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Tuesday, June 30, 2009


The group blog of The American Prospect


After eight months and $50 million dollars, today’s unanimous decision by the Minnesota Supreme Court declaring Al Franken the winner in his Senate race against Norm Coleman could be the first step toward ending the longest Senate vacancy in 34 years. But before Senate Democrats and liberal bloggers crow too loud over their oh-so-close filibuster-proof majority in the Senate, a few things to keep in mind….

First, even if Franken is seated, he will not make for a particularly crisp #60. Though no one wants to say it, it is not clear that Sen. Ted Kennedy will ever vote again in the Senate, given his medical condition. Massachusetts lawmakers are already quietly jockeying for his seat. A replacement senator in Massachusetts needs to be chosen by the electorate (the governor has no role), which could mean weeks, even months, for primary and general election campaigns to be conducted. Meanwhile, after a month in the hospital, Sen. Robert Byrd was released today to continue his recovery at home, but the 91-year-old remains in delicate health.

Even if senators always voted party-line, which they don’t, it takes 60 senators present and voting to vote cloture. Democrats aren’t there yet.

While the verdict for Franken is a victory for Democrats, in many ways the GOP stall has had its intended effect. It is a public-relations accomplishment: They’ve managed to blur the likely result of the 2008 election, casting doubt on the circumstances under which Democrats have come to dominance in the Senate. That’s not a trivial accomplishment during these early months when a new president’s political capital is at its peak.

While there will be plenty of hand-ringing over how Republicans have hurt the state by drawing out a race Minnesotans wanted to be over long ago, nothing has been irreparably damaged by this extended vacancy. It isn't like Gov. Sanford disappearing for a few days. Executives really do run things. Senators don't. While it’s unfortunate that senior Minnesota Sen. Amy Klobuchar’s office has had to pick up the slack, the Democrats in the Senate haven’t lost any roll call result through the absence of a Franken vote.

More than anything, this prolonged partisan battle has been a headache for a state that’s famous for its friendly demeanor and squeaky-clean politics. It’s been an oft-repeated refrain in the last eight months, but it’s still true today: We’ll have to wait and see (though hopefully not for too much longer).

--Marie Diamond

Marie Diamond is a Prospect summer 2009 intern.

No Compromise on the Public Plan!

The Campaign for America’s Future

No Compromise on the Public Plan!: Why Weakening the Public Option Would Weaken the Party Responsible

Phillip Cryan's picture

Radical Inequality Fueled the Wall Street Meltdown

The Media Consortium

Weekly Audit: Radical Inequality Fueled the Wall Street Meltdown

Now that Treasury Secretary Timothy Geithner isn’t going to impose pay restrictions on bailed out Wall Street executives, it’s critical to remember that severe economic inequality was a major factor in the financial meltdown. Our tax code funnels money into the hands of our wealthiest citizens, which means that our financial system protects the interests of the affluent—not the the average citizen. The broad divergence between our core democratic values and the existing U.S. economic structure must become part of the public debate over financial reform.

As Les Leopold notes in a roundtable discussion with GritTV’s Laura Flanders, much of the Wall Street meltdown can be traced to a steady redistribution of wealth to the wealthy dating back to the Reagan years. Poor people, after all, do not have money to invest in the Wall Street speculation machine. By 2007, the financial world accounted for over 40% of U.S. corporate profits, an astounding percentage for a business intended to facilitate the operation of other industries. According to Leopold, we need to find constructive ways to shrink the financial sector, like taxing Wall Street transactions to move money into the real economy or imposing meaningful pay caps on financial jobs.

Pay for citizens who live outside the executive class has been steadily falling for decades. As Chuck Collins and Sam Pizzigati note for AlterNet, weekly wages for average Americans are now below 1970s levels after adjusting for inflation, while CEO payouts have exploded. So far, President Barack Obama has been hesitant to fight economic inequality at either end of the spectrum. Remember the promises he made to curb extravagant CEO pay on Wall Street back when the AIG bonuses were generating outrage back in February? Treasury Secretary Timothy Geithner has already made them irrelevant, eliminating a $500,000/year salary cap.

While we’ve heard quite a bit about how Wall Street excess wreaked havoc for homeowners, relatively little attention has been paid to the plight of renters, who often face personal catastrophe when their landlord is foreclosed on. Under a new law passed by Congress, when a bank or new owner takes control over a foreclosed property, they have to give renters living in the home at least 90 days notice before evicting them. But the law does nothing to address other injustices renters face. If your landlord is foreclosed on, for instance, you can forget about getting your security deposit back, even if the house is in top condition.

Banks also are not required to hire property managers to maintain homes they take over, which means they often let houses deteriorate despite objections from tenants. Writing for The Colorado Independent, Martha White explains that these problems are easy to correct, if Congress actually wanted to: Require landlords to put security deposits in a special account that cannot be raided by creditors in bankruptcy and force banks to hire managers to maintain the properties they foreclose on. The latter policy would also discourage banks from foreclosing in the first place by making ownership of the property more expensive for the bank.

Obama recognizes the need for change, which is why he’s proposed a major overhaul of the government’s Wall Street oversight. But in many ways, his plan identifies the wrong problems and offers the wrong solutions. The Real News features a great video spot with commentary by University of Massachusetts at Amherst Economist Robert Pollin. One of the key reforms involves granting the Federal Reserve broad powers to oversee systemic risk in the economy, but the Fed already has similar authority.

“The problem is, the Fed has already had an enormous amount of regulatory power, they just don’t exercise that power,” Pollin says.

Instead of granting the Fed more power, we should be finding ways to hold its leaders accountable. By subjecting top officials at the Fed to democratic elections, we could help ensure that the top regulatory body in the U.S. answers to the people it is supposed to be protecting.

