The Progressive Mind

VICE: The Weird Utopia of Wall Street

LIBertea — Mon, 29 Dec 2014 06:02:16 GMT

Wall Street is said to be fueled by the twin passions of greed and fear. That’s true enough, but not the whole story. There’s also a credo, a conviction, that all the deals and emotions add up to a surge of general bounty. In a metamorphic miracle, greed and fear conjure up growth and prosperity. The hordes of lower Manhattan partake of that conviction in fevers of exhilaration and panic. Their utopian aroma fills the nostrils of the famous bronze bull that charges triumphantly just south of Wall Street.

Wall Street’s utopia traffics in dreams. It’s a golden promise that, when everyone acts as a rational actor who buys and sells on the basis of information, the market knows best. Willy-nilly, it allocates capital to investments that seem to offer the best outcome. It’s a universal brain with an invisible heart. The zillions of private transactions are magically transformed into a dynamo of unfathomable proportions. Wall Street generates thrills—Maserati thrills, cocaine thrills, private-plane thrills, six-figure-vacation thrills, the thrill of seeing your name engraved in a university building or a hospital waiting room. These thrills celebrate a vision of Icarus not just flying close to the sun but landing on his feet, too.

Wall Street’s utopia is not only Wall Street’s, of course. It spills out everywhere. It’s unbounded and global. Globalization is a pale name for the promised uniting of humankind, where everyone speaks the common language of cost-benefit numbers. This utopia erases national boundaries. Race, gender, sexuality, and religion don’t matter. A buck is a buck. Everywhere, therefore, Wall Street converts reason into prosperity, which is, after all, a proof of moral excellence. The winners do well, but also good. Harnessing information, they deliver the common bounty. They are Investors Without Borders, one-worlders with a universal passion.

And there’s more. Since everyone’s dollar is equal to everyone else’s, this utopia is, in the end, egalitarian…

Well, there’s the snag, isn’t it? Some people have vastly more dollars than others. It takes some to get more. It takes a lot to get a lot more. The plutocrats move their dollars around in order to buy their way into privilege and pyramid their privilege from generation to generation. One thing they do with their bounty is arrange the laws to maintain their advantages. They buy preferences—exclusive safety nets. So the wealth that piles up is, to put it mildly, grotesquely unequal. Thus the parable of the 1 percent vs. the 99 percent, of which we heard so much three years ago.

For all its deficiencies of method and theory, Occupy Wall Street understood that you need a counter-utopia to resist a spurious utopia. Occupy, while it lasted, wanted to be, or was, that counter-utopia—for those who had the time, the youth, the unemployment, or the passion to hang out on the granite half acre of Zuccotti Park. For a couple of months, the occupation offered those with sufficient inclination, chutzpah, articulateness, and/or willingness to suffer discomfort a more or less self-governing, horizontal community—one without leaders, without grotesque discrepancies in property, acting according to no rules other than those the encampment devised. To some, it felt like paradise. To others, it felt like a cult.

But one way or another, however grand Occupy’s ambition, the denizens of Zuccotti Park could not come close to matching the reach of Wall Street in the collective imagination. They demanded too much of too few. Class, race, and gender resentments brewed. The absence of collective demands meant the presence of chaos. Drummers despised being told what to do and pissed off sympathetic neighbors. Occupy worked until too many separate styles and clamors offended too many fellow Occupiers and the police crushed the First Amendment.

Still, it’s too simple to argue that the dispersal of Occupy Wall Street proved there was a police state in action. There was brutality aplenty, but it was equally problematic that, though the Occupiers said they were working for the universal good (or 99 percent of it, anyway), they were actually exclusive—a community gated away not only by police barricades but by a spirit of We Precious Few.

The tragedy of the present political moment lies not only in the existence of Wall Street’s alluring and delusional utopia but also in the nonexistence of a shared counter-vision. Or shall we say the not-yet-existence? Everywhere, after all, there are struggles against abusive power. Optimists look at the sum total of all the local fights against despoilers of the land and arrogances of wealth, and they see fragments of the counter-vision. Some—I’m inclined to be one—see a counter-vision waiting in the wings of the growing climate movement.

What Occupy Wall Street taught us is that you don’t bring splinters to fight a grand vision. You need a spirit just as plausible and, at the same time, equally ambitious. Because the collective imagination has failed to produce an ideal nearly as stirring as Wall Street’s utopia, the bull—with all its charm and menace—charges on.

How to Revive the Labor Movement

LIBertea — Mon, 20 Oct 2014 18:17:51 GMT

After the Brooklyn College administration temporarily suspended Stanley Aronowitz from school in 1950 for taking part in a protest, he dropped out to follow a much more unorthodox route to an academic career. From the 1950s through the 1970s, Aronowitz — a lifetime New Yorker in spirit even when temporarily absent — was a factory worker, union organizer, civil rights advocate, influential contributor to New Left organizations and a vivid, often flamboyant debater in a tumultuous political period.

Since 1983, however, he has been a prolific sociology professor at the Graduate Center of the City University of New York, writing or editing 25 books. His latest, The Death and Life of American Labor: Toward a New Workers’ Movement, out from Verso this fall, expands his decades-long argument that unions need bigger goals and more direct action to succeed, or even survive. Aronowitz spoke with In These Times Senior Editor David Moberg about his strategies for reviving the labor movement.

You say in your book that the labor movement has become part of the establishment. In what way?

In the 2012 presidential election, unions contributed $141 million to the Democratic Party, one of the two establishment parties. Their main strategy for moving labor forward is electoral politics, yet they have not formed a labor party. Meanwhile, they have virtually given up the strike and any kind of harsh criticism of the capitalist system.

There is almost no organized anti-capitalist political movement in the United States. Can we expect the labor movement to be anti-capitalist?

We can’t, under the current circumstances. But agitation for an anti-capitalist politics can’t wait for some kind of apocalypse. With the living standards of the American people stagnating as tremendous riches accumulate at the top, this is the time that anti-capitalist politics can resonate with the larger public. I call for another political formation linked to the labor movement, like the Trade Union Education League (the Communist organization of the 1920s) and for a party outside of the two major parties.

