This site may contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in an effort to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. we believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law.

In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml

If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

FAIR USE NOTICE FAIR USE NOTICE: This page may contain copyrighted material the use of which has not been specifically authorized by the copyright owner. This website distributes this material without profit to those who have expressed a prior interest in receiving the included information for scientific, research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107.

Read more at: http://www.etupdates.com/fair-use-notice/#.UpzWQRL3l5M | ET. Updates
FAIR USE NOTICE FAIR USE NOTICE: This page may contain copyrighted material the use of which has not been specifically authorized by the copyright owner. This website distributes this material without profit to those who have expressed a prior interest in receiving the included information for scientific, research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107.

Read more at: http://www.etupdates.com/fair-use-notice/#.UpzWQRL3l5M | ET. Updates

All Blogs licensed under Creative Commons Attribution 3.0

Saturday, December 29, 2012

The Ten Most Outrageous Economic Calamities of 2012

AlterNet / By Les Leopold

The Ten Most Outrageous Economic Calamities of 2012

From blatant robbery to money laundering, here are the biggest scandals of 2012 banking history.

Photo Credit: © Everett Collection/ Shutterstock.com
It was another year of Wall Street treachery. Those who took down our economy still have not been held accountable. Instead, Wall Street successfully lured the political establishment into a phony fiscal cliff/austerity debate. So instead of creating programs to put millions of Americans back to work, Washington is debating how much more to take away from the poor and the middleclass. Let's take a closer look at the most disastrous economic events from 2012. 
Here's our countdown:

#10:  The Romney Tax Returns:

Thank you Mitt Romney for alerting the public to what we already suspected: the super-rich pay lower rates than the rest of us (and yet, still have the nerve to complain that the government has too much debt!).  Mitt's tax returns showed how he could reduce his tax bite on $21 million of income in 2010 to only 13.9 percent by getting most of his income in the form of capital gains, and by stashing money overseas. His 2011 returns would have been even lower, but he realized he better up it a bit by volunteering to pay taxes on his sons' $100 million trust funds. The net result was still a paltry 14.1 percent rate.  It was also blatantly clear that had he not been running for president, he could stashed even more money in the Cayman Islands to bring his rates down to nearly zero.  As the chart below shows, he's not alone.

#9. Middle-Class Wealth declines by 35 percent

On July 18, 2012, the U.S. Bureau of the Census made it official: The middle-class is getting poorer. The median family -- that family exactly at the mid-point of the wealth ladder  --- saw its net worth collapse. (Net worth is all assets minus all liabilities.) In 2005, the median family's wealth was valued at $102,844 (in inflation adjusted dollars.)  By 2010, the latest Census figures showed a drop of 35 percent to $66,740.

#8.  The Fortune 400 increase their wealth by $200 Billion:

Meanwhile, the super-rich are flying even higher. This fall, Forbes Magazine was proud to report that the richest 400 Americans increased their wealth by a whopping $200,000,000,000 (that's $200 billion), pumping up their collective wealth from $1,500,000,000,000 to $1,700,000,000,000 ($1.5 trillion to $1.7 trillion.) 
How do we make sense of such obscene numbers?
  • On average, the richest 400 Americans saw their wealth go up by an astounding $500 million eachin only one year -- a bad year, no less, for the economy.  
  • Just this one year's increase in wealth for the richest 400 is enough to hire approximately 5 million entry level teachers!
  • All totaled, the 400 richest Americans have the same amount of wealth as approximately 25.5 million middle class families in the center of the wealth distribution.
  • This is the new math of plutocracy: 400 super-rich = 25.5 million middle class.     

#7. Bankers Rob Bank, but None Arrested:

The London Inter-bank Offered Rate (Libor) is the rate that the largest banks doing business in London (which includes all the big American banks) charge each other for overnight loans. It sets the basic interest rate on many adjustable loans associated with credit cards, adjustable mortgages and other commercial loans. It's the most important interest rate in the world.