Other creative new approaches to combating the economic crisis are featured in the most recent issue of Yes!, which is devoted entirely to economic reforms. From tips on investing locally to overhauling our broken monetary system to empowering workers, the issue emphasizes solutions that rely on democratic structures, rather than the corporate status quo (full disclosure: I’ve got an article in there on community banks).

It’s time to put some political firepower behind those ideas. Ordinary people simply have no serious voice in the policy debate surrounding Wall Street. In The Nation, Christopher Hayes describes the banking lobby’s total domination over financial reform proposals.

“On the other major legislative battles—healthcare, climate change, the Employee Free Choice Act—there is an organized, mobilized permanent infrastructure to push lawmakers in a progressive direction,” Hayes writes. “They may be underdogs, but at least it’s a fight.”

Changing the too-big-to-fail financial sector must become a priority. If we defer to the banking lobby or advisers like Larry Summers, who helped create the crisis by backing wildly deregulatory laws during the Clinton years, we can guess what the end result will look like. If we want our economy to answer to us, we have to do something about it. Income inequality and unaccountable regulators were a major part of the financial collapse. Addressing those problems has to be part of the economic solution.

This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Bigoted Banks 0, Eliot Spitzer 1

Bigoted Banks 0, Eliot Spitzer 1

A Supreme Court ruling vindicates the disgraced ex-governor, but comes too late to help minority borrowers bilked by big banks.

Mon June 29, 2009 3:02 PM PST

On Monday, conservative Supreme Court Justice Antonin Scalia and the Obama administration ended up on opposite sides of a case involving civil rights—in which the administration sided with the alleged racists. In Cuomo v. Clearing House Association, the court delivered a sharp rebuke to the Obama administration and one of its key banking regulators, the Office of the Comptroller of the Currency (OCC), which had gone to bat for national banks accused of racially discriminatory lending practices. And while the ruling was overshadowed by the chatter surrounding the court's reversal of Ricci v. DeStefano—the now infamous Connecticut firefighter case decided by Sonia Sotomayor—it could have significant ramifications for how the financial system is policed.

Cuomo v. Clearing House Association got its start in 2005, when then-New York attorney general Eliot Spitzer discovered that many major banks operating in his state were making a disproportionate number of high-interest loans to minorities. He sent letters to Wells Fargo, Bank of America, Citi, and other big banks seeking information about their lending practices. Rather than respond to the request, the banks sued Spitzer through their trade group, the Clearing House Association, arguing that Spitzer's request violated federal banking rules.

To up the ante, the banks sought support for their position from the OCC, which happily came to their aid. The courts gave the OCC tremendous deference in the case, and Spitzer lost in both the trial court and the 2nd Circuit Court of Appeals. After Spitzer left office under a bit of a cloud, his successor, Andrew Cuomo, pursued the litigation. He argued that the OCC had vastly exceeded the authority Congress had given it to ensure the safety and soundness of national banks, and that those banks still had to comply with state consumer protection and anti-discrimination laws.

Today, Cuomo (and by extension, Spitzer) prevailed in the Supreme Court in a 5-to-4 decision, with states' rights advocate Antonin Scalia writing for the majority, supported by justices Stevens, Souter, Ginsburg, and Breyer. The decision is a decisive slapdown for the Obama administration, whose position in the case was deeply opposed by civil rights groups and also contradicted its stated policy about the need for better financial regulation. The decision also likely puts an end to a decade of overreaching by the OCC, which has spent many hours in court preventing states from cracking down on abusive bank practices, many of which played a major role in creating the subprime lending crisis. Indeed, if Spitzer had been able to pursue his investigation back in 2005, it's likely he would have discovered what lawyers in Baltimore are just now uncovering: rampant discrimination by national banks.

As the New York Times reported in early June, Wells Fargo aggressively targeted African Americans (referred to by bank employees as "mud people") and pushed them into subprime "ghetto" loans, even when they qualified for better rates. The expensive loans ultimately led to a rash of foreclosures, which cost Baltimore tens of millions of dollars in both taxes and city services. Similar practices were likely at work in New York, where a Times analysis found that African American households with incomes above $68,000 were five times as likely to have high-interest subprime mortgages than similar or even poorer white households. (Wells Fargo customers had even worse ratios: In New York City, 16 percent of the bank's black borrowers had subprime loans, compared with 2 percent of whites.)

Had Spitzer been able to investigate the banks, he might have put the brakes on some of these practices fully two years before the entire subprime industry collapsed and brought the rest of the economy down with it. Instead, the OCC fought Spitzer's investigation tooth and nail, and this year received a helping hand from the Obama administration. In one of the first government briefs signed by former Harvard Law School dean and new Solicitor General Elena Kagan, the administration backed both the banks' effort to avoid scrutiny of their business practices and the OCC's contention that it has virtually unlimited authority to squash state law enforcement efforts against the banks it regulates (and which fund its budget, incidentally).

Scalia was having none of this interpretation, and he scolded the OCC for its incursion into traditional state powers. He found the OCC's argument "bizarre" and pilloried its assertion that it was okay for states to have anti-discriminatory lending laws on the books but not to enforce them— a situation Scalia described as one where "The bark remains, but the bite does not." He also observed a basic weakness in the argument that the Obama administration apparently overlooked, which is that it conflicted with decades of precedent. States, he writes, "have always enforced their general laws against national banks—and have enforced their banking-related laws against national banks for at least 85 years."

Unfortunately for thousands of former homeowners, Scalia's voice of reason has come four years too late. In the end, the major beneficiary of the decision may be Spitzer, whose sexual dalliances pale in comparison to the damage wrought by the banks he sought to rein in at a time when no one else would. The Supreme Court decision may be just the latest chapter in his public rehabilitation.

Stephanie Mencimer is a staff reporter in Mother Jones' Washington bureau. For more of her stories, click here.


