Category: Economy

In the first three segments of this six part interview we’ve heard Jane D’Arista, author of The Evolution of U.S. Finance: Federal Reserve Monetary Policy: 1915-1935 and research associate with the Political Economy Research Institute (PERI), University of Massachusetts at Amherst, talk with Paul Jay about the end of the American consumerism as the driving ‘engine’ of the global economy, and about the decades long development of the offshoring of labor and the companies that have been doing that attempting to continue profiting by selling their goods back into a US market with steadily declining disposable income – – –  finally arriving at the point where massive government bailouts of the financial sector have been used to keep the illusion of a prosperous economy afloat at the expense of the average person, but that US workers wages are too low and there is no longer the cheap credit available to keep the system going that has been enabling people to live the ‘American Dream’ through debt, and why other countries are both unlikely and unwilling to take the place of the US as that importer of last resort that is needed to keep the illusion alive.

In this fourth segment D’Arista goes further in her conversation with Jay to give us the broad outlines of a solution she proposes to help reorganize the US and global economies – “an investment fund…in which you can attract, also, not only the savings that end up in central banks and government treasuries around the world, but the private savings, the important private savings, which are pension funds, not only in the US and other developed countries, but also in emerging market countries where pension funds are growing like crazy and they have no place to put them”, an alternative in a world where “politicians in the US, but certainly not only the US, in much of the world-are so entwined with the finance sector that the politics is pretty much as parasitical as the banks”

Part 1 of this interview is here.

Part 2 is here.

Part 3 is here.

All four parts are under the tag Jane D’Arista

  The municipal budget crisis currently striking the largest states in America is about to enter its worst phase. This NY Times article warns that as many as 300,000 teachers could be laid off this summer.

The USA:

Jobs: Small Business Loans Are The Mountain Blocking Economic Recovery

Phillip Williams — Apr 17, 2010

Why Small Business Loans Are Important

The economy has lost 8.4 million jobs since the start of the recession. Small businesses employ the majority of the American workforce, although the largest single employer is still the federal government.

When the economy starts to recover small businesses rely on loans to bring up their inventory levels. Large banks and smaller institutions have been reluctant to introduce new loans after the failure of a large number banking institutions.

Small banks do not have the resources to start lending again, and the number of new loans have gone down since the start of the recession.

Banks that received funds from the Troubled Asset Relief program. The larger banks that were branded as too big to fail have also reduced the number of new loans they make to small businesses. They have reinvested the funds in lower-return, lower-risk treasury bonds instead.

McClatchy News’ Greg Gordon talks with Paul Jay of The Real News Network with his analysis of the SEC civil fraud charges against Goldman Sachs and Goldman VP Fabrice Tourre:

SEC’s Goldman charges could be just the beginning

So far in the first two segments of this six part interview we’ve heard Jane D’Arista, author of The Evolution of U.S. Finance: Federal Reserve Monetary Policy: 1915-1935 and research associate with the Political Economy Research Institute (PERI), University of Massachusetts at Amherst, talk with Paul Jay about the end of the American consumerism as the driving ‘engine’ of the global economy, and about the decades long development of the offshoring of labor and the companies that have been doing that attempting to continue profiting by selling their goods back into a US market with steadily declining disposable income, finally arriving at the point where massive government bailouts of the financial sector have been used to keep the illusion of a prosperous economy afloat at the expense of the average person.

In this third segment D’Arista goes further in her conversation with Jay to explain why and how the global economic system depends on the US as importer of last resort but that US workers wages are too low and there is no longer the cheap credit available to keep the system going that has been enabling people to live the ‘American Dream’ through debt, and why other countries are both unlikely and unwilling to take the place of the US as that importer of last resort that is needed to keep the illusion alive.

Part 1 of this interview is here.

Part 2 is here.

Crossposted at Daily Kos

THE WEEK IN EDITORIAL CARTOONS

This weekly diary takes a look at the past week’s important news stories from the perspective of our leading editorial cartoonists (including a few foreign ones) with analysis and commentary added in by me.

When evaluating a cartoon, ask yourself these questions:

1. Does a cartoon add to my existing knowledge base and help crystallize my thinking about the issue depicted?

2. Does the cartoonist have any obvious biases that distort reality?

3. Is the cartoonist reflecting prevailing public opinion or trying to shape it?

The answers will help determine the effectiveness of the cartoonist’s message.

:: ::

Nate Beeler, Washington Examiner, Buy this cartoon

   It’s sometimes amusing to see how hard the media tries to spin bad news into good news. For instance, this article from ABC today.