This year we learned the rate was being manipulated for fun and profit by the big banks who set it each day. By manipulating the Libor rates, the bankers could cash in on bets they were making on financial instruments that were sensitive to those rates. If they needed the rates to nudge up to win their bets, up it went. If the bet was on securities going down with Libor rates, down they would go. That's exactly like a bookie fixing the biggest horse races in the world after it starts so that he can win his bets.

Who will be punished for this blatant financial crime? Bank after bank are in the process of admitting their sins, and then, paying a large fine. But it's unlikely that any criminal bank will be forced to shut its doors, or that any American bankers will serve time or even get fined personally. The fines will be paid from profits, not from the personal accounts of the bankers. And the fines will be moderate because "prosecutors are trying to strike a balance between putting a company out of business and letting it off," reports the New York Times.  How considerate!

#6. Banks engage is massive Money Laundering for Drug Cartels and Rogue Nations: No one is punished.  

Imagine what would happen to you if you got caught using your bank account to launder a million dollars for the world's leading drug cartels. Imagine further that you found ways to illegally move money for rogue nations, which is prohibited by federal sanctions. If you're very lucky, you might spend the rest of your life playing tennis with Bernie Madoff in a minimum security prison.

But wait. If you're really interested in this line of work, it's best to work for a too-big-to fail bank like HSBC. Because if you do, you can launder "at least $881 million in drug proceeds through the U.S. financial system," the Justice Department announced in December.  And you won't lose your job or go to prison.  You can even do "willful flouting of U.S. sanctions laws and regulations [that] resulted in the processing of hundreds of millions of dollars in....prohibited transactions" with rogue nations and even terrorist organizations.  
(How blatant was this flouting?  Because the drug cartels showed up so often at banks with hundreds of thousands of dollars in cash, the drug runners constructed special boxes to hold the cash so that it could easily slide under the bank tellers' bars.)

Not to worry, if you're caught, your employer will pay a fine, and you might have to wait five years to get some of your bonus money. But you've got your job, your income and your freedom.  By the way, this month, HSBC was fined $1.9 billion, which amounts to approximately 5.5 weeks of its 2011 reported profits.

The Justice Department's excuse for favoring these white-collar criminals? Putting the criminal bank out of business could destabilize the global banking system, kill jobs and cause another crash. What's the excuse for letting the top officers off the hook? They didn't have explicit knowledge of the crimes. (Yet they were laughing all the way to the bank, come bonus time.)

#5. In 2012, too-big-to-fail means too-big-to-be-punished.

Wall Street banks took down the economy by creating hundreds of billions of dollars of mortgage-backed securities that were toxic and often designed to fail. They knew that it was just a matter of time before mortgage foreclosures would destroy the value of those securities. Yet, all the largest U.S. banks packaged and sold toxic mortgages to investors all over the world, who were told these were sound investments. Sometimes the very same banks joined with hedge funds to profit by betting that the toxic securities would collapse.  Meanwhile, they pumped up the housing market until it burst all over us.

Because of this fraudulent activity the entire economy crashed, killing 8 million jobs in a matter of months due to no fault of those displaced workers. It was the biggest, most corrupt and most profitable casino in human history.  And now 2012 has passed without a single person responsible for the mess losing his or her job, or forfeiting their outrageous pay packages. As the New York Times recently reported:
"Regulators, prosecutors, investors and insurers have filed dozens of new claims against Bank of America, JP Morgan Chase, Wells Fargo, Citigroup and others,             related to more than $1 trillion worth of securities backed by residential mortgages."

The lawsuits and fines could cost the banks upwards to $300 billion.  Fat chance. The big banks know that the authorities will shy away from severe penalties for fear of upsetting the economy.