Debt Deflation or Last Ditch


What the Jump in the U.S. Savings Rate Really Means

Debt Deflation Arrives


Happy-face media reporting of economic news is providing the usual upbeat spin on Friday’s debt-deflation statistics. The Commerce Department’s National Income and Product Accounts (NIPA) for May show that U.S. “savings” are now absorbing 6.9 percent of income.

I put the word “savings” in quotation marks because this 6.9 per cent is not what most people think of as savings. It is not money in the bank to draw out in rainy-day emergencies like losing one’s job, as thousands are every day. The statistic means that 6.9 per cent of national income is being earmarked to pay down debt – the highest savings rate in 15 years, up from actually negative rates (living on borrowed credit) just a few years ago. The only way in which these savings are “money in the bank” is that they are being paid by consumers to their banks and credit card companies.

Income paid to reduce debt is not available for spending on goods and services. It therefore shrinks the economy, aggravating the depression. So why is the jump in “saving” good news?

It certainly is a good idea for consumers to get out of debt. But the media are treating this diversion of income as if it were a sign of confidence that the recession may be ending and that Obama’s “stimulus” plan is working. The Wall Street Journal has reported that Social Security recipients of one-time government payments “seem unwilling to spend right away,” while The New York Times wrotethat“many people were putting that money away instead of spending it.” It is as if people can afford to save more.

The reality is that most consumers have little real choice but to pay. Unable to borrow more as banks cut back credit lines, their “choice” is either to pay their mortgage and credit card bill each month, or lose their homes and see their credit ratings slashed, pushing up penalty interest rates near 20 per cent To avoid this fate, families are shifting to cheaper and less nutritious food, eating out less or at fast food restaurants, and cutting back on vacation spending. So it seems contradictory to applaud these “savings” (that is, debt-repayment) statistics as an indication that the economy may emerge from depression in the next few months. While unemployment approaches the 10 per cent rate and new layoffs are being announced every week, isn’t the Obama administration taking a big risk in telling voters that its stimulus plan is working? What will people think this winter when markets continue to shrink? How thick is Obama’s Teflon?

In the wreckage of the Greenspan bubble

As recently as two years ago consumers were buying so many goods on credit that the domestic savings rate was zero. Financing the U.S. government’s budget deficit with foreign central bank recycling of the dollar’s balance-of-payments deficit actually produced a negative 2 per cent savings rate. During these bubble years savings by the wealthiest 10 per cent of the population found their counterpart in the debt that the bottom 90 per cent were running up. In effect, the wealthy were lending their surplus revenue to an increasingly indebted economy at large

Today, homeowners no longer can re-finance their mortgages and compensate for their wage squeeze by borrowing against rising prices for their homes. Payback time has arrived – paying back bank loans, whose volume has swollen to include accrued interest charges and penalties. New bank lending has hit a wall as banks are limiting their activity to raking in amortization and interest on existing mortgages, credit cards and personal loans.

Many families are able to remain financially afloat by running down their personal savings and cutting back their spending to try and avoid bankruptcy. This diversion of income to pay creditors explains why retail sales figures, auto sales and other commercial statistics are plunging vertically downward in almost a straight line, while unemployment rates soar toward the 10 per cent level. The ability of most people to spend at past rates has hit a wall. The same income cannot be used for two purposes. It cannot be used to pay down debt and also for spending on goods and services. Something must give. So more stores and shopping malls are becoming vacant each month. And unlike homeowners, absentee property investors have little compunction about walking away from negative equity situations – owing creditors more than the property is worth.

Over two-thirds of the U.S. population are homeowners, and real estate economists estimate that about a quarter of U.S. homes are now in a state of negative equity as market prices drop below the mortgages attached to them. This is the condition in which Citigroup and AIG found themselves last year, along with many other Wall Street institutions. But whereas the government absorbed their losses “to get the economy moving again” (or at least Congress’s major campaign contributors), personal debtors are in no such favored position. Their designated role is to help make the banks whole by paying off the debts they have been running up in an attempt to maintain living standards that their take-home pay no longer supports.

Banks for their part are slashing credit-card debt limits and jacking up interest and penalty charges. (I see little chance that Congress will approve the Consumer Financial Products Agency that Obama promoted as a flashy balloon for his recent bank giveaway program. The agency is to be dreamed about, not enacted.) The problem is that default rates are rising rapidly. This has prompted many banks to strike deals with their most overstretched customers to settle outstanding balances for as little as half the face amount (much of which is accrued interest and penalties, to be sure). Banks are now competing not to gain customers but to shed them. The plan is to offer steep enough payment discounts to prompt bad risks to settle by sticking rival banks with ultimate default when they finally give up their struggle to maintain solvency.

The trillions of dollars that the Bush and Obama administration have given away to Wall Street would have been enough to buy a great bulk of the mortgages now in default – mortgages beyond the ability of many debtors to pay in the first place. The government could have enacted a Clean Slate for these debtors, financed by re-introducing progressive taxation, restoring the full capital gains tax to the same rate as that levied on earned income (wages and profits), and closing the tax loopholes that effectively free finance, insurance and real estate (FIRE) sector from income taxation. Instead, the government has made Wall Street virtually tax exempt, and swapped Treasury bonds for trillions of dollars of junk mortgages and bad debts. The “real” economy’s growth prospects are being sacrificed in an attempt to carry its financial overhead.

Banks and credit-card companies are girding for economic shrinkage. It was in anticipation of this state of affairs, after all, that they pushed so hard from 1998 onward to make what finally became the 2005 bankruptcy laws so pro-creditor, so cruel to debtors by making personal bankruptcy an economic and legal hell.