You criticize union contracts because they hamper direct action and channel discontent into bureaucratic grievance procedures. Is the contract itself a bad goal, or is the problem that most contracts preclude strikes and guarantee management broad power?

The big issue is the long-term contract, because that prevents workers from taking direct action as problems arise in the workplace or the economy changes. I don’t think that powerful unions need contracts. I would settle for a one-year contract that did not have the strike prohibition and did not include management prerogatives.

You write that the biggest problem the labor movement faces is not declining numbers but declining power. But don’t numbers contribute to power?

The numbers are important, especially for workers who need organizations to be able to fight their battles [with employers]. But unions in the United States do not recognize that a militant minority can have a tremendous effect if it engages in direct action — as unions do in France, and as the Service Employees [International Union] (SEIU) has done with fast-food workers and the United Food and Commercial Workers (UFCW) has at Wal-Mart, in conducting elective one-day strikes in several cities.

You advocate a labor movement that is “post-political.” What do you mean by that?

Post-political means that the union movement may endorse candidates or run its own, but essentially does not rely on electoral politics and public officials — that is, the state — to fulfill its goals. Instead, unions should rely on their own resources, on their own members and on their own imaginations to create conditions to make their members’ lives better, in the way that unions, especially in the early-to-mid-20th century, once established and ran very good, moderate-cost cooperative housing.

We’ve been relying for so long on politicians to solve problems that the union membership no longer really relies on its own power. The proper word is really “post-electoral” or “post-state,” and it once had a tremendous resonance among large numbers of workers. Are electoral politics no longer important?

No, unfortunately, they still are. But I do think they have been horrendously over-emphasized at the expense of organizing and issues such as education, housing and public transportation. Unions have become supplicants of the Democratic Party and depend on the electoral system to resolve workers’ problems.

You mention Occupy as a model. But its main achievement was making common political currency out of the clash between the 99% and the 1%.

Occupy refused to be programmatic, and it has virtually disappeared. But Occupy revived the old tactics of civil disobedience and direct action. And by still relying on elections and on contracts and grievance procedures rather than engaging in direct action, unions are on the road to doom.

You write that much of the problem of the American labor movement stems from weak leaders. What led to that situation? Do conservative memberships elect conservative leaders?

I don’t think that union leadership actually reflects the views of the members. Many of these unions have become general workers’ unions. They do not organize in one specific industry. And it’s very difficult for that diverse membership to create an internal democratic opposition that can win. There is no democratic education program to expose them to new ideas and information. So members are voting for leaders to be custodians of an insurance company that provides benefits. But workers don’t really expect them to be seriously involved in their day-to-day struggles, which are often led by the shop steward system — if the shop stewards are still there — and not by the national leaders.

You see some hope in movements on the outskirts of the labor movement and strategies such as minority unionism, which the United Auto Workers pursued after its organizing loss at Volkswagen.

I was very surprised and pleased by that. The only mistake is that the UAW is not going to charge dues until they have a contract. I think workers who join unions should pay their own way.

Do you see encouraging signs in unions working with community groups on housing and banking issues, or of AFL-CIO President Richard Trumka recently speaking out strongly on racism?

It’s a great sign, but Trumka does not have much influence over the international unions that really have the power. It will take much more than the statements by Trumka to get the labor movement to become a labor movement again. The impetus to change is going to have to come from both inside and outside of the union movement.

Some of what SEIU and UFCW have done to organize low-wage workers is very important. Unions have also reached out to many of the more than 200 worker centers, even though the amount of assistance that centers get from unions is still sparse. Also, many unions showed up at the climate change demonstration in September in New York City (though the AFL-CIO support for the Keystone pipeline is regressive). They see the need to form alliances with other social movements, as they have done with the Black Freedom Movement and the feminist movement.

You acknowledge that a major problem facing workers and the labor movement is insecurity created by globalization and new technology. What is the best way to respond to that?

Two things need to happen, or I don’t see much hope. First, there have to be actions, even if they’re inconclusive, like the fast food and Wal-Mart demonstrations — actions that give people some sense of power and of hope. Second, inside and outside of the unions, people need to be educated about their own history and the degree to which the system is no longer working for them. And they have to begin to think about a different way of life.

David Moberg, senior editor of In These Times, has been on the staff of the magazine since it began publishing in 1976. Prior to that, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.

8 Facts About American Inequality

LIBertea — Mon, 13 Oct 2014 17:51:50 GMT

“...that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

- James Truslow Adams, The Epic of America (1931)

The American Dream has been defined many ways by writers of both poetic and prosaic bent, but its essentials tend to involve life, liberty and the pursuit of happiness (or property, depending on your source).

The Declaration of Independence, upon which an entire nation was radically brought into existence, asserts that not only are all men created equal but that this is a “self-evident” truth. The significance of this fact lies not in its semantics, which epistemologists would challenge, but in its utilization as a primary foundational creed. By this “unanimous Declaration of the thirteen united States of America,” a contract was agreed to, that their union would be founded on this principle. Furthermore, life, liberty and the pursuit of happiness are rights that governments are created to uphold. Thus, America was endowed with its dream at the moment of its conception: the freedom to succeed.

The United States has promoted a self-congratulating exceptionalism for decades, waving its Declaration and Constitution in the faces of other sovereign nations as if the latter had never beheld such concepts. Our capital F “Freedom” sets us apart from the rest of the world, as the political rhetoric has repeated ad nauseam, no matter the freedoms enjoyed by democracies on every continent. And yet our basic freedom, the freedom to succeed, America’s contractual promise, has been shrinking for thirty years.

The freedom to succeed transcends economic systems but it is most potently expressed by capitalist gains. The ability to go “from rags to riches” is ingrained in this nation’s ethos and there is nothing intrinsically immoral about that goal. However, the current state of American inequality reveals a very real and expanding gap between the rich and poor that betrays the foundational endowment of this Union. When the freedom to succeed is denied every citizen, their equality is equally denied.

The wealth and income inequalities in America do not require socialist reforms to fix, and capitalism is not the problem. The problem is that we have let inequality advance in this country so gradually that its obviousness is masked by its familiarity. Below I outline eight facts about inequality in America that every American should know.