#4. For the first time Wisconsin spends more on corrections than higher education:

Thanks to the Wall Street crash, state and local revenues plummeted for yet another year as tax revenues declined due to high unemployment and business failures. As a result the Milwaukee Journal Sentinal reported on August 16th, that " Wisconsin state spending quietly hit a milestone: For the first time, the state budgeted more taxpayer dollars for prisons and correctional facilities than for the University of Wisconsin System.  For 2011-'13, Gov. Scott Walker and GOP lawmakers allotted just under $2.1 billion to the state's public universities and $2.25 billion to the Department of Corrections. It's a gap that is unlikely to close any time soon."  
How sick is that? We're filling our prisons up with those caught in the pathetic War on Drugs, even as money-laundering banker-criminals are allowed to roam free. At the same time we starve our higher educational institutions while our complex economy and democracy requires a more educated public. As the chart below clearly implies, our spending priorities are insane.

#3. As of November, 2012,  4,707,000 Americans have been unemployed for more than 26 weeks, and 21 % of all U.S. children live in poverty

The greatest calamity of the Wall Street crash is that four years later there still are over 20 million Americans without the full-time jobs they need. And 4.7 million of them have been out of work for over a half year, the most since the Great Depression. Little wonder that 21 percent of all children live in families who earn wages that total less than $23,350, the official poverty line.

How can this be happening in the richest country on Earth?  The answer is simple. The super-rich are running away with our wealth. We have the worst income and wealth distributions in the world. No wonder our political leaders bail out Wall Street instead of putting our people back to work.
That sad truth is that the unemployment/poverty crisis could be solved rapidly.  All we need to do to hire workers to rebuild our infrastructure and weatherize our homes and businesses. At the same time we should eliminate tuition at all public colleges and universities. The resulting building and educational boom would bring us back to full-employment in a hurry.

How do finance it? Make Wall Street pay for the damage it has done. Wall Street and Wall Street alone caused the financial crash and the ensuing unemployment crisis. A small financial transaction on their enormous casinos would finance the jobs and education programs we truly need.

#2. The Phony Fiscal Cliff Occupies America

2002 should be remembered as the year that the super-rich and their Washington lackeys manufactured a debt crisis in order to dismantle Medicare, Medicaid and Social Security. But there is no debt crisis. Government debt is high because the Wall Street crash drove up unemployment and reduced tax revenues. That coupled with the Bush tax cuts for the super-rich (and two unfunded wars) ran up public debt. But, if our people were at work, our debt would be shrinking rapidly as a percent of GDP. And even now, interest rates are at all time lows as investors all over the world want to put their money into dollars. Let us repeat: there is no debt crisis, no rising interest rates, no difficulty repaying our debt.  Nada.

But billionaires like former private equity mogul, Peter Peterson, have spent hundreds of millions of dollars to convince us that we must tighten our belts (but not theirs.)  So the austerity hysterics manufactured a fiscal cliff, one of the dumbest artificial constructions since the Tower of Babel.
To understand why these billionaires don't want to see the Bush tax rates expire, let's recall who really got all those tax cuts:

#1:  Occupy Wall Street Disappears
The most important economic event of 2002 was the collapse of Occupy Wall Street as a mass phenomena. Because the crescendo against Wall Street's power has abated, financial elites can rest easy that their wealth and power will continue to rise.

Let's recall the ebb and flow of the economic debate before, during and after Occupy Wall Street.
In the summer of 2011, the entire national economic discourse centered on the need to cut debt and therefore "entitlements."  Pundits and politicians of all stripes couldn't wait to make the poor suffer more by gutting the programs that serve them. After the Tea Party rise in the 2010 elections, the Obama administration offered a "Grand Bargain" to the Republicans that included cuts into Social Security, Medicare and Medicaid. Fortunately for the poor and the middle class, the Republicans stubbornly rejected it for fear it might help Obama's re-election.

In the fall of 2011 Occupy Wall Street blossomed, and the press went wild over it. The 1 percent/99 percent framework became the new meme. The national discourse rapidly shifted away from phony austerity and back to where the debate belonged -- how to get Wall Street to pay for the damage it had done.

It was a golden moment. It looked like a mass movement might emerge to take on the economic giants. Was this the beginning a modern populist movement that would threaten economic elites the way the Populist movement did in the late 19th century?

It didn't happen -- not yet.

What did occur is this:  After the occupiers were removed from their encampments, the national discourse swung back to phony austerity, and Wall Street faded from view.   Listen carefully to the current debate: Wall Street is not even mentioned during the fiscal cliff fiasco.