So, to avoid this fate, People are putting more money away, but not into savings accounts. They are indeed putting it into banks, but in the form of paying down debt. To accountants looking at balance sheets, savings represent the increase in net worth. In times past this was mainly the result of a buildup of liquid funds. But today’s money being saved is not available for spending. It merely reduces the debt burden being carried by individuals. Unlike Citibank, AIG and other Wall Street institutions, they are not having their debts conveniently wiped off the books. The government is not nice enough to buy back their investments that had lost up to half their value in the past year. Such bailouts are for creditors and money managers, not their debtors.

The story that the media should be telling is how today’s post-bubble economy has turned the concept of saving on its head.

This is not what people expected a half-century ago. Economists wrote about how technology would raise productivity levels, people would be living in near utopian conditions by the year 2000. The textbooks need to be rewritten.

Keynesian economics turned inside-out

Most individuals and companies emerged from World War II in 1945 nearly debt-free, and with progressive income taxes. Economists anticipated – indeed, even feared – that rising incomes would lead to higher saving rates. The most influential view was that of John Maynard Keynes. Addressing the problems of the Great Depression in 1936, his General Theory of Employment, Interest, and Money warned that people would save relatively more as their incomes rose. Spending on consumer goods would tail off, slowing the growth of markets, and hence new investment and employment.

From this perspective, the propensity to save out of wages and profits diverted the circular flow of payments between producers and consumers. The main cloud on the horizon, Keynesians worried, was that people would be so prosperous that they would not spend their money. Their prescription to deter this under-consumption was for economies to move in the direction of more leisure and more equitable income distribution.

The modern dynamics of saving – and the increasingly top-heavy indebtedness in which savings are invested – are quite different from, and worse than, what Keynes hoped for. Most financial savings are lent out, not plowed into tangible capital formation and industry. Most new investment in tangible capital goods and buildings comes from retained business earnings, not from savings that pass through financial intermediaries. Under these conditions, higher personal saving rates are reflected in higher indebtedness. That is why the saving rate has fallen to a zero or “wash” level. A rising proportion of savings find their counterpart more in other peoples’ debts rather than being used to finance new direct investment.

Each business recovery since World War II has started with a higher debt ratio. Saving is indeed interfering with consumption, but it is not the result of rising incomes and prosperity. A rising savings rate merely reflects the degree to which the economy is working off its debt overhead. It is “saving” in the form of debt repayment in a shrinking economy. The result is financial dystopia, not the technological utopia that seemed so attainable back in 1945, just sixty-five years ago. Instead of a consumer-friendly leisure economy, we have debt peonage.

To get an idea of how oppressive the debt burden really is, I should note that the 6.9 per cent savings rate does not even reflect the 16 per cent of the economy that the NIPA report for interest payments to carry this debt, or the penalty fees that now yield as much as interest yields to credit-card companies – or the trillions of dollars of government bailouts to try and keep this unsustainable system afloat. How an economy can hope to compete in global markets as an industrial producer with so high a financial overhead factored into the cost of living and doing business is another story.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com


Jack Healy, “As Incomes Rebound, Saving Hits Highest Rate in 15 Years,” The New York Times, June 27, 2009.


A Project of the Monthly Review Foundation

A Suicidal Error
by Fidel Castro Ruz

In my reflection written last Thursday night, June 25, I said: "We do not know what will happen tonight or tomorrow in Honduras, but the brave conduct of Zelaya will go down in history."

Two paragraphs before I noted: "What is happening there will be a test for the OAS and for the current United States administration."

The prehistoric Inter-American institution had met the other day in Washington and, in a muted, lukewarm resolution, promised to immediately take the pertinent actions to seek harmony between the warring parties. In other words, negotiations between the coup plotters and the constitutional president of Honduras.

The top military chief, still commanding the Honduran Armed Forces, was making public statements in disagreement with the positions of the president, while recognizing the latter's authority merely in formal terms.

The coup plotters did not need anything else from the OAS. They didn't give a damn about the presence of a large number of international observers who traveled to that country to vouchsafe a popular referendum and to whom Zelaya spoke until late in the night. Before dawn today they deployed 200 professional and well-trained soldiers to attack the president's residence. Roughly pushing aside the Honor Guard squadron, they then kidnapped Zelaya, who was sleeping at that point, took him to the air base, forcibly bundled him aboard an airplane, and transported him to an air base in Costa Rica.

At 8:30 a.m. we heard the news of the assault on the Presidential residence and the kidnapping via Telesur. The president was unable to attend the opening event of the referendum that was to take place this Sunday. It was not known what they had done with him.

The official television channel was silenced. They wanted to prevent premature broadcast of the treacherous action via Telesur and Cubavision International, which were reporting the events. For that reason, they suspended all the retransmission centers and ended up by cutting off electrical power throughout the country. The Congress and the higher courts involved in the conspiracy had not yet published the decisions that justified the plot. First they executed the indescribable military coup and then they legalized it.

The people awoke with the deed consummated and began to react with growing indignation. Zelaya's whereabouts was unknown. Three hours later, the popular reaction was such that women could be seen striking soldiers, whose guns almost fell out their hands out of pure confusion and nervousness. Initially, their movements resembled a strange combat against phantoms; later they tried to block the Telesur cameras with their hands, aiming their guns shakily at the reporters and at times, when the people advanced, falling back. They sent in armored transport carriers with cannons and machine guns. The population argued fearlessly with the crews; the popular reaction was amazing.

At around two in the afternoon, working in coordination with the coup leaders, a domesticated majority in Congress deposed Zelaya, the constitutional president of Honduras, and appointed a new head of state, affirming to the world that the former had stepped down, and furnishing a forged signature. A few minutes later, from an aircraft in Costa Rica, Zelaya recounted everything that had happened and categorically refuted the news of his resignation. The conspirators made themselves look ridiculous before the world.

Many other things happened today. Cubavision dedicated itself totally to unmasking the coup, informing our population all the time.

There were actions of a purely fascist nature which, while not unexpected, still come as a shock.

