Safety Nets for the Rich

[FayeforCure]

This is the crux of our economic downturn:

--------------------------------------------------------------------------------

October 20, 2009
Op-Ed Columnist
Safety Nets for the Rich
By BOB HERBERT

The headlines that ran side by side on the front page of Saturday’s New York Times summed up, inadvertently, the terrible fix that we’ve allowed our country to fall into.

The lead headline, in the upper right-hand corner, said: “U.S. Deficit Rises to $1.4 Trillion; Biggest Since ’45.”

The headline next to it said: “Bailout Helps Revive Banks, And Bonuses.”

We’ve spent the last few decades shoveling money at the rich like there was no tomorrow. We abandoned the poor, put an economic stranglehold on the middle class and all but bankrupted the federal government â€" while giving the banks and megacorporations and the rest of the swells at the top of the economic pyramid just about everything they’ve wanted.

And we still don’t seem to have learned the proper lessons. We’ve allowed so many people to fall into the terrible abyss of unemployment that no one â€" not the Obama administration, not the labor unions and most certainly no one in the Republican Party â€" has a clue about how to put them back to work.

Meanwhile, Wall Street is living it up. I’m amazed at how passive the population has remained in the face of this sustained outrage.

Even as tens of millions of working Americans are struggling to hang onto their jobs and keep a roof over their families’ heads, the wise guys of Wall Street are licking their fat-cat chops over yet another round of obscene multibillion-dollar bonuses â€" this time thanks to the bailout billions that were sent their way by Uncle Sam, with very little in the way of strings attached.

Nevermind that the economy remains deeply troubled. As The Times pointed out on Saturday, much of Wall Street “is minting money.”

Call it déjà voodoo. I wrote a column that ran three days before Christmas in 2007 that focused on the deeply disturbing disconnect between Wall Streeters harvesting a record crop of bonuses â€" billions on top of billions â€" while working families were having a very hard time making ends meet.

We would later learn that December 2007 was the very month that the Great Recession began. I wrote in that column: “Even as the Wall Streeters are high-fiving and ordering up record shipments of Champagne and caviar, the American dream is on life support.”

So we had an orgy of bonuses just as the recession was taking hold and now another orgy (with taxpayers as the enablers) that is nothing short of an arrogantly pointed finger in the eye of everyone who suffered, and continues to suffer, in this downturn.

Whether P.T. Barnum actually said it or not, there is a sucker born every minute. American taxpayers might want to take a look in the mirror. If the epithet fits...

We need to make some fundamental changes in the way we do things in this country. The gamblers and con artists of the financial sector, the very same clowns who did so much to bring the economy down in the first place, are howling self-righteously over the prospect of regulations aimed at curbing the worst aspects of their excessively risky behavior and preventing them from causing yet another economic meltdown.

We should be going even further. We’ve institutionalized the idea that there are firms that are too big to fail and, therefore, “we, the people” are obliged to see that they don’t â€" even if that means bankrupting the national treasury and undermining the living standards of ordinary people. What sense does that make?

If some company is too big to fail, then it’s too big to exist. Break it up.

Why should the general public have to constantly worry that a misstep by the high-wire artists at Goldman Sachs (to take the most obvious example) would put the entire economy in peril? These financial acrobats get the extraordinary benefits of their outlandish risk-taking â€" multimillion-dollar paychecks, homes the size of castles â€" but the public has to be there to absorb the worst of the pain when they take a terrible fall.

Enough! Goldman Sachs is thriving while the combined rates of unemployment and underemployment are creeping toward a mind-boggling 20 percent. Two-thirds of all the income gains from the years 2002 to 2007 â€" two-thirds! â€" went to the top 1 percent of Americans.

We cannot continue transferring the nation’s wealth to those at the apex of the economic pyramid â€" which is what we have been doing for the past three decades or so â€" while hoping that someday, maybe, the benefits of that transfer will trickle down in the form of steady employment and improved living standards for the many millions of families struggling to make it from day to day.