What's the biggest lesson of 2012? Building a mass movement that targets Wall Street and the economic royalists is possible.  But doing so requires more than creative spontaneous combustion. We need to learn how to structure and sustain a structured national movement that makes Wall Street pay for the damage it has done.

Have a happy, healthy.... and demonstrative 2013!!

Friday, December 28, 2012

‘Twas the night before the fiscal cliff



‘Twas the night before the fiscal cliff


The fiscal cliff in verse -- with apologies to Clement Clarke Moore (but not the politicians skewered)

'Twas the night before the fiscal cliff  
(Credit: tomwachs via iStock)

‘Twas the night before the fiscal cliff, and all through the Senate and House
Not a Republican was budging, not even an ounce.
Back from vacation the President came
In hopes that Republicans might now act sane.

The cowardly Democrats put it all on the table
Like cuts to the elderly, poor and disabled.
So Republicans, thinking their ploy was a score,
Figured why not hold out until Democrats cut more!

Even with taxes the lowest in years
Republican donors clung tight to their Lears.
If taxes were raised there would be hell to pay
And less money to beg for come re-election day.

Plus unlike Democrats, Republicans were clear
They wanted to drown government, and this was their year.
Never mind the election or the poll trackings
Democrats missed the message and their weak spines were cracking.

With one little press conference, lively and quick,
Obama pulled out the rug from under seniors like St. Nick.
And conservative Democrats are disgustingly jolly
Pretending that poor folks can live off of holly.

The idea we need cuts at all is plain nonsense
What Dems need in their stocking is strategy and conscience
And the courage to stand up to GOP threats
And stop giving them the scissors to cut our safety net to shreds.
Voters want to raise taxes for the rich — a no-brainer.

Hell, that fact is even now clear to John Boehner!
(But his party’s insane and it’s getting insaner.)
We need to raise taxes on the top 1%
To help unemployed folks pay for healthcare and rent.

I wish I could tell you Santa’s on his way
With 535 members of Congress pulling his sleigh
Then Santa glides into Washington past snowflakes and ices
To declare once and for all we have a revenue crisis!

But alas, boys and girls, that story’s not real
And Washington can’t tell its ass from its heel.
Republicans stand firm to make government drownably small.
And Democrats don’t stand for anything at all.

Oh Mitch McConnell, Paul Ryan and Grover Norquist,
If public opinion came with money, would you then not ignore us?
And oh, Chuck Schumer and oh, Harry Reid,
If we gave you a spine, would you actually lead?

Remember, kids, the fiscal cliff was created
By Republicans who are now clearly elated.
For Republicans are cheering, “We can do what we please!
Either way, government will be brought to its knees.”

Friday, December 21, 2012

Is Our Republic Ending? 8 Striking Parallels Between the Fall of Rome and U.S.



As Benjamin Franklin observed, we have a Republic -- but only if we can keep it.

Lawrence Lessig'sRepublic Lost documents the corrosive effect of money on our political process. Lessig persuasively makes the case that we are witnessing the loss of our republican form of government, as politicians increasingly represent those who fund their campaigns, rather than our citizens.

Anthony Everitt'sRise of Rome is fascinating history and a great read. It tells the story of ancient Rome, from its founding (circa 750 BCE) to the fall of the Roman Republic (circa 45 BCE).

When read together, striking parallels emerge -- between our failings and the failings that destroyed the Roman Republic. As with Rome just before the Republic's fall, America has seen:

1 -- Staggering Increase in the Cost of Elections, with Dubious Campaign Funding Sources:Our 2012 election reportedly cost $3 billion. All of it was raised from private sources - often creating the appearance, or the reality, that our leaders are beholden to special interest groups. During the late Roman Republic, elections became staggeringly expensive, with equally deplorable results.Caesar reportedly borrowed so heavily for one political campaign, he feared he would be ruined, if not elected.