Patricia Rodas, the foreign minister of Honduras, was the next most important target, after Zelaya, of the coup leaders. Another detachment was sent to her residence. Brave and determined, she moved quickly, not losing a second to denounce the coup by all means available. Our ambassador contacted Patricia to find out what was going on, as did other ambassadors. At a certain point, she asked the diplomatic representatives of Venezuela, Nicaragua, and Cuba to meet with her, given that she was being relentlessly hunted down and needed diplomatic protection. Our ambassador, who was authorized to offer maximum support to the constitutional and legal minister from the outset, left to visit her at her own residence.

When he was already in her house, the coup command sent in Major Oceguera to detain her. The ambassadors placed themselves in front of Patricia and stated that she was under diplomatic protection and could only be moved in their company. Oceguera argued with them respectfully. A few minutes later, 12 to 15 uniformed and hooded men entered the house. The three ambassadors put their arms around Patricia; the masked men, acting in a brutal manner, managed to separate the ambassadors of Venezuela and Nicaragua; [Juan Carlos] Hernández, the Cuban ambassador, took her arm and clasped it so strongly that the masked men had to drag them both toward a van; they drove them to the airbase, where they managed to separate them, and took Patricia off. As Hernández was detained there, Bruno [Rodríguez, Cuban foreign minister], who was informed of the kidnapping, called him on his cell phone; a masked man tried to grab it from him and the Cuban ambassador, who had already been struck while at Patricia's house, yelled at him: "Don't push me around, goddamn it!" I don't recall if the word he uttered was used at any time by Cervantes but, doubtless, ambassador Juan Carlos Hernández has enriched our language.

After that they left him on a highway far from the embassy and, before abandoning him, said that if he talked, something worse might happen to him. "Nothing is worse than death!" he replied with dignity, "and not for that do I fear you." People living in the area helped him to get back to the embassy, where he immediately communicated again with Bruno.

That coup high command cannot be negotiated with, they have to be made to resign and other, younger officers who are not committed to the oligarchy should take over the military command, or there will never be a government "of the people, by the people and for the people" in Honduras.

The coup plotters, cornered and isolated, have no possible salvation if the problem is confronted with determination.

By the afternoon, even Mrs. Clinton had declared that Zelaya is the only president of Honduras, and the Honduran coup leaders can't even breathe without the support of the United States.

In his nightshirt up until a few hours ago, Zelaya will be acknowledged by the world as the only constitutional president of Honduras.

Fidel Castro Ruz
June 28, 2009
6:14 p.m.

Translated by Granma International, edited for republication here. Read it in Spanish: "Un error suicida."

The US gets a Senator that doesn't take himself too seriously

Political Junkie

Minnesota Supreme Court Is Unanimous: Franken Won


Love him or hate him, Al Franken will be the next senator from Minnesota.

The Minnesota Supreme Court has ruled that Al Franken, the Democrat, is the rightful winner of the protracted Senate race that was held last November.

The Court, in a 5-0 ruling, rejected the case made by Norm Coleman, the Republican and former incumbent, that thousands of rejected absentee votes should be counted.

By rejecting the appeal, the Court says that Franken's 312-vote lead holds and he should be certified as the winner -- giving the Democrats a 60th vote in the chamber. Gov. Tim Pawlenty, a Republican, has said in the past that if the Court directed him to do so, he would certify Franken.

CAFTA is fundamentally flawed and costing jobs

Submitted by Bryan Buchan on 6-29-2009 – 8:43 amComments

hayes__robin_a64bOlivia Webb | Richmond County Daily Journal

A congressional hearing on CAFTA fraud — and its effects on the American textile industry — was held Thursday, with two North Carolina mill owners testifying.

“It’s costing jobs,” said Sarah Pierce, senior vice president of the National Council of Textile Organizations on Wednesday. “It’s causing plants to close.”

In 2005, then-congressman Robin Hayes (R-N.C.) cast the deciding vote in favor of passage of the Central American Free Trade Agreement. A controversial follow up to the North American Free Trade Agreement, the law eliminated tariffs on the majority of U.S. exports to El Salvador, Costa Rica, Guatemala, Honduras and and now the Dominican Republic.

As a result, American fiber producers can send their yarn to one of the participating countries where it is made into a finished product. It is then possible for that finished product to be shipped back to the U.S. again with greatly reduced tariffs under the Caribbean Basin Initiative.

Officials from NCTO say that Pakistani and Chinese yarn spinners are using the CAFTA region to bring their finished products into the U.S. duty-free by fraudulently claiming that American yarn was used.

“They can sell it at a cheaper price, and that hurts our members,” said Pierce. “Since the beginning of CAFTA, the administration at the time promised that customs enforcement would be stepped up; but enforcement went in the opposite direction.”

Dan Nation, division president of Gastonia-based Parkdale Mills, is one of the mill owners who testified to the effects of CAFTA fraud in front of Washington lawmakers, including Congressman Heath Shuler (D-N.C.), Chairman of the House Committee on Small Business Subcommittee on Rural Development, Entrepreneurship and Trade.

“At the peak of our growth, Parkdale operated 38 facilities in four states, employing over 4,000 people,” reads Nation’s statement. “In the last 12 years, we have been forced to close 19 of those facilities; resulting in over 2,200 jobs lost, not including all of the adjacent jobs supported by these manufacturing jobs.”

Nation pointed out that all of those facilities were located in small towns throughout the Southeastern United States.

“These towns have lost the majority of their manufacturing tax base, creating further financial stress,” said Nation. “Conservatively, we estimate that 1,200 of the 2,200 jobs Parkdale had to eliminate could have been saved with 100 percent effective customs enforcement over the last six years.”