 (Reuters) – U.S. mortgage foreclosure filings dropped for a second straight month in February, and notched the smallest annual increase in four years as housing-rescue efforts contained activity, a report released on Thursday showed.

 It sounds like good news, huh? There’s just one problem: the foreclosures report that was released today concerned the whole first quarter, including March numbers.

  Since when did the news media start preferring outdated data over recent data?

I guess when the recent data said things like this.

 RealtyTrac® … today released its U.S. Foreclosure Market Report™ for Q1 2010, which shows that foreclosure filings – default notices, scheduled auctions and bank repossessions – were reported on 932,234 properties in the first quarter, a 7 percent increase from the previous quarter and a 16 percent increase from the first quarter of 2009. One in every 138 U.S. housing units received a foreclosure filing during the quarter.

Yesterday in the first segment of this interview we heard Jane D’Arista, author of The Evolution of U.S. Finance: Federal Reserve Monetary Policy: 1915-1935 and research associate with the Political Economy Research Institute (PERI), University of Massachusetts at Amherst, talking with Paul Jay of The Real News Network about the fact that the global economy has lost the American consumer as the engine for the whole system.

Here in segment 2 D’Arista continues her conversation with Jay, talking about private capital looking for investment safety by abandoning the US Dollar to other things they think will better hold real value such as precious metals, oil, etc. and more about the history of how we got into the economic situation we are in today.

And about who benefits…

Part 1 of this interview is here.

Bill Gross, head of PIMCO, is credited with coining the term “Shadow Banking System”. A few years ago he warned about its reckless behavior and how they could wreck the Economy.

Bill Gross Calls it “Shadow Banking System”

Bill Bonner, The Daily Reckoning Australia — Jan 22, 2008

Banks recognize that not all their loans will be repaid. They operate on margins of safety, with reserves set aside for when things go wrong. But in the worlds of swaps, hedge funds and derivatives…slick operators can invest billions with no margins of safety…and no reserves. The result, Gross says, could be catastrophic.

Turns out this blunt-speaking Mutual Fund Manager — WAS Right!

Jane D’Arista is a research associate with the Political Economy Research Institute (PERI), University of Massachusetts, Amherst where she also co-founded an Economists’ Committee for Financial Reform called SAFER, i.e. stable, accountable, efficient & fair reform.

She is also a research associate at the Economic Policy Institute, “A nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy”.

Jane served as a staff economist for the Banking and Commerce Committees of the U.S. House of Representatives, as a principal analyst in the international division of the Congressional Budget Office. Representing Americans for Financial Reform, she has given Congressional testimony at financial services hearings. She has lectured at the Boston University School of Law, the University of Massachusetts at Amherst, the University of Utah and the New School University and writes and lectures internationally.

Her publications include The Evolution of U.S. Finance: Federal Reserve Monetary Policy : 1915-1935, a two-volume history of U.S. monetary policy and financial regulation.

Here Jane talks with Paul Jay of the Real News in the first segment of a six part interview, and says now that the US dollar as the reserve currency of all international transactions…

  The IMF has been making a lot of noise recently, but their biggest move almost managed to slip through completely unnoticed.

 The Executive Board of the International Monetary Fund (IMF) today approved a ten-fold expansion of the Fund’s New Arrangements to Borrow (NAB) and the transformation of the Fund’s premier standing credit arrangement into a more flexible and effective tool of crisis management. The NAB will be increased by SDR 333.5 billion (about US$500 billion) to SDR 367.5 billion (about US$550 billion), representing a major increase in the resources available for the Fund’s lending to its members.

 This IMF program didn’t even exist until a year ago, when the IMF began issuing SDRs for the first time since the 1970’s. The IMF has only sold SDRs in times of global financial stress.

  It makes a person wonder “Why now?” Why is the IMF suddenly tripling its lending facilities? What do they know that we don’t?

 To answer that, let’s look at the announcements of the past few weeks.

I have to share this not so surprising article from Newsweek that I came across as I was posting this essay: Is Obama Really Serious About Financial Reform?  Short answer: no.

Well, it looks like we are getting another sorry, weak-ass legislation called “reform”.  First health care or health insurance and now financial regulatory reform.  The House of Representatives passed its weak version of financial regulatory reform last December and now the Senate is working on passing an even weaker version.  But, what would real reform look like?

Please excuse the slight digression.  The Obama Administration lost me as a supporter early on when then President-elect Obama picked Clinton retreads Larry Summers and Tim Geithner to be part of his administration.  In my opinion, the Obama Administration has become part of the problem not the solution whether its the mortgage crisis or financial regulatory reform.