1) 400 Americans have more wealth than half of all Americans combined. To put that into context, as of 2013 there are an estimated 316,128,839 people living in the United States, according to the U.S. Census Bureau. Just 400 Americans have more money than over 158 million of their fellow citizens. Their net worth is over $2 trillion, which is approximate to the Gross Domestic Product of Russia. This ratio has been verified by Politifact and former Labor Secretary Robert Reich. One explanation for the vast discrepancy in wealth is the definition of “worth,” which includes everything a person or household owns. This means savings and property but also mortgages, bills and debt. Poorer households can owe so much in debt that they possess a negative net worth.

2) America has the second-highest level of income inequality, after Chile. The Organization for Economic Cooperation and Development studies thirty-four developed countries and ranks them both before and after taxes and government transfers take effect (government transfers include Social Security, income tax credit and unemployment insurance). Before taxes and government transfers, America ranks tenth in income inequality. After taxes and transfers, it ranks second. Whereas its developed peers reduce inequality through government programs, the United States’ government exacerbates it.

3) The current state of inequality can be traced back to 1979. After the Stock Market Crash of 1929, the gap between the rich and the poor began to narrow. For fifty years, wages still differed greatly between the upper- and working-classes, but a robust middle-class took shape, as well as the opportunity for working-class individuals to ascend. In his book, “The Great Divergence,” journalist Timothy Noah traces today’s inequality to the beginning of the 1980s and the widening gap between the middle- and upper-classes. This gap was influenced by the following factors: the failure of American schools to prepare students for new technology; poor immigration policies that favor unskilled workers and drive down the price of already low-income labor; federally-mandated minimum wage that has failed to keep pace with inflation; and the decline of labor unions.

4) Non-union wages are also affected by the decline of unions. The Economic Policy Institute claims that 20% of the growth in the wage gap between high-school educated and college educated men can be attributed to deunionization. Between 1978 and 2011, union representation for blue-collar and high-school educated workers declined by more than half. This has also diminished the “union wage effect,” whereby the existence of unions (more than 40% of blue-collar workers were union members in ’78) was enough to boost wages in non-union jobs - in high school graduates by as much as 8.2%. Not only did unions protect lower- and middle-class workers from unfair wages, they also established norms and practices that were then adopted by non-union employers. Two prime examples are employee pensions and healthcare. Today about 13% of workers belong to unions, which has reduced their bargaining power and influence.

5) There is less opportunity for intergenerational mobility. In December 2011, President Obama spoke at Osawatomie High School in Kansas. He was very clear about the prospects of the poor in today’s United States:

“ver the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. You know, a few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance had fallen to around 40 percent. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class - 33 percent.”

As refreshing as that honesty is, Obama promised no fix beyond $1 trillion in spending cuts and a need to work toward an “innovation economy.”

In a speech one month later, Obama’s Chairman of Economic Advisers, Alan Krueger, elaborated on the dire state of America’s shrinking middle-class. The contraction, he stated, could partially be attributed to “skill-biased technical change”: work activities that have become automated over time, reducing the need for unskilled labor and favoring those with analytical training. He also highlighted the 50 year decline in tax rates for the top 0.1%, increased competition from overseas workers, and a lack of educational equality for children. Poor children are denied the private tutors, college prep and business network of family and friends available to their wealthier peers, which locks them into the class they are born into.

6) Tax cuts to the wealthiest have not improved the economy or created more jobs. Krueger also revealed that the tax cuts of the 2000s for top earners did not improve the economy any better than they did in the 1990s (meanwhile, income growth was stronger for lower- and middle-class families in the 1990s than in the last forty years). Tax rates for the top income earners in America peaked in 1945 at 66.4 percent. Following decades of gradual reductions, they have since been cut in half. During the same time, the payroll tax has increased since the 1950s and individual income tax has bounced between 40-50% through the present day. Conversely, corporate tax declined from above 30% in the 1950s to under 10% in 2011. All of these tax cuts are made ostensibly to improve the economy and create jobs. However, the National Bureau of Economic Research has concluded that it is young companies, “regardless of their size,” that are the real job creators in America. Tax cuts to the wealthiest do not create jobs.

7) Incomes for the top 1% have increased (but the top 0.01% make even more). Between 1979 and 2007, the average incomes of the 1% increased 241%. Compare that to 19% growth for the middle fifth of America and 11% for the bottom fifth. Put another way, in 1980 the average American CEO earned forty-two times as much as his average worker. In 2001, he earned 531 times as much.

Average income across the 1% is actually stratified into widely disparate echelons. Compare the $29,840 average income for the bottom 90% to the $161,139 of the top 10%. Compare the $1 million average income of the top 1% to the $2.8 million of the top 0.1%. Yet both still pale beside the $23 million average income of the top 0.01%.

If those numbers seem a bit overwhelming, Politizane has created a video that illustrates this staggering inequality:

8) The majority of Congress does not feel your pain. Empowered by the Constitution to represent their constituents, United States Congress members are, for the first time in history, mostly millionaires. The 2012 financial disclosure information of the 534 current Congress men and women reveals that over half of them have a net worth of $1 million or more. After the past seven facts it is difficult to read this last one and believe that these 268 legislators have the best interests of the remaining 99% at heart. But if that is too presumptuous a leap, it is not too bold to say that wealthier donors, lobbyists and special interest groups enjoy greater access to these lawmakers than the average American.

Life, and the Liberty to Go Hungry

Last week Congress failed to extend emergency benefits for unemployment, leaving 1.3 million people without federal aid. Congress is currently on a weeklong recess that will keep them from debating the issue until their return on January 27. The bill was too divisive for Republicans and Democrats to reach an agreement on, though unemployment is still above 7% nationally.

Thankfully, the unemployed have their Congress working for them. And at $174,000 annual pay, those representatives are sure to return from vacation committed to fresh solutions.

The pursuit of happiness is an ephemeral affair, but the freedom to succeed is not. It is something one possesses or lacks. It is the difference between enjoying a more prosperous life than one’s parents and believing there is no way out. A “self-evident” truth is one that is meaningful without proof, much akin to faith. If inequality continues to rise in America, the self-evident truths of its founding will be no more than words on an old piece of paper, its American Dream a tattered faith paid lip service by the deceitful and the blind.