Also testifying was Harding Stowe, former Chairman of third-generation Gaston County textile company Stowe Mills — which he said was forced to close down in January. According to NCTO, Stowe noted “that his company supplied U.S. Customs with regular information on which companies were using the illegal yarns and where the yarns were coming from but that Customs did not act.”

Congressman Larry Kissell (D-N.C.) who was present at the hearing, said the testimonies and information brought forth proved “what many of us knew to start with — that this is a bad deal for American businesses and America workers.”

“CAFTA is fundamentally flawed,” said Kissell. “It contains too many loopholes and simply provides too many opportunities to beat the system, and cheat American workers out of any fair chance to compete.”

Ken Goodman, owner of Richmond Yarns in Ellerbe, said that while CAFTA is beneficial to his business, he is aware of the problems caused by fraudulent transfer — both now and in the past.

“This has gone on for 40 years,” said Goodman on Wednesday. “The government would pass all these regulations, like the multi-fiber agreement back in the 1970s that wouldn’t let blended fiber come into the country. Then the customs officials would turn their heads and ignore the rules.”

In Goodman’s opinion, a lot of problems would be taken care of if the federal government would just enforce the laws on the books. Pierce said that is exactly why the NCTO has called Thursday’s hearing.

“We know for a fact that there is a high incidence of fraud,” said Pierce. “Our hope is that customs will be more focused in their enforcement.”

Pierce said NCTO continues to discuss with Shuler legislation that would streamline some of U.S. Customs processes.

“We’re not saying we need more regulation; we’re just saying the rules need to be strengthened to protect American businesses,” said Pierce.

“I am hopeful these hearings will help put a stop to the fraud taking place in connection with CAFTA, and will also make our government more vigilant in the future,” said Kissell. “To make sure we take better care of American workers and businesses and not enter into any more unfair, unenforceable trade deals.”

Monday, June 29, 2009

Who's to blame for the housing crash?


Who's to blame for the housing crash?

Alyssa Katz, author of "Our Lot," discusses the good intentions and mass delusion that led to the real estate boom

By Mark Schone

June 30, 2009 | To read "Our Lot: How Real Estate Came to Own Us" is to relive, in painful, anecdotal detail, the real estate bust that brought our economy low. Through Alyssa Katz, a journalism professor at New York University and the former editor of the magazine City Limits, we remeet the exploited homeowners and the naive investors, and we cringe again at the blundering politicians and opportunistic lenders.

But "Our Lot" is also a reminder that our memories are short, and that the same mix of hope, greed, good intentions and bad policy has been inflating and popping real estate bubbles since the days of LBJ. Behind it all is a conviction shared by nearly all Americans, be they Democrats or Republicans, Wall Streeters or the ARMed and desperate masses, that home ownership is a good thing -- good for the neighborhood, the country and the average citizen holding the deed and the debt. "Our Lot's" long view is perhaps most unnerving for the doubt it casts on that timeworn belief. Salon interviewed Katz by phone.

Isn't homeownership actually good for you? I thought it was the panacea for almost all social ills, it drove the crime rate down, educational achievement up, and so on.

Yes, well, homeownership is only as good as the amount of home you actually own, and I think the big problem in the last generation or so is that Americans have turned to more and more and more debt to reach for the American dream.

There's a lot of great examples out there -- the Nehemiah homes that transformed East New York in Brooklyn from a really devastated and dangerous place to someplace that's still really poor and has a high crime rate but has an opportunity to really grow and have a stable bunch of families really invested in building a home there. So all that's great. Certainly there's a lot of evidence that homeowners do tend to stay in one place for longer, their kids perform better in school. They tended to be more involved in local politics, community affairs, and block cleanups. The problem is, it's very hard to separate out the effects of homeownership itself from the fact that people who have a certain economic or social standing are more likely statistically to be homeowners in the first place.

Does this mean that we shouldn't actively encourage homeownership, using government money or government policy?

I think there's nothing wrong with using government money, policy, pressure, all those tools to make homeownership more of a possibility than it would otherwise be in the marketplace, simply because the market left to its own devices discriminates aggressively. It rewards people who already have wealth, who have already had a leg up economically, and it's great to give other people the opportunity as well.

The problem is that homeownership is the only housing policy that this country has ever shown any commitment to. Renters are treated miserably.

And that's one big distinction you see between the U.S. and European countries that also had very loosely regulated mortgage-security markets and have had problems there. I think one reason you're not seeing mass foreclosures on quite the scale that you had in the U.S. is that for large proportions of the population in many European countries, including the Netherlands, Germany, France, Switzerland, renting is supported through government policies that, for instance, protect tenants so that they don't have to worry about getting kicked out at the end of the year.

Whereas in the U.S., homeownership was always the only option. And anyone who can afford to, or thought they could afford to, would choose that option. So that's really the problem here.

Whose fault is the mess that we're in now? And how far back do we need to go to start tracing the blame?

I think the message of my book, unfortunately, is that it's to some degree everybody's fault, including, I should say, liberal activists, with whom I'm extremely sympathetic, and think were right.

But what we really had was a collision of ideologies over this question of: How do we make it possible for everyone to be a homeowner? How do we eradicate this horrible legacy of discrimination, which had left the homeownership rate for whites much, much higher than that for blacks and Latinos? There was real work that needed to be done there. So I think we really have to go back to the 1970s, when we started to see pretty aggressive policy measures on the part of the federal government to try to level the playing field.

You talk about another real estate bubble in the early '70s, when everybody who wanted one could get a mortgage. The wreckage that was left behind looks totally familiar.

Yes. Rather infamously, the federal housing administration, which is the government agency that insures mortgages -- it's what built Levittown and all those 1950s suburbs after the war -- discriminated very aggressively, on the basis of what was thought to be sound statistical evidence, that the insurance fund would only be safe if it were to insure suburban and overwhelmingly white areas.

