

Healing the Spanish economy teetering on the edge of recession will be painful, where, when and how will the medicine be administered?

He has promised deep spending cuts announcing he aims to cut the budget deficit by 16.5 billion euros in 2012 and yet such action needs to be balanced against measures to stimulate growth.

Successful Spanish Debt Auction

PARIS – Spain’s borrowing costs plummeted Tuesday at a debt auction, helping to lift the euro and stocks, as the European Central Bank began rolling out a new lending program that could encourage banks to buy euro-zone government bonds. [..]

The central bank’s policy move “is something very big,” Mr. Fransolet said, but he questioned whether it represented “a complete change of direction” for the euro zone.

“I think you need a lot of other things,” he said. With a huge round of government debt up for refinancing next year, he added, “The jury is still out.”

In a reminder of the sword hanging over the heads of European leaders, Fitch Ratings warned that the AAA rating it has assigned to the debt issued by the euro-zone bailout vehicle, the European Financial Stability Facility, “largely depends on France and Germany retaining their AAA status.”

Italian economy shrinks by 0.2% fuelling recession fear

Italy’s economy shrank by 0.2% in the three months to the end of September, fuelling fears of a recession in the eurozone giant.

The figures, released by the country’s official statistical agency, Istat, show the first contraction in the Italian economy since 2009.

Italy’s government has predicted the economy will contract by 0.4% in 2012.

Earlier this month, the government announced an austerity plan to “save Italy”.

The package of emergency austerity measures included raising taxes on the assets of the wealthy, increasing pension ages, and a major drive to tackle tax evasion. Italian Prime Minister Mario Monti also said he would give up his own salary as part of the effort.

However, analysts expect Italy’s economy will struggle for some time yet.

Moody’s gives UK high scores but warns of ‘challenges’

Ratings agency Moody’s has given the UK high scores for economic governance but warns the country it faces “formidable and rising challenges”.

In its annual guidance for investors, Moody’s says the UK has “significant structural strengths” and deserves its top AAA rating.

But it says weakness in the eurozone could hold back growth and weaken the government’s debt-cutting plans.

Rating agency opinion affects the cost of borrowing.

This is only because England has a sovereign currency

On the other side of the globe from Herr Prof.Krugman:

I’ve been reluctant to weigh in on the Chinese situation, in part because it’s so hard to know what’s really happening. All economic statistics are best seen as a peculiarly boring form of science fiction, but China’s numbers are more fictional than most. I’d turn to real China experts for guidance, but no two experts seem to be telling the same story.

Still, even the official data are troubling – and recent news is sufficiently dramatic to ring alarm bells.

The most striking thing about the Chinese economy over the past decade was the way household consumption, although rising, lagged behind overall growth. At this point consumer spending is only about 35 percent of G.D.P., about half the level in the United States.

So who’s buying the goods and services China produces? Part of the answer is, well, we are: as the consumer share of the economy declined, China increasingly relied on trade surpluses to keep manufacturing afloat. But the bigger story from China’s point of view is investment spending, which has soared to almost half of G.D.P.

I have spent a number of years complaining about the interactions between Democrats and Republicans, but after the recent events involving the Keystone XL and civil liberties cave-ins, I’ve decided it’s time to stop complaining and embrace the madness.

But I also feel like there’s an ugly edge to all this…that hasn’t really been fully exploited.

I mean, Republicans have tried to force through a lot of disgusting ideas this Congress as they’ve held various bills hostage, but it seems like, if they really tried, they could do so much more.

But I’m not here to complain, I’m here to help; that’s why today we’ll be trotting out a few ideas of our own that Republicans can attach to bills throughout 2012, with the assistance of certain errant Democrats.

It’ll be fun, it’ll be festive, but most of all…it’ll be an exercise in Civic Responsibility, and in these difficult times, that’s something we could sorely use.

   The IMF said last week that Greece is behind schedule with its economic reforms. The threat behind the statement was not very subtle.

 Greece has reached its limit in raising taxes and needs to refocus its austerity program on long-term spending cuts, the International Monetary Fund has said.

  However, the threats have become almost meaningless at this point.

What the global financial leaders are demanding is that Greece double-down its draconian spending cuts even while its economy is collapsing.

 Its GDP has been in contraction for 12 quarters running, most recently at an annualized rate of 5.5%. The rate of unemployment oscillates around the 18% mark – official unemployment, that is. Consumer confidence has collapsed, industrial production has been in decline at double digit rates since early 2008. The stock market is down by 90% from its 2007 highs and the government’s one year note yields an absurd 330%. The banking system is de facto bankrupt and subject to an accelerating flight of deposits.

   You get the picture – these are the kind of economic data that normally indicate that the society concerned is only a small step away from major social upheaval and a descent into conditions of chaos.

“the marriage between capitalism and democracy is over.”

–  Slavoj Zizek

  Politics is never in a static state. It is always in transition.

Thousands of years ago Aristotle wrote how monarchies become aristocracies, become tyrannies, become democracies, become monarchies, and so forth.

 The United States, being both a young country AND one of the oldest continuous democracies, doesn’t have the cultural maturity to see the change when it approaches.

  For instance, Americans are still in denial how the country went from being a democracy to an Empire in 1945.

 We are also in denial about the changes the political economy has underwent since the early 1990’s.

I use the term “political economy” because that was what the study of economics was called until about a century ago. It’s what Adam Smith and David Ricardo studied.

  The fact that the study of economics fails to take politics into account today is probably its biggest reason why it has become a total failure.