Inequality and the USA: A Nation in Denial

LIBertea — Sat, 30 Aug 2014 19:03:09 GMT

Every August, for most of the last four decades, top central bankers from around the world have been making their way to the Wyoming mountain resort of Jackson Hole for an invitation-only blue-ribbon economic symposium.

This year’s Jackson Hole hobnob, once again hosted by the Federal Reserve Bank of Kansas City, last week attracted the usual assortment of central bankers, finance ministers, and influential business journalists. But this year’s gathering also attracted something else: protesters.

For the first time ever, activists converged on Jackson Hole — to let the Fed’s central bankers know, as protest organizers put it, that “it’s not just the rich who are watching them.”

Over 70 groups and unions backed the protest and signed onto an open letter that calls on America’s central bankers to start nurturing an economy that works for workers. At one point, early on in the Jackson Hole gathering, protesters actually had a brief exchange with Federal Reserve Board chair Janet Yellin.

“We understand the issues you’re talking about,” Yellin told them, “and we’re doing everything we can.”

But that “everything” remains distinctly dispiriting. Many of Yellin’s fellow central bank officials, protesters note, are pushing the Fed “to put the brakes on growth so wages don’t rise” and, the fear goes, stimulate inflation.

Those “brakes”— higher interest rates — are definitely coming, Kansas City Fed president Esther George told protest leaders in another Jackson Hole exchange. America needs them, she added, to better “balance” the economy.

But America, the protesters point out, needs a balancing of an entirely different sort. The nation’s top-heavy economy needs to become less top-heavy. The nation can’t afford to be a place where far too many “struggle to secure even basic levels of dignity” while “the wealthiest Americans are richer than ever.”

The green-shirted protesters at Jackson Hole had plenty of support for that stance at last week’s other blue-ribbon global gathering of economic dignitaries, Germany’s fifth Lindau Meeting on Economic Sciences.

No hotshot central bankers show up in Bavaria for this Lindau conference, only Nobel Prize laureates in economics and aspiring economic researchers from around the world. This year’s Lindau event attracted half the world’s living Nobel laureates and over 450 young economists from more than 80 countries.

The central focus of their dialogue? Our increasing global maldistribution of income and wealth. Session after session zeroed in on “drivers of rising inequality” and the “counteractive measures” that can narrow our global divides.

Soaring inequality, Nobel laureate Joseph Stiglitz told the Lindau assembly, has brought the global economy well past the point where any tinkering will cure what ails us. The provocative title of his Lindau address: “Inequality, wealth, and growth: why capitalism is failing.”

Wages for average U.S. workers, Stiglitz notes, have fallen over the past 40 years — at the same time that American worker productivity has doubled.

“Any economic system that doesn’t deliver for a majority of its citizens,” notes Stiglitz, “is failing.”

What sort of rebalancing could leave us with an economy that does deliver? Another Nobel laureate at Lindau, Scotland’s Sir James Mirrlees, put on the table a notion that no central banker at Jackson Hole would ever dare whisper: a 100 percent top tax rate on income over a certain point, in effect a “maximum wage.”

The 78-year-old Mirrlees explored in his address a series of model situations where a 100 percent top marginal tax rate would make eminent sense and went on to suggest applying such income caps “in certain fields or professions.”

A practical political possibility? Perhaps, says Mirrlees. “Particularly in Europe,” he observes, serious people are already discussing limiting banker pay.

In the United States, on the other hand, concern about income and wealth concentration hasn’t yet reached the point where ideas as bold as income caps are gaining any significant traction.

Why not? Another Lindau presenter, Judith Niehues of Germany’s Cologne Institute for Economic Research, has some clues.

Niehues has analyzed surveys of public perceptions about inequality in two dozen European nations and the United States. In all these nations save one, her research has found, people overestimate the level of inequality around them.

On average, for instance, the French believe that just under 15 percent of their nation’s households have incomes that fall between 80 and 110 percent of France’s median — most typical — income. In fact, nearly 28 percent of the French have middle class incomes.

And the share of the French people living in poverty, with incomes less than 60 percent the nation’s median income, is actually running at just half the poverty level that the French people estimate.

The one nation where people underestimate the inequality that engulfs them? The United States. Americans believe that just over a quarter of their fellow Americans, 25.7 percent, have incomes that fall between 80 and 110 percent of the national median. The actual share of Americans clustered in this statistical middle: just 15.3 percent.

The United States, Niehues goes on to relate, ranks as “the only country in our sample with a more optimistic perception of the society than suggested by the actual distribution of incomes.”

The United States, in sum, doesn’t just have the world’s most unequal major developed economy. The United States has the most people in denial about the inequality they live amid.

Niehues doesn’t go into the reasons for this denial. Her paper does note one consequence: People who underestimate their society’s level of inequality turn out to be less likely to support policies that would help distribute their society’s income and wealth more equally.

Inequality, in other words, matters. But the perception of inequality may matter — in the struggle for a fairer future — even more.

Don’t Be Fooled: Banks Still Too Big to Fail

LIBertea — Wed, 06 Aug 2014 13:03:10 GMT

Analyzing a government report is like eating and digesting a meal — better to take it slowly than gobble quickly and suffer the possible consequences.

Example: last Thursday’s report from the Government Accountability Office (GAO) on whether or not large financial institutions were still perceived as “too big to fail.”

The immediate takeaway by many in the media, government and investment community was that the need for a taxpayer subsidy like the bailouts of 2008 “may have declined or reversed in recent years” and, in the words of Mary J. Miller, the Treasury Department’s under secretary for domestic finance, “We believe these results reflect increased market recognition of what should now be evident – Dodd-Frank ended ‘too big to fail’ as a matter of law.”

But with just a little time to digest the GAO’s findings, much of the response has shifted to, “Not so fast.”