So what happened in '67 and '68 was that federal housing officials reversed that entirely. They proclaimed, initially just in the riot areas and then more broadly across cities, that FHA, the Federal Housing Administration, would now be open everywhere! And in fact, as I note in the book, the only circumstances under which HUD did not insure mortgages is if the house is literally falling down.

Real estate agents and loan brokers descended on inner cities, trying to find borrowers who would be unlikely to pay their mortgages back, because the real-estate speculator would get paid in full by the federal government, and paid more quickly and more generously, because of forgone interest that they would get compensated for. The sooner that borrower went into foreclosure the more generously that entrepreneur would get paid.

When was that mess cleaned up?

About '73, '74. There were tens if not hundreds of thousands of abandoned houses all over the country as a result of the FHA debacle, and it got a lot of attention at the time and was almost forgotten to history after that.

And then we have the Reagan presidency and -- correct me if I'm wrong -- but that's when the securities market for mortgages really blossoms, right?

Absolutely. Mortgage-backed securities had existed since about 1970. They existed in the '20s too, and that was part of why the Depression happened -- they had been made illegal after that. But they came back as a government product in 1970. As I recount in the book, Lewis Ranieri of Salomon Brothers, which was trading in government-backed securities, thought, "Couldn't we just do this ourselves? Why do we need to have Freddie Mac or Fannie Mae in the middle, why don't we create these securities?"

In order to do that, they needed to rewrite all those laws that had been passed following the crash in 1929 and thereafter, which was as much a housing and real estate bubble crash as it was a stock market crash.

Did Democrats enable the housing bubble?

What did that do to the housing market?

It took a while for all the pieces to come into place. But once the tax laws changed in 1986 to allow the Wall Street mortgage-backed securities market to just explode, what you saw was the invention of subprime lending. Suddenly Wall Street banks were able to do their own thing, but they had to find their own niches. Fannie Mae and Freddie Mac already had what were known as plain vanilla loans: You want a 30-year fixed-rate mortgage, you've got great credit, you live in the suburbs.

So the Wall Street banks started looking for niches at the bottom and at the top of the food chain: at the top, what were known as jumbo loans, loans that Fannie Mae and Freddie Mac were not allowed to buy, and then they created subprime. They created a loan product with high interest rates, high fees, adjustable interest rates, all these new features that would enable them to make money lending to people who never before would have qualified for a mortgage.

And then when Bill Clinton became president he did not shut that down?

That's right. To the Clinton administration's credit, his Federal Trade Commission, among other agencies, and the other banking regulators, did pretty aggressively go after some of the worst offenders, who would not just be putting out subprime loans but really engaging in predatory lending, setting up borrowers with loans they knew they could not pay.

But you had two, or three, or -- one could keep counting -- things that the Clinton administration did that really enabled the bubble. And I think it was with the best of intentions at the time, but a lot of sort of willful naiveté about what the consequences would be.

Number one, what it did was really just encourage homeownership very aggressively. This became a central theme of Clinton's campaign for reelection in 1996, how almost every American can and should own their home. This was something that Clinton promoted out of a sense of his own political survival. You had Newt Gingrich and his Congress trying to eliminate HUD entirely. Homeownership was this apple pie issue that could help justify the agency's existence.

Homeownership also became a way that Clinton pushed for a hotter economy. And what would happen as well, of course, is that he had Alan Greenspan as head of the Federal Reserve, willfully ignoring pleas that came as early as the early '90s from consumer advocates who started to see the damage being wrought by predatory lending. They were hearing from Congress in '93 legislation that passed that was supposed to stop predatory lending but couldn't because of the way the industry was growing and metastasizing too fast.

That law, the Homeowner or Equity Protection Act (or HOPA), asked the Federal Reserve to set guidelines. Congress said to the Federal Reserve, "We want you to regulate the subprime industry, you're the only entity that can do this." And the Federal Reserve never acted on it. Once consumer advocates tried to go to court to fight predatory lenders through lawsuits, judges -- often Republican-appointed judges -- would say, "You know, I'd love to rule in favor of you, but the Federal Reserve was supposed to help define this question of law that's central to your case, and they never did, so we really can't rule that this was a violation of HOPA."

So that was really the problem in the '90s: that Alan Greenspan and his absolutist free-market approach to the mortgage markets, and the financial markets more broadly, completely defined everything that went on.

You also had community organizers and activists pushing Bill Clinton or pushing the Democratic Party to make housing more available, right?

The calamity that came to happen was enabled by this explosive growth that sucked all the customers from the government-sponsored market into the private one where they just became sitting ducks for every toxic product imaginable. Remember that the loans that went bad were people who had bought their homes, often with the help of the government programs, then refinancing with a subprime loan or with an adjustable rate loan.

There are clearly two competing narratives. You have the right-wing critique that blames the homeowners and you have the other side largely placing the blame on Wall Street. What responsibility do homeowners actually bear for the state we're in now?

I think homeowners bear a lot of responsibility for their own wishful thinking. What you have is essentially a mass social mania. And it was infectious -- you have a homeowner seeing their neighbor moving up to a bigger, better house because their broker is offering them a loan. Yes, the interest rate will adjust, but they can refinance in two years when it does. People wanted to believe. I traveled across the country for this book and interviewed many many, many homeowners and people who sold them mortgages and homes. And Americans' capacity in general for delusional thinking, wishful thinking, fantastic thinking really just flourished.

This isn't to say every homeowner was in this position. There was no shortage of horrifically exploitative practices, lenders who preyed and continued to prey on people's financial desperation. This is all happening at a time when real wages are stagnant or declining, where people's other expenses are going up. Trying to maintain a good standard of living and finding what seems like an easy way to do it. So it just became the new normal.

The book has a great number of anecdotal illustrations about the development of the market and the damage wrought. Let’s talk about a specific case: a homeowner named Charity Stewart.