2 -- Politics as the Road to Personal Wealth: During the late Roman Republic period, one of the main roads to wealth was holding public office, and exploiting such positions to accumulate personal wealth. As Lessig notes: Congressman, Senators and their staffs leverage their government service to move to private sector positions - that pay three to ten times their government compensation. Given this financial arrangement, "Their focus is therefore not so much on the people who sent them to Washington. Their focus is instead on those who will make them rich." (Republic Lost)

3 -- Continuous War: A national state of security arises, distracting attention from domestic challenges with foreign wars. Similar to the late Roman Republic, the US - for the past 100 years -- has either been fighting a war, recovering from a war, or preparing for a new war: WW I (1917-18), WW II (1941-1945), Cold War (1947-1991), Korean War (1950-1953), Vietnam (1953-1975), Gulf War (1990-1991), Afghanistan (2001-ongoing), and Iraq (2003-2011). And, this list is far from complete.

4 -- Foreign Powers Lavish Money/Attention on the Republic's Leaders: Foreign wars lead to growing influence, by foreign powers and interests, on the Republic's political leaders -- true for Rome and true for us. In the past century, foreign embassies, agents and lobbyists have proliferated in our nation's capital. As one specific example: A foreign businessman donated $100 million toBill Clinton's various activities. Clinton "opened doors" for him, and sometimes acted in ways contrary to stated American interests and foreign policy.

5 -- Profits Made Overseas Shape the Republic's Internal Policies:As the fortunes of Rome's aristocracy increasingly derived from foreign lands, Roman policy was shaped to facilitate these fortunes. American billionaires and corporations increasingly influence our elections. In many cases, they are only nominally American - with interests not aligned with those of the American public. For example, Fox News is part of international media group News Corp., with over $30 billion in revenues worldwide. Is Fox News' jingoism a product of News Corp.'s non-U.S. interests?

6 -- Collapse of the Middle Class: In the period just before the Roman Republic's fall, the Roman middle class was crushed -- destroyed by cheap overseas slave labor. In our own day, we've witnessed risingincome inequality, a stagnating middle class, and the loss of American jobs to overseas workers who are paid less and have fewer rights. 

7 -- Gerrymandering:Rome's late Republic used various methods to reduce the power of common citizens. The GOP has so effectivelygerrymandered Congressional districts that, even though House Republican candidates received only about 48 percent of the popular vote in the 2012 election -- they ended up with the majority (53 percent) of the seats.

8 -- Loss of the Spirit of Compromise: The Roman Republic, like ours, relied on a system of checks and balances. Compromise is needed for this type of system to function. In the end, the Roman Republic lost that spirit of compromise, with politics increasingly polarized betweenOptimates (the rich, entrenched elites) and Populares (the common people). Sound familiar? Compromise is in noticeably short supply in our own time also.For example, "There were more filibusters between 2009 and 2010 than there were in the 1950s, 1960s and 1970s combined."

AsBenjamin Franklin observed, we have a Republic -- but only if we can keep it.

About the Author: Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation (NYCEDC). Steven was one of the NYC leads for Applied Sciences NYC, NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. He is an Advanced Leadership Fellow at Harvard University for 2012. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years' private sector work experience. Geographically, Steven has worked in the US, Asia, Europe and the Middle East.

Saturday, December 8, 2012

The 6 Economic Facts of Life in America That Allow the Rich to Run off with Our Wealth


Do you ever wonder why it takes the average family 47 years to make as much as a hedge fund honcho makes in one hour?

Photo Credit: Shutterstock.com
Do you ever wonder why it takes the average family 47 years to make as much as a hedge fund honcho makes in one HOUR?