On the day of the report’s release, Senator Sherrod Brown (D-OH), who, with Senator David Vitter (R-LA), requested the GAO analysis and co-sponsors the Terminating Bailouts for Taxpayer Fairness Act, held hearings. Stanford University economist Anat Admati, a recent guest on Moyers & Company, testified that, “The main problem with the guarantees is they reinforce and create perverse incentives and intensify the conflicts of interest between the banks and the rest of society… Requiring that banks fund themselves so that those who benefit from the upside of risk bear more of its downside brings about more safety and corrects distortions.”

In The New York Times, columnist Gretchen Morgenson writes, “… Six years after the financial crisis, it’s clear that some institutions remain too complex and interconnected to be unwound quickly and efficiently if they get into trouble.

It is also clear that this status confers financial benefits on those institutions. Stated simply, there is an enormous value in a bank’s ability to tap the taxpayer for a bailout rather than being forced to go through bankruptcy.

Morgenson adds, “… Were we to return to panic mode, the value of the implied taxpayer backing would rocket. The threat of high-taxpayer bailouts remains very much with us.”

Financial professionals echo her concern. Camden Fine, president and CEO of the Independent Community Bankers of America, notes in American Banker (not without self-interest) that while the size of big bank subsidies may have “diminished since the crisis… the larger point is that the biggest and riskiest financial firms still have a competitive advantage in the marketplace. They can still access subsidized funding more cheaply than smaller financial firms because creditors believe the government would bail them out in the event of a crisis. No matter how you cut it, a subsidy is a subsidy. And this subsidy is one that puts the American taxpayer on the hook…”

Meanwhile, the largest financial institutions are only getting bigger. According to our analysis of call report data from the Federal Deposit Insurance Corp., since the end of 2009, the assets of the six largest financial institutions have grown each year. Their total assets rose from $6.41 trillion in 2009 to $7.22 trillion in 2014—a total increase of $800 billion. The top six banks are also responsible for more than half of the $2 trillion increase in total U.S. banking assets in the years since 2009.

In those same pages, Mayra Rodriguez Valladares, managing principal at a capital markets and financial regulatory consulting firm, is concerned that there are “signs that banks have failed to learn from the detrimental effects of the global credit crisis and pleas from bank regulators. This year, large banks are loosening their credit underwriting standards and are extending leveraged loans to companies…

Additionally, large banks continue to exhibit incredibly weak operational risk management. Operational risk is the threat of a breach in the day-to-day running of a business because of people, processes, systems, and external events. Since big banks have yet to make ethics a top priority, not a day goes by that one does not see examples of operational risk. Market rate manipulations and incorrect foreclosure procedures continue to plague banks and their reputation.

She concludes, “As the U.S. economy continues to grow and the financial crisis is relegated to the dustbin of history, big banks are taking bigger chances. The challenge for regulators now is to remember that when the party gets going, it is difficult to stop the champagne flowing.”

Gretchen Morgenson’s colleague at the Times, Paul Krugman, has a more positive point of view, while asking the crucial question, “…How do you rescue a banking system without rewarding bad behavior?”

The answer is that the government should seize troubled institutions when it bails them out, so that they can be kept running without rewarding stockholders or bondholders who don’t need rescue. In 2008 and 2009, however, it wasn’t clear that the Treasury Department had the necessary legal authority to do that. So Dodd-Frank filled that gap, giving regulators Ordinary Liquidation Authority, also known as resolution authority, so that in the next crisis we can save ‘systemically important’ banks and other institutions without bailing out the bankers.

The GAO report, he writes, “suggests that reform has done at least part of what it was supposed to do… Wall Street and its allies wouldn’t be screaming so loudly, and spending so much money in an effort to gut [Dodd-Frank], if it weren’t an important step in the right direction.”

Nonetheless, as Senators Brown and Vitter stated, “Today’s report confirms that in times of crisis, the largest megabanks receive an advantage over Main Street financial institutions. Wall Street lobbyists may try to spin that the advantage has lessened. But if the Army Corps of Engineers came out with a study that said a levee system works pretty well when it’s sunny — but couldn’t be trusted in a hurricane — we would take that as evidence we need to act.”

American households are worth 36% less than they were in 2003

LIBertea — Mon, 28 Jul 2014 16:23:50 GMT

The typical American household is worth a third less than it was in 2003, according to a new study

The typical American household was significantly poorer in 2013 than it was ten years earlier as a result of the Great Recession, a new study shows, an effect that is compounded by growing wealth inequality in the United States.

The net worth of the typical American household in 2003 was $87,992, adjusting for inflation. Ten years later, it was just $56,335, a decline of 36 percent, according to a study by the Russell Sage Foundation.

But even as the average American household’s wealth declined, the net worth of wealthy households increased substantially. The average wealth of the American household in the 95th percentile was $1,192,639 in 2003, and $1,364,834 ten years later, an increase of 14 percent.

The authors of the study said the reason for the disparity was that affluent households were able to ride the success of the surging stock market after the 2008 crash, while middle class families were severely impacted by the decreasing value of their homes.

Wealth declined for everyone in the aftermath of the Great Recession, but better-off families were able to rebound. Households at the bottom of the wealth distribution, on the other hand, lost the largest share of their wealth.

‘The American economy has experienced rising income and wealth inequality for several decades, and there is little evidence that these trends are likely to reverse in the near term,” wrote the authors of the study.

The Next Subprime Crisis? Car Loans!

LIBertea — Fri, 25 Jul 2014 18:44:29 GMT

A new New York Times investigation reveals that used car dealers are doling out giant loans to millions of poor Americans with bad credit. Many of these dealers are using the same negligent lending tactics that subprime mortgage lenders used before the 2008 financial crisis, including ignoring or fabricating information about borrowers’ income, employment and ability to repay.

The used-car loan bubble poses substantial risks to banks still recovering from the recession. Delinquent loans are piling up.

Even though this new subprime market is a fraction of the size of the mortgage market, the used-car loan bubble poses substantial risks to banks still recovering from the recession. Delinquent loans are piling up. Banks had to write off an average of $8,541 on each delinquent auto loan in the first three months of 2014, the Times reports. The Office of the Comptroller of the Currency, a federal Wall Street regulator, has warned that banks are taking on too many low-quality auto loans. And it’s not just banks that would be affected if too many used car loans go sour. Auto lenders are pooling bad loans just as subprime mortgage lenders did, and then slicing them up and selling them to investors including hedge funds and pension funds.