That money is never going to trickle down. It’s a fairy tale. We’re crazy to continue believing it.

As an economist all I can say is that if the people don't have any money to spend, the economy will falter. But it's such common sense that most of us would agree with this.

[FayeforCure]

Yeah, your typical system that privatizes the profits and socializes the losses.

[Overstreet]

No matter what you think about the guys with the bonus it is the administration that transfered the money without conditions that is at fault. 

[St. Auggie]

I love it, the taxpayers as the enablers.  Who pays the taxes in this country? I'll give a hint by saying at least 50% of Americans pay NO fed income tax.  So who pays the vast majority of taxes in this country?

[JeffreyS]

Don't begrudge wall street. Those mutual funds are owned by union members, pensions, 401ks and. IRA's. Corporate welfare is a big problem but they would be better off with a fair tax system that makes it easier to do business here than the constant favors. Government deciding winners and losers by changing the tax code every here according to who has the best lobbiests. Rich people have it better than not rich people that does not make them bad and often rich people are down right useful.

[jaxnative]

Excellent comments Jeffrey.  To get to the root of the economic problems you will have to start with with the core which is government interference and the actions of the Federal Reserve.  Work back from recent crises and other government to the rescue programs and you will find the unintended(?) consequences of politically expedient cures.  Unfortunately, you won't see this happen when it's so easy to play the class warfare blame game.

[FayeforCure]

No matter what you think about the guys with the bonus it is the administration that transfered the money without conditions that is at fault. 

This is very true. Where is the Oversight and accountability we as Americans who love our Checks and Balances so believe in?

But that doesn't give anyone the right to rip off our treasury. So the perpetrators are definitely also responsible. I thought we all believe in "Personal Responsibility,"....................then why is everyone so eager to excuse the looters?

This just is the problem with America's "greed is good" culture, and the sense of entitlement among the Wall Streeters who destroyed the economy and nonetheless continue making big money off taxpayer bailouts:

Dr. Daniel E. Fass, another chairman of the [Obama fundraising] event who lives surrounded by financiers in Greenwich, Conn., said: "The investment community feels very put-upon. They feel there is no reason why they shouldn't earn $1 million to $200 million a year, and they don't want to be held responsible for the global financial meltdown."

http://www.nytimes.com/2009/10/20/us/politics/20donate.html?_r=1

The range starts from a reasonable $1 million range to a totally outrageous $200 million.

The idea that we went from CEOs making 50 times the average American income in the 70's to now over 4,000 times or more of the average American income is absolutely ludicrous.

It's stealing from the poor and average folks and giving to the ULTRA rich.

As the article says: That money is never going to trickle down. It’s a fairy tale. We’re crazy to continue believing it.

[mtraininjax]

I agree that people operating bailed out banks should not get a bonus for fixing something that was fixed with taxpayer money, which is what it looks like on the surface. AIG could have failed, and other banks and institutions would have cast a shadow over the carcus and devoured the institution. Who knows, they may all get their chance with Citibank.

Our President needs to learn he can't fix Healthcare, Social Security, Medicare and every failed bank that comes along all in the same breath. Capitalistic societys allow for the weakest to fail, which will create new life for new entities. There is too much money involved to let these programs or companies die by the wayside. Perhaps the fact that the opportunity for money is the new greed that the bankers and politicians are all chasing.

[buckethead]

It's a good thing that President Obama has put an end the this corporate welfare!

[jaxnative]

For a study on actions in a monetary crisis one may start with the 1921 episode:

Friday, July 10, 2009
The 1921 recession
Is the stimulus working? Is a second round of spending needed? These are some of the questions being asked in Washington today. Perhaps a better question is whether the stimulus package was even needed in the first place. After all, President Bill Clinton, after riding to the White House on the back of the famous campaign slogan "It's the economy, stupid!" ended up with a stimulus bill that was restricted to a mere $4 billion in extended unemployment benefits. As we all know, the economy went on to recover quite nicely.