Does it bother you that in 2010, after the crash, the top 25 hedge fund chiefs made as much as 685,000 teachers who educate 13 million children?
Are you worried that cutting government debt means raising your social security eligibility age and cost of living adjustment, so that you have to work longer and receive lower retirement benefits?
Have no fear. The super-rich are spending hundreds of millions of dollars to sell you their economic fabrications. Why so much inequality? They say because the rich have the most important skills and you don't. Why so much unemployment? They say it's because our skimpy unemployment insurance keeps people from looking for work. Why so much government debt? They say it's because you have too many "entitlements." Why the Wall Street crash? They blame poor people for buying homes they couldn't afford.
In short, the super-rich want us to believe that any effort to tax them a bit more or control Wall Street will only kill more jobs and harm our economic well-being. And most of all they don't want us to know the six economics facts of life that explain how the super-rich are running away with our nation's wealth.
1. The super-rich are stealing our fair share of productivity. The U.S. economy is enormously productive. Since 1947, the amount of goods and services we produce per hour of labor has risen by nearly 300 percent. That's because as a nation, we blend together a potent mix of effort, skills, technology and organizational capacities. Our enormous productivity is why we are the richest nation on earth.
Yet, why don't we feel that rich? Why are we told we must tighten our belts?
Until the mid-1970s, the more productivity increased, the higher the real wages of the average working person (after taking out the impact of inflation). As a result, our standard of living doubled in 25 years. But, as you can see from the chart below, after the mid-1970s, productivity (the red line) continued to boom, but the average wage stalled.
It wasn't an accident, or market forces, or an act of God. It was a result of human polices designed by and for the rich. Tax cuts for the rich, financial deregulation, support for moving jobs overseas and union-busting combined to give the super-rich more and more of our economy's productivity gains. In 1970, the top 100 average corporate executive earned $45 for every $1 earned by the average worker. By 2006 it had jumped to a whopping $1,723 to $1. That's the very definition of greed run wild.
Think about this: If the average wage had continued to rise along with productivity as it did after WWII, your real wage today (after inflation) would be twice as high!
We've been had.
2. Americans really want a wealth distribution more like Sweden's. Here's a nightmare fact of life the super-rich don't want you to know. Two researchers recently tried to find out just how much economic inequality Americans were comfortable with. Michael Norton of Harvard Business School and Dan Ariely of Duke University conducted a nationwide poll with more than 5,000 respondents to see how Americans saw our current level of equality, and what level they wanted to see. (“Building a Better America – One Wealth Quintile at a Time”)
The results were startling. First, virtually all Americans greatly underestimated the degree of inequality in our economy today. They had no idea how extreme the U.S. wealth distribution really is -- which goes to show you what a good job the super-rich have done in mis-educating us.
Second, when asked to construct an ideal distribution of income, 92 percent of Americans preferred radically more equality – on a par with the social democratic state of Sweden! What’s more, it didn’t matter whether the respondent was a Republican or Democrat, rich or poor, black or white, male or female. Everyone wanted more economic fairness.
Imagine that! Americans, even Republicans who voted for Romney and Ryan, would rather live with the Scandinavian distribution of wealth. Little wonder that the super-rich and their minions do all they can to belittle so-called "Euro-socialism." They don't want us to know that maybe we are hard-wired for fairness instead of the staggering inequality that helps no one but the super-elites.
3. Everything we hear about government debt is wrong. Right now, the biggest target of public mis-education is the government debt debate. And the biggest spender on the mis-education of the American public is billionaire Pete Peterson (who personally has added to the government's debt by dodging hundreds of million in taxes through the 15 percent "carried interest" loophole that blessed his private equity fund). Having no sense of shame, he and other super-elites want to convince us that government spending and debt will ruin us all. Unfortunately, very little of what they claim is true:
  • China owns our all our debt? Wrong! There's a chilling ad put out by a Peterson front group that features a Chinese lecturer in the year 2030 addressing (with English subtitles) a packed audience of Chinese students about the rise and decline of the U.S. The confident, smirking teacher describes how the U.S. abandoned its principles as it "tried to spend and tax its way out of a great recession" and then crumbled beneath its "crushing debt." He then provides the kicker: "Of course we owned most of their debt...ha ha ha, and now they work us," he says to the raucous laughter of the students. The ad is a complete Peterson lie. China owns only 8 percent of our debt. Most of our debt is actually owned by our own quasi governmental agencies like the Federal Reserve and Social Security.