One of the main reasons car dealers are courting another subprime meltdown is that congressional Republicans pushed to amend the 2010 Dodd-Frank financial reform bill in order to exempt auto dealers from oversight by the Consumer Financial Protection Bureau (CFPB). Granted, lawmakers from both parties were under lots of pressure from dealers as the massive legislation was being drafted. Between 2009 and 2010, the industry spent nearly $8.5 million on lobbying. The industry argued that because it was part of Main Street, not Wall Street, car dealers didn’t need to be included in the Dodd-Frank bill, which was designed to prevent the kinds of high-finance shenanigans that caused the 2008 financial crisis.

The dealer exemption ultimately “made it into the House bill because Democrats jumped on board,” says one consumer advocate who opposed the provision, “but Republicans were certainly the main driver behind the exclusion.” Rep. John Campbell (R-Calif.), a former Orange County Saab dealer, proposed the amendment to Dodd-Frank that would exclude auto dealers — his former colleagues — from CFPB oversight. On October 22, 2009, the measure came up for a vote in the House financial services committee and passed 47 to 21. Twenty-eight out of twenty-nine Republicans voted in favor, as did 19 of 42 Democrats. The Senate’s version of Dodd-Frank originally did not contain the Campbell amendment. But in May 2010, Republican Sen. Sam Brownback of Kansas introduced a provision that would all but force his colleagues to accept the House’s amendment when the two chambers met to hammer out a final bill.

In a speech on the Senate floor, Brownback repeated the industry’s line. “There’s not a single auto dealer on Wall Street,” he said. “None of them. Not a one. You can go up there today and try to buy a car and you can’t get one. These are Main Street businesses.” The Brownback provision passed 60 to 30, with 37 Republicans, 22 Democrats and 1 independent (Sen. Joe Lieberman of Connecticut) voting in favor. The dealer exemption stayed in the final bill.

The Federal Trade Commission has the authority to crack down on car dealers, but has not yet done so. The FTC is slower to act than the CFPB, advocates say, in part because Congress controls its funding.

Car dealers are subject to other types of federal financial rules, but if it weren’t for Campbell and Brownback’s efforts, there’d be another watchdog overlooking shady auto dealers, consumer advocates say. The Federal Trade Commission has the authority to crack down on car dealers, but has not yet done so. The FTC is slower to act than the CFPB, advocates say, in part because Congress controls its funding. The CFPB is financed by the Federal Reserve. (The FTC declined to comment on whether it is investigating car dealers’ negligent lending practices, but noted that the agency has previously taken action against dealers “for deceptive and unfair business practices.”)

The CFPB can police dealers indirectly through its oversight of auto lenders who pay dealers a commission for making loans. But because the CFPB has no direct oversight of sketchy car dealers, “abuses continue for longer than they should,” says Chris Kukla, the senior vice president at the Center for Responsible Lending. Lisa Donner, the executive director of Americans for Financial Reform, agrees. If Republicans hadn’t gotten their way, “There’d be a supervisor paying attention in a different way. We might not be seeing what we are seeing now.”

CEOs’ Narcissism and Corporate Tax-Dodging Are Connected

LIBertea — Wed, 23 Jul 2014 17:20:09 GMT

Narcissists don’t happen to be particularly nice people. They preen. They grab. And they never ever really feel our pain.

Narcissists, some fascinating new business school research reminds us, also don’t make for particularly effective corporate CEOs.

This new research — out of the University of Southern California and the University of Arizona — examines the impact of CEO narcissism on corporate tax policies. That impact turns out to be fairly robust. The corporations that America’s most narcissistic CEOs run seem to be prone to engaging in highly risky corporate tax-avoidance maneuvers.

How did the authors of this new research, Kari Joseph Olsen and James Stekelberg, identify the narcissists in America’s top CEO suites? They used a variety of yardsticks, everything from the pay gap between CEOs and their fellow execs to the prominence of CEO photos in corporate annual reports.

In the end, the two business school researchers had no problem finding a statistically significant subset of narcissistic CEOs within the Fortune 500. And that hefty number of narcissists begs a rather obvious question: Do they just naturally gravitate to America’s corporate pay summit or do the incredibly cushy rewards at that summit turn otherwise normal people into narcissists?

Until fairly recently social scientists left that sort of question to philosophers. But recent years have brought a surge of research into the impact of affluence on behavior. Experiments and field observations have shown that upper-crust life may be breeding, as University of California-Berkeley psychologist Paul Piff puts it, “increased entitlement and narcissism.”

CEO Harold MacInnes believed that chief execs ought not make over 14 times what their workers take home.

None of this, Forbes commentator Elizabeth MacBride suggested last week, would likely surprise Harold McInnes, the former CEO at AMP, the Pennsylvania-based company that rated a quarter-century ago as the world’s largest supplier of electronic connectors and America’s 150th-largest corporation.

MacBride still vividly remembers interviewing McInnes before his 1992 retirement, after the MIT-trained engineer had pledged not to take, as CEO, any more than 14 times the wage of AMP’s lowest-paid worker.

MacBride asked McInnes why he made that pledge. Excessive compensation, McInnes told her, can ruin a CEO’s judgment. Indeed, MacBride would soon learn, McInnes considered excessive compensation no less dangerous to a chief executive than an excessive intake of alcohol.

In effect, McInnes saw the narcissism coming — and tried to do his part to derail the onrushing excessive pay engine.

Now we need to do ours. Quickly. America’s top CEOs are now pulling down well over 300 times what their workers average.

Where to start? Earlier this month, Britain’s most respected watchdog over executive compensation — the High Pay Centre — released a new paper that spells out eight specific moves that could help modern industrial societies “deliver fairer, more proportionate pay for those at the top.”

The new High Pay Centre report calls for worker representation on all corporate boards of directors and executive pay panels.

Most of the moves on this valuable new list haven’t yet gained much traction in the United States. The High Pay Centre report, for instance, calls for worker representation on all corporate boards of directors and executive pay panels. Taking such a step, the new report notes, would “bring a degree of ‘real world’ perspective to deliberations on executive pay.”