Another interesting example is the 1920-21 recession and the public policy response -- which was essentially nothing. Although overshadowed by the Great Depression this recession was a pretty nasty little episode in American economic history. As wikipedia describes it:

Various estimates show that one-year deflation figures were 18 percent, 13.0 percent, and 14.8 percent, respectively. The closest comparator is the 11.5 percent deflation recorded for 1931-32, the third year of the Great Depression. Wholesale prices declined by 36.8 percent for 1920-21, the largest one-year decline on record, going back at least to the American Revolutionary War period. The 1921 deflationcontains another striking feature. Not only was it sharp, it was large relative to the accompanying decline in real product. The ratio of the percentage decline in the GNP deflator for 1920-21 to the percentage decline in real GNP is 2.6 using the Department of Commerce figures. By contrast, during 1929-30, the first year of the Great Depression, the GNP deflator declined by 2.7 percent and real GNP by 9.4 percent, for a ratio of 0.3. The ratios of the percentage decline in GNP prices to the percentage decline in real GNP for 1930-31, 1931-32, 1932-33, and 1937-38, the other Great Depression years in which real GNP declined, were 1.0, 0.9, 1.2, and 0.3, respectively, all well below the 1920-21 figures.

Deflation was so sharp, both in itself and in relation to the decline in real product, because the deflation was produced by a sharp decline in aggregate demand combined with an increase in aggregate supply, a supply increase in which deflationary expectations played a prominent role.
Deflation can be considered more worrying than inflation because it encourages consumers to delay purchases -- after all, why buy now when in a few months time goods will be cheaper? Once you're in a deflationary spiral it can be tough to get out.

So how did President Calvin Coolidge respond? Well, he put together a Conference on Unemployment (at the behest of Herbert Hoover) that mostly conducted studies and served as a "clearinghouse of ideas." Other than that, not much. So how did the economy respond? Pretty well:

A buoyant expansion followed the severe contraction of 1920-1921. In the 22 months after the depression bottom, industrial production rose 63%, the money stock expanded by 14%, and wholesale prices rose by 9%. Net national product rose 23% in the corresponding two calendar years.

...The recession of 1921-1923 proved to be the sharpest economic downturn since the emergence of the business cycle in the early 19th century, but it also was one of the shortest reversals. The recession was over in one year.

Economist Thomas Woods argues that President Harding's laissez faire economic policies during the 1920/21 recession, combined with a coordinated aggressive policy of rapid government downsizing, had a direct influence (mostly through intentional non-influence) on the rapid and widespread private-sector recovery. Because there existed mass distortions in private markets due to government economic influence related to World War I, an equally mass "correction" to the distortions needed to occur as quickly as possible to realign investment and consumption with the new peace-time, government-free economic environment.
Indeed, the aftermath of the recession was the "roaring twenties."

togetrichisglorious.blogspot.com/2009/07/1921-recession.html

[Sportmotor]

Shouldnt you be at the dinner thing tonight Stephen? =o Im rather suprised to see you on

[Sportmotor]

oooo sorry things are goin that way man o.o

[jaxnative]

the Great Crash.

Started less severely than the 21 crash and then extended and extended and made worse by disasterous interventions.  These seem to be the lessons being followed in the present.  Remember, "can't let a good crisis go to waste".

[BridgeTroll]

I thought we all believe in "Personal Responsibility,"....................

We do.  Thay said your need to single out evil "Wall Streeters" shows you are unwilling to place equal blame on society as a whole.  You put blame on the...

This just is the problem with America's "greed is good" culture

But cannot find room to blame our apparent "entitlement society".

Personal credit card debt has risen steadily.  Way out of proportion to earnings.  Personal savings rates were abysmally low (until very recently).  We demanded to buy big ticket items with "no money down" and mortgages in the same manner... enabling anybody to simply walk away from obligations with no real penalties.