Cross posted from The Stars Hollow Gazette

Some encouraging news in the on going call for an investigation into foreclosure fraud, Sen Maria Cantwell (D-WA) called for Attorney General Eric Holder to investigate the fraud before letting the bank off with a pitiful settlement $20 billion and a “get out of jail” card for criminal charges, She also demanded a full investigation into robo-signing scandal and ‘pump and dump’ mortgage bubble scheme:

I am concerned that recently reported settlement proposals will effectively absolve these financial institutions of substantial civil and criminal liability in one of the largest alleged fraud schemes during the financial crisis. Specifically, I am concerned that the proposed settlement includes a release from liability that may be far too sweeping, does not adequately compensate victims, does not require enough of banks to reform the system that led to the crisis in the first place, and is being made before all the facts are known and without the backing of a full inquiry into the size and scope of the alleged fraud.

…

Without a thorough investigation, it is impossible to truly estimate just how pervasive the defects in the foreclosure and securitization process are. Continued reports of wrongful foreclosures, forged documents, and an inability of servicers and banks to prove chain of title and the legal right to foreclosure, raises the very alarming possibility that these defects were endemic to the mortgage servicing industry across the country. The sheer magnitude of the potential fallout from these defects demands that we undertake a full investigation to uncover the true scope of wrongdoing before providing blanket immunity to the perpetrators.

I am also concerned that reports of a settlement in the range of $20 billion, as recently reported, may not adequately compensate the victims of the foreclosure crisis. As a result of the pump-and-dump scheme perpetrated by the nation’s largest banks that inflated – and burst – the housing bubble, an estimated 14 million Americans are underwater, owing $700 billion more on their homes than those homes are worth. A $20 billion settlement is woefully inadequate to compensate the wrongfully evicted or homeowners struggling to stay in their homes. Much more should be required of banks to provide meaningful help underwater homeowners and compensate foreclosure fraud victims.

And some good news for homeowners facing foreclosure in Florida:

WEST PALM BEACH – Home­owners in foreclosure may have a better chance of getting a true trial, instead of a quickie judgment, following a 4th District Court of Appeal decision that requires banks to prove ownership of the note at the time they file for repossession.

The ruling Wednesday in Palm Beach County was heralded by foreclosure defense attorneys who said it may even force banks to dismiss some cases and start over with new paperwork.[..]

Wednesday’s ruling was on the case of Robert McLean vs. JPMorgan Chase, and involved a 2009 Broward County foreclosure.

According to the decision, which reversed a lower court’s verdict in favor of the bank, Chase originally filed the foreclosure claiming the note – basically the IOU from the borrower – was “lost, stolen or destroyed.”

The claim has been made thousands of times as lenders rushed without the proper documentation to take back homes tangled up in the real estate boom’s securitization frenzy.

Although most notes are found before a final foreclosure judgment is entered, the 4th DCA said the note also must be correctly dated and endorsed to show ownership before the foreclosure was initially filed – something that Chase didn’t have, according to the ruling. The court also questioned a mortgage assignment made to Chase that was dated three days after the foreclosure was initially filed.

If there is substantial doubt about the note, the bank should dismiss and refile the case or the home­owner should be entitled to an evidentiary hearing instead of a more hasty “summary judgment,” the ruling said.

  I was reading about the latest, major scandal in the global financial world, when it suddenly occured to me that I’m a muggle.

 Who are the wizards? Why the major banks, of course.

Allow me to explain below.

Cross posted from The Stars Hollow Gazette

Extractionism: taking money from others without creating anything of value; anything that produces economic growth or improves our lives.

MSNBC talk show host, Dylan Ratigan has a new book, Greedy Bastards, coming out in January and has been promoting the premise of the book, how the banks have shaken down taxpayers, in a series of on-line pod casts. He recently interviewed Yves Smith, author of ECONned and proprietress of naked capitalism, gave Dylan an education of how the banks have been extracting capital for themselves and why investors are afraid to take them to court for fear the government will retaliate.

Under an extractionist system, we find lose value at a faster rate over time, while we need to be creating it.  Instead of giving people incentives to make good deals where both sides can benefit, extractionist systems rewards those who take and take some more, and give nothing in return.  Sadly, extractionism has crept its way into every aspect of our economy – it’s everywhere, from trade to taxes to banking.

Let’s take a look at banking as an example.  As Yves Smith explains, financial firms do provide valuable services to our economy, like establishing stable and reliable methods of payment for goods and services, and selling bonds and stocks to help raise new money to fund big projects. There are more than that, of course, but those are two basic examples of valuable services that our banking and financial sector provides.

Now, let’s look at how they can also be extractive – almost always going back  the lack of transparency in the financial markets.

Yves identifies two main extractive techniques of our financial industry.  The first is charging too much for goods or services. “Even fairly sophisticated customers can’t know what the prices are of many of the products, so it’s difficult for them to do side-to-side comparisons,” says Yves.

The second method is producing products that are so complicated – like in the swaps market – that clients can’t see hidden risk in them.  “This has unfortunately become extremely common now that we have a lot more use of derivatives. Many of the formulas that are used they are disclosed by they are extremely complicated, and then on top of that, the risk models that are commonly used for evaluating the risk actually understate the risk,” says Yves.

(emphasis mine)

In the interview Yves makes suggestions how this can be fixed:

1. A small tax on all financial transactions.

2. Give financial institutions a bigger financial responsibility when they knowingly recommending bad products or dubious strategies.

3. We need increased political pressure for an effective and robust Securities and Exchange Commission.

4. More inspection of what the banks are doing in their over-the-counter businesses.

The full interview transcript is here.

Yes, we do need a Constitutional amendment to get money out of politics so this can be stopped.

h/t Yves Smith @ naked capitalism