The boldest proposal on the High Pay Centre list? A cap on executive pay set at a fixed multiple of a corporation’s lowest-paid employee.

“We need to build an economy where people are paid fair and sensible amounts of money for the work that they do and the incomes of the super-rich aren’t racing away from everybody else,” explains High Pay Centre director Deborah Hargreaves, the former business editor at the UK’s Guardian daily newspaper.

“A maximum pay ratio would recognize the important principle that all workers should share in a company’s success,” adds Hargreaves. “The idea must now be properly debated.”

The views expressed in this post are the author’s alone, and presented here to offer a variety of perspectives to our readers.

Labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, writes widely about inequality. His latest book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.

prof. Richard Wolff: Capitalism’s Deeper Problem

LIBertea — Thu, 17 Jul 2014 15:57:19 GMT

Recent press reports refer to troubling price increases for such assets as real estate, government bonds, companies targeted for acquisition and artwork. A New York Times front-page headline read “The Everything Boom, or Maybe the Everything Bubble.”

Western Europe, North America and Japan are stuck in a longer, deeper crisis than almost anyone expected. Millions have left the labor force. Wages, benefits and job security are declining; the so-called “middle classes” are evaporating.

Yet while asset prices soar, the production of goods and services, employment and workers’ incomes are not recovering and resuming growth. Instead, Western Europe, North America and Japan are stuck in a longer, deeper crisis than almost anyone expected. Millions have left the labor force. Wages, benefits and job security are declining; the so-called “middle classes” are evaporating. Having promised “recoveries,” desperate governments inject massive new quantities of money into their economies. What they accomplish most are fast-rising asset prices.

Given their persistent economic problems, consumers cannot borrow or spend more. Businesses neither borrow nor productively invest all the new, cheap money because they could not sell the extra output to distressed consumers. Instead, the newly injected trillions enable the speculation that drives up asset prices. The owners of those inflating assets celebrate a “recovery” that bypasses most of their fellow citizens. The Great Recession lumbers on.

Richard Wolff on Curing Capitalism

To understand this puzzling and dangerous situation requires digging deeper than most current discussions of our economic problems. The global crisis since 2007 has captivated discussion about capitalism as a system. Yet we are faced now with more than just this latest of capitalism’s endlessly recurring “downturns” (or recessions or depressions). We see combined an extremely serious downturn in most of capitalism’s old centers, extremely unequal growth in its new centers and a resurgent global speculative bubble. This points to a deeper, worldwide problem that now challenges and threatens contemporary capitalism.

From its beginnings as the emerging, dominant class structure in 18th century England, capitalism concentrated production geographically in what were or became urban areas. This persisted as capitalism spread through Western Europe, North America and Japan. Capitalist growth in urban areas not only drew food, raw materials and laborers from the surrounding countryside, it also generated deepening divisions between town and country. The workers who gathered in industrial towns eventually mobilized and fought successfully for rising wages rarely matched by rural incomes. Urban laborers became an organized, disciplined, productive and relatively well-paid working class.

Across the 19th and 20th centuries, expanding populations eventually required capitalism’s concentrated industrial centers to draw raw materials, foods and laborers from beyond their original national boundaries. Accordingly, formal and informal colonialism transformed large parts of Europe and much of Asia, Latin America and Africa. They became the “underdeveloped” global countryside for the “advanced” industrial capitalist centers.

In the 20th century, these underdeveloped areas variously mixed anti-imperialism, socialism and communism as they tried to break out of the unwanted roles imposed on them by capitalism’s world economic order. Newly independent nations charted different paths of economic development often depicted as anti- or non-capitalist. That usually meant assigning the state (rather than private citizens) a major role in owning and operating enterprises. Typically, the state would also plan the distributions of resources and products rather (or more) than relying on private market exchanges to do the job.

Ultimately, the efforts of so many nations in Asia, Africa, Latin America and Eastern Europe to sustain anti- or non-capitalist development paths failed. An inability to shake off continuing subordination — especially economic — to the old capitalist centers (western Europe, North America and Japan) played major roles in those failures.

Formally communist and socialist nations did substitute state officials running state enterprises for private boards of directors running private enterprises. But they did not abolish decision-making boards of directors who were separate from the workers. They did not replace them with workers’ self-direction of their enterprises. Instead of democratizing their economies by bringing democracy inside enterprises, they shifted from a private to a state capitalism.

In other words, they did not change the class structure inside enterprises. The survival of such class differences inside state industrial enterprises and state farms led to tensions, conflicts and struggles often quite parallel with those in private capitalist economies. The actually existing socialist economies never managed to go beyond such state capitalisms to a genuinely non-capitalist system because they had not transformed their enterprises’ class structures.

Over the two centuries before the 1970s and 1980s, the former hinterland territories of Asia, Africa, Latin America and Eastern Europe developed a huge population used to very low wages. Slowly in some of these areas – but quickly in Soviet-style economies – those low-wage workers acquired more advanced degrees of skill, education and modern industrial work discipline. Nonetheless, the difficulties of monitoring and controlling far distant worksites kept almost all of these workers outside the hiring orbits of employers in the old capitalist centers in Western Europe, North America and Japan. Cold War tensions and the anti-imperialist, nationalist commitments of so many in Asia, Africa and Latin America likewise kept most old-center employers away.

Then in the 1970s, these circumstances profoundly changed. The rapid spread of jet air travel and global telecommunications enabled old-center capitalists to consider relocating their production facilities to lower wage areas (since monitoring and control could be accomplished at a distance). At the same time, mounting economic problems, crises and implosions of many state capitalist and poor nations undercut their efforts at independent paths of economic development. Their leaders were looking for a changed strategy of development.

Old-center capitalists seeking to relocate to the former colonial territories encountered there local partners eager to make and profit from deals with them. Hundreds of millions of new, much cheaper workers thereby became available to old-center capitalist employers. Globalization meant above all a sudden increase in the global supply of labor power, yielding an historically unprecedented buyers’ market for labor.

Globalization meant above all a sudden increase in the global supply of labor power, yielding an historically unprecedented buyers’ market for labor. By relocating production facilities out of their old centers, capitalists drastically cut labor costs.