Wall Street simply provided the drugs... we... as a society... shoot the stuff into our veins...

[FayeforCure]

BT, yes we do have an entitlement society, but it is an entitlement society for the ULTRA rich.

I find it painfully comical that everyonewho  was so eager to jump on the so-called welfare queens, are now loath to take on corporate welfare queens, and hold them to that same standard of personal responsibility.

Those corporate welfare queens have looted the country to the brink of collapse, and you still give them a free pass, because there is some other more minor blame to pass around?

Lets look at the subprime mortgage crisis with its repackaged derivatives that set off the chain of events that brought our economy to the brink of collapse:

Testifying before the House Financial Services Committee in February, University of Michigan law professor Michael Barr reported that only about 20 percent of subprime mortgages were issued by banks regulated by the CRA. The other 80 percent of predatory and high-interest subprime loans were offered by financial institutions not covered by the CRA and not subject to routine examination or supervision. "The worst and most widespread abuses occurred in the institutions with the least federal oversight," Barr told Congress.

In contrast, the CRA actually penalizes banks for reckless, irresponsible or otherwise predatory lending. According to Ellen Seidman, director of the Treasury Department's Office of Thrift Supervision from 1997 to 2001, federal regulators warned CRA-covered institutions that "badly underwritten subprime products that ignored consumer protections were not acceptable." Lenders not subject to CRA did not receive similar warnings.

And unlike the institutions that offer unregulated predatory subprime loans, banks that make CRA loans are required by federal regulation to verify borrowers' incomes to make sure they can afford the mortgages. In 2006 the Federal Reserve reported that just 11.5 percent of mortgages made by CRA-regulated institutions were high-cost loans, compared with 33.5 percent for lenders not covered by the CRA. Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, has criticized those who blame CRA lending for the subprime crisis: "Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households."

While the CRA helped boost the nation's homeownership rate, particularly among black and Latino borrowers, subprime and other exotic mortgages had very little impact on homeownership. Most subprime loans were refinances of existing mortgages. From 1998 through 2005, more than half of all subprime mortgages were for refinancing, while less than 10 percent of subprime loans went to first-time home buyers.

http://www.thenation.com/doc/20081110/dreier_atlas

I will close by quoting JFK:

........if by a "Liberal" they mean.....

......someone who looks ahead and not behind, someone who welcomes new ideas without rigid reactions, someone who cares about the welfare of the people - their health, their housing, their schools, their jobs, their civil rights, and their civil liberties.....

.....then I'm proud to say "I'm a Liberal"

Protecting the Ultra Rich is not part of the quote. And as I said in the post that started this thread,........too much trickle up toward the Ultra Rich, leaves little spending money among the regular folks, and small business owners that are the real underpinning of our economy.

Listen to an Economist who won the 2008 Nobel price in economics, who explains how more people are worried about Big Insecurity today, than they are worried about Big Government. In fact most will thank Big Government for averting the worst in our current economic crisis:

August 10, 2009
Op-Ed Columnist
Averting the Worst
By PAUL KRUGMAN

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago. The nation has lost 6.7 million jobs since the recession began. Once you take into account the need to find employment for a growing working-age population, we’re probably around nine million jobs short of where we should be.

And the job market still hasn’t turned around â€" that slight dip in the measured unemployment rate last month was probably a statistical fluke. We haven’t yet reached the point at which things are actually improving; for now, all we have to celebrate are indications that things are getting worse more slowly.

For all that, however, the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss.

A few months ago the possibility of falling into the abyss seemed all too real. The financial panic of late 2008 was as severe, in some ways, as the banking panic of the early 1930s, and for a while key economic indicators â€" world trade, world industrial production, even stock prices â€" were falling as fast as or faster than they did in 1929-30.

But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year.

So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.

Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.

All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits â€" which are a bad thing in normal times â€" are actually a good thing right now.