The Obama Administration, much like it handling of health insurance “reform” is either telling us what we want to hear and acting the opposite or its refuses to fight for a set of principles or both.  His supporters will argue he is being pragmatic or realistic based on how screwed up Congress is.  But that really is an excuse for not providing leadership or actually taking a side and strongly advocating a position.  

Last year as the House was starting debate of its financial regulatory “reform”, the President gave a speech in support of strong financial regulatory reform particularly in a Consumer Financial Protection Agency and he specifically mentioned the importance of a “plain vanilla” financial products requirement but someone failed to mention to the President that days or a week before his speech Congressman Barney Frank had already eliminated the requirement of the House’s legislative version.  That was the last we heard of the requirement.

Remember when the President used the phrase of “Wall Street Fat Cats”.  Wow, sounds like he was ready to take Wall Street on – nay.  Days later he softened his words toward Wall Street.  Then comes the “Volcker Rule”.  In January, to much fanfare, the Obama Administration was proposing legislation that would restrict banks from speculative trading that did not benefit its customers.  Sounded good at the time but the devil is in the details particularly when it comes to Senate’s version of “reform”:

[Senator Chris] Dodd’s bill stops short of implementing the Volcker Rule. Instead, it requires that the government “shall issue final regulations implementing” the ban.

The best way to avoid or weaken a potentially strong rule is to leave it to the discretion of regulators.  And what is the White House saying about all this weakening – nothing or worse.  As Simon Johnson pointed out this past week the rhetoric from the Administration and what is actually in the Senate’s legislation don’t jive.  This past Sunday, Larry Summers was singing the praises of the Senate’s version of “reform” on ABC’s This Week but Professor Johnson points out inconsistencies with Summer’s spin:

Larry Summers is incorrect on three important dimensions of the Dodd legislation: it doesn’t “insist institutions have much more” capital requirements, it doesn’t “restrict proprietary trading activities” in any meaningful fashion, and it doesn’t “eliminate the prospect” of a bailout.

Bottomline: From Professor Johnson:

Passing a bill that contains mostly mush is not a good idea – it would only further the perception (and the reality) that this administration is far too close to certain “savvy businessmen” on Wall Street.

So, where are we with the financial regulatory “reform”?   The House passed its weak version last December and Senate is about to amend and vote on its even weaker version very soon.  For a good summary of what is on the table there are the following articles:

Breaking the Bank

Updates on the battle for financial reform

Comparing the House and Senate Financial Reform Bills

What does REAL reform look like?

1)  Consumer Financial Protection Agency – an independent agency with rule making and enforcement authority with very few exempts from oversight and lifting of any federal pre-emption of state consumer laws.  

2)  Derivative Regulatory Reform –  ‘Over the Counter’ (OTC) trading in credit default swap derivatives, or C.D.S.’s, brought down the House of Cards that was the global financial industry and how we deal with derivatives going forward will determine whether we will experience another global financial crisis or not.  Real derivatives reform at the very least should mean the repeal of the Commodities Futures Modernization Act of 2000.

3)  Too Big to Fail – it doesn’t sound like there is the political courage to break up the financial conglomerates so let me put on my pragmatist hat (LOL).  The objective should be to impose a cost on financial conglomerates that are Too Big to Fail and possibly force them to become smaller.  One way to do this is through specific capital and liquidity requirements placed on the asset side of banks balance sheet:

Capital requirements place a limit on the leverage ratios that banks can run with and thus attempt to limit risk-taking. They also constrain the size of the banks because capital is costly. Finally, they reduce the public-private partnership ratio inherent in any banking system where governments will bail out the depositors in event of failure. The higher the capital held against its assets the more the shareholders are exposed to bank failure.

These capital and liquidity requirements must be specific and not left to the discretion of regulators – somewhat similar to Congresswoman Jackie Speier’s amendment.

The other reform would be a hard rule – meaning a specific law (no discretion left to regulators) that bans any speculative trading that is contrary or in conflict with clients – banks cannot advise clients to invest in certain holdings and then take an opposite investment position – essentially betting against the client’s position.  

4)  Rating Agencies – make it illegal for rating agencies to obtain a fee for ratings from issuers of securities.  Many investors rely too heavily on the ratings issued by Moody’s, S&P and Fitch.  These rating agencies receive a fee for their rating services from the issuers whose securities they are analyzing and rating – huge potential conflict of interest.  This was a very lucrative business for rating agencies and it’s not surprising that because of this payment practice we heard stories like this: How Moody’s sold its ratings – and sold out investors

It’s time to draw that proverbial line in the sand.  Anything short of this is NOT real reform.  How’s that for Change to believe in?