By relocating production facilities out of their old centers, capitalists drastically cut labor costs. They could escape the higher real wages and welfare state services won by generations of old-center workers. The profit possibilities were stupendous. Competition from those who first successfully relocated then forced even reluctant old-center capitalists to follow.

Many of the firms formed in, nurtured (and variously subsidized) by the old capitalist centers abandoned them. Detroit, Cleveland and so many other capitalist centers – in the US but also in Europe and Japan – have thus been declining, often for decades, with tragic human as well as economic costs. Loss of jobs, incomes, benefits and public services shaped ever more individuals’ lives. Capitalism’s globalization produced more enemies as the gaps between its beneficiaries and victims widened. Growing skepticism and then rejection confronted the euphemisms used to obscure globalization’s goals and effects (“deindustrialization,” “post-industrialism,” “outsourcing,” “world-class competition,” “free-trade associations,” “declining middle class,” and “austerity,” among others).

Wealth and income distributions consequently polarized in the old capitalist centers. Capitalists’ profits grew sharply as they relocated production to lower waged workers in what became the new centers of capitalist growth (especially China, India, Brazil and so on). At the same time, such shifting of production provoked unemployment in the old centers, loss of higher-paying jobs that moved abroad and increasingly, the descent of workers into lower-paid, largely service-sector jobs. Old-center economies thus exhibited stagnant or falling real wages alongside soaring profits. The gap between rich and poor – between those whose incomes depend chiefly on profits and those who depend chiefly on wage work – starkly widened.

At the same time, wealth rose rapidly for the new-center partners of the old-center capitalists. Those partners who enabled old-center capital to flow into their societies and those who most successfully sold the resulting outputs back into old-center markets became wildly wealthy. Yet the mass of their fellow citizens remained mired in the poverty of their long-term economic underdevelopment. While new-center wages sometimes rose, their absolute levels remained low.

Sharply rising income and wealth inequalities thus characterized the new centers of capitalism as well as the old. Globalization distributed capitalism’s deepening inequality throughout the world. It likewise spread the usual effects of such inequality: speculation, real-estate bubbles, gross conspicuous consumption by the rich, political corruption and so on.

Globalization distributed capitalism’s deepening inequality throughout the world. It likewise spread the usual effects of such inequality: speculation, real-estate bubbles, gross conspicuous consumption by the rich, political corruption and so on.

A remarkable historical parallel to this latest stage of capitalism suggests where it is leading us. After the 16th century, the contradictions of European feudalism led it to transform a centuries-old localized, decentralized manor system. Force served as midwife in amalgamating many feudal manors and gave birth to a few nation-states organized around highly centralized, absolute feudal monarchies (such as Britain, France, Spain and Prussia). That centralization process gave feudalism more decades of life. But it also generated those extremes of wealth and poverty exemplified by the palace at Versailles versus the abject slums of pre-revolutionary Paris.

Everywhere, those extremes provoked revolutions against feudalism that eventually yielded that system’s demise. Today’s extremes produced by a globalizing capitalism — Detroit versus San Francisco, Manhattan versus the Bronx, Germany versus Greece, China’s new billionaires versus many millions of poor workers and peasants — where might they be leading us?

Richard D. Wolff is a professor of Economics Emeritus at the University of Massachusetts, Amherst and visiting professor at the New School graduate program in International Affairs in New York. He has written extensively and published many books, including Democracy at Work: A Cure for Capitalism, Occupy the Economy: Challenging Capitalism and Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It, which was also made into a DVD.

Diversification from US Dollar as Trade Currency Picks Up Speed

LIBertea — Sat, 05 Jul 2014 16:18:41 GMT

Not even we anticipated this particular “unintended consequence” as a result of the US multi-billion dollar fine on BNP (which France took very much to heart). Moments ago, in a lengthy interview given to French magazine Investir, none other than the governor of the French National Bank Christian Noyer and member of the ECB’s governing board, said this stunner at the very end, via Bloomberg:

NOYER: BNP CASE WILL ENCOURAGE ‘DIVERSIFICATION’ FROM DOLLAR

Q. Doesn’t the role of the dollar as an international currency create systemic risk?

Noyer: Beyond [the BNP] case, increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar. BNP Paribas was the occasion for many observers to remember that there has been a number of sanctions and that there would certainly be others in the future. A movement to diversify the currencies used in international trade is inevitable. Trade between Europe and China does not need to use the dollar and may be read and fully paid in euros or renminbi. Walking towards a multipolar world is the natural monetary policy, since there are several major economic and monetary powerful ensembles. China has decided to develop the renminbi as a settlement currency. The Bank of France was behind the popular ECB-PBOC swap and we have just concluded a memorandum on the creation of a system of offshore renminbi clearing in Paris. We have very strong cooperation with the PBOC in this field. But these changes take time. We must not forget that it took decades after the United States became the world’s largest economy for the dollar to replace the British pound as the first international currency. But the phenomenon of U.S. rules expanding to all USD-denominated transactions around the world can have an accelerating effect.

In other words, the head of the French central bank, and ECB member, Christian Noyer, just issued a direct threat to the world’s reserve currency (for now), the US Dollar.

Putting this whole episode in context: in an attempt to punish France for proceeding with the delivery of the Mistral amphibious warship to Russia, the US “punishes” BNP with a failed attempt at blackmail (recall that as Putin revealed, the BNP penalty was a used as a carrot to disincenticize France from concluding the Mistral transaction: had Hollande scrapped the deal, BNP would likely be slammed with a far lower fine, if any). Said blackmail attempt backfires horribly when as a result, the head of the French central bank makes it clear that not only is the US Dollar’s reserve currency status not sacrosanct, but “the world” will now actively seek to avoid USD-transactions in order to escape the tentacle of global “pax Americana.”

And, the biggest irony of all is that in “punishing” France for dealing with Russia, that core country of the Eurasian alliance of Russia and China, the US merely accelerated the gravitation of France (and all of Europe) precisely toward Eurasia, toward a multi-polar (sorry fanatic believers in a one world SDR-based currency) and away from the greenback.

Or shown visually (as we have ever since 20120).