Charity Stewart had bought a house for about $100,000 in 2004 because it was cheaper than renting. She was a single mom, single grandmother, and was 33 years old when she bought the home. She said she was driving around a neighborhood, saw a sign, said there was no money down -- actually I think it was $500 down. She was able to get into that home for less, she told me, than it would be to put down a rent deposit.

When you rent a place, often a landlord will want to check out your finances, make sure they can get paid every month. Well, her lender, which was Argent Mortgage, now defunct, a spinoff from Ameriquest Mortgage, they asked for financial documentation -- and she was allowed to count income that really shouldn't have been counted. You know, her mom was on SSI and didn't live with her but they added her mom's income to her household income. So she ended up qualifying for a mortgage at a high interest rate that was much higher than she could pay for.

But it wasn't only that that really struck me about Charity's story because that has, I think, become very ordinary in the past couple of years. It was also that Charity had really no idea of what was involved in homeownership and no one had bothered to tell her. And so when the house, as often happens with these older city homes that were getting sold to first-time home-buyers, had some problems -- it had a leak. And she didn't know what to do. She had always lived as a tenant and could call the super or the landlord. And she actually tried to call Ameriquest when the leak started to get it fixed -- she didn't know what else to do and nobody told her. So by the time I came, which was about a year later, this leak had turned into this waterfall down the side of her living room and she stopped making mortgage payments, sort of in protest of her house falling apart. And she went into foreclosure that week that I visited her.

Investing in real estate in 2009

What about the story of Lehigh Acres?

Lehigh Acres is an area near Fort Meyers in Florida, and Fort Meyers/Cape Coral is one of the hottest foreclosure hot spots in the country. The area became a Mecca for speculators. Lehigh Acres and Cape Coral were created by infomercial kingpins of the 1950s, these product pitchmen who had spent time during the winter in Florida and saw an opportunity to sell real estate the way they had sold rat killer and cosmetics on their TV shows. They decided to start selling land on the installment plan. So what you had in these areas in Florida, and still have, are just tens of thousands of these little housing lots in the middle of swamp that were created to sell on TV.

There were these organized investor schemes, these seminars that would go on road shows all over the country, encouraging middle-class Americans to make it in real estate -- to be like Donald Trump. Buyers would have to put almost no money down, because they were getting set up with these construction loans. The idea was that they would get tenants in the homes and the tenants would eventually qualify for a subprime loan and owners could sell to them -- but of course this isn't how it worked out. These homes never ended up getting sold for the most part.

What I found was entire towns -- I visited a town in Pennsylvania just outside Philly -- where you'd have nine or 10 families from this one town and another six from down the road, and more from the next town over, all of them had gone to a seminar at a hotel in King of Prussia and seen how they could make this 14 percent return on Florida real estate. And these families just lost everything. They were really hoping only to send their children to college and to just get that leg up and this was how they hoped to get it. And so we talk about real estate investors and speculators and there's often this stereotype of someone in that show "Flip This House" who sits in his SUV and is on his cellphone all day. But a lot of these investors were in fact ordinary middle-class Americans who had never invested in real estate before.

Is there anybody in this whole saga who stands out as both well intentioned and well informed, who was prescient about what was going to happen and said, "Stop"?

For better and for worse --I think almost entirely for the better -- we have Barney Frank. He is a favorite whipping boy on the right; for the believers it's all the Community Reinvestment Act's fault, it's all Freddie Mac and Fannie May's fault, and he is their prime evidence of that. He had an ex-boyfriend who worked for Fannie May and that's part of the conspiracy theory behind this. That's all baloney as far as what drives his policy decisions, what he's trying to do. Frank, I think, is somebody who cares deeply about housing and about having a sane and functional mortgage market and he's trying to do the best he can within what's really possible in Congress right now.

I think part of the problem is that the Obama administration has been trying to play a very evenhanded role in setting the agenda going forward. So, for instance, Frank has been trying to push legislation that would outright bar a lot of predatory lending practices, but it was just a non-starter, certainly in the Senate. It passed the House thanks to the efforts of Frank and others, but in the Senate, Chris Dodd particularly, and others there are just really refusing to confront these issues head-on. So we're sort of left now with the Obama administration's new plan to overhaul the financial industry and its proposal for a new consumer financial products safety commission to carry that load going forward.

Has what the Obama administration has done to date about housing and lending helped or hurt?

Neither, which I guess is to its credit. I mean, it is trying to -- not that successfully -- keep the banking industry afloat while also keeping homeowners afloat. And the problem is you’ve got a zero-sum game.

So have we hit bottom yet?

Ask Jim Cramer [laughs], he says we've hit bottom. I'm not Jim Cramer.

Should I invest in real estate now?

Actually, that's a really great question. There's a lot of really great buys around the country right now because a lot of players who, in the past, did have money to throw around in real estate, are staying on the sidelines. So what you have in fact are sort of private equity funds coming in, I guess you could call them vulture funds, they're just coming in and buying up whatever they can. And prices for foreclosures -- you can pick up places, especially in cities, for very very little money right now. And what you see is actually some kind of half-crazy or half-enterprising young people investors, entrepreneurs, some with good intentions and some that just want to make a buck, coming and buying up stuff cheap and fixing it up. There's both good and bad coming out of that right now.

Sounds like the beginning of the next bubble, right?

[laughs] Well, the bubble's only going to inflate if we choose to put air into it again. And if you look at what the Obama administration is putting out there, as far as what they want to see happening going forward, it puts a lot of very almost excessively thoughtful constraints on how that market will work. They've called for all these Ph.D.s to roam around and study exactly who will run into trouble if they have a pre-payment penalty or an adjustable rate and then regulate the product accordingly. It's very, very, very wonky. That's no guarantee that it'll work. So I remain kind of admiring of the effort to craft this plan, but very skeptical that it will actually work as advertised.