  • Social Security, Medicare and Medicaid are bankrupting the country? Wrong! The current deficits are the result of two unfunded wars, the Bust tax cuts for the super-rich and the Wall Street crash of the economy that killed 8 million jobs, and led directly to the ensuing bailouts, lost tax revenues and increases in unemployment insurance payments.
  • We will become like Greece if we don't balance our budget? Wrong! Greece can't print money to pay back its debt because it no longer has its own currency (and neither does Mississippi). The United States does. Also, our economy is more than 50 times larger that Greece's. The chances of the US ending up in a Greek debt crisis are about the same as finding a Martian in your bathtub.
  • We have to solve the "debt crisis" right now or the economy will crash? Wrong! We have an unemployment crisis, not a debt crisis. Interest rates are at all-time lows because the world wants to park its money here in dollars. In fact, this is the time to borrow more to put our people back to work by rebuilding our crumbling, fossil fuel-dependent infrastructure and educating our children. If our people go back to work, the economy grows, unemployment costs go down, tax revenues rise, and the debt ratio shrinks without paying back one penny of it.
Why so many lies? Because financial elites like Peterson don't want to pay their fair share of taxes. They don't believe in funding a safety net for all Americans. They don't want to the government to help put Americans back to work. Instead, they want an economy by and for the elites.
4. We are under-taxed, not over-taxed. The super-rich want us to believe that taxes are too high and that those taxes are harming job creation and economic growth. It's a fabrication. First of all, taxes for most Americans have declined, according to a recent New York Times analysis:
..... most Americans in 2010 paid far less in total taxes — federal, state and local — than they would have paid 30 years ago. According to an analysis by The New York Times, the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980.
Second, we have much lower tax rates that our chief European competitors. For example, Germany, an economic powerhouse, has an average tax rate of 40.6 percent while the U.S. rate is only 26.9 percent. Germany uses that money to rebuild its infrastructure, invest in education and find creative ways to nearly eliminate unemployment.
Third, the super-rich use a sleight of hand to make middle-class taxpayers believe that lower-income people are moochers. Like Mitt Romney, they are found of saying that 47 percent of Americans don't pay income taxes and that the rich pay most of those taxes. But income taxes are but a small portion of the tax bite on lower-income people who pay through payroll tax deductions, sales taxes and property taxes.
Finally, because our taxes are declining, it means that our public services are decaying as well. This creates a downward spiral the super-rich want to encourage: the more services decline, the less we want to pay in taxes, the more services decline. If you're really wealthy you don't care about public services since your life is entombed in private services -- private schools, private airports, private planes, private gated villas and so on.
5. Government jobs are just as good as private sector jobs. Another major con job concerns the attack on public employees. The greedy rich are trying to pit public and private sector workers against each other in large part because public employees still seem to have benefits the rest of us have lost (and they have unions and vote mostly Democratic). Corporate greed demands that we snuff out those benefits so workers won't demand them in the private sector. To further denigrate government, elites want us to believe that a private sector job is somehow more righteous that a public one -- that public employment is sort of like being on the dole because government workers are immune to the rough and tumble of competitive pressures that drives the private sector.
It's another hoax.
The truth is that some jobs are better done by government on behalf of the public. We learned almost 200 years ago that it didn't make sense to have competing fire and police departments. We also learned that if we wanted the average person to go to school, we needed public school systems, and not just private ones. Most countries (but not ours) have learned that much of the healthcare system runs better when it's publicly financed and controlled -- that for-profit hospitals and clinics do not provide the best care. In short, every modern economy is a combination of private and public sector jobs that are valuable to our society.
6. Wall Street needs to be shrunk (until we can drown it in a bathtub). The function of finance is simple: moving our savings into productive investments. By doing so, money supposedly moves to where it will do the most good for our economy. This function is considered so simple that most economics textbooks ignore Wall Street entirely.
However, when Wall Street is left to its own devices, it tends to create vast casinos that dramatically increase financial profits at the expense of the real economy. Worse still, as the speculative casinos grow and grow, the economy as a whole is endangered. Wall Street's grew rapidly just before the great crash of 1929 and just before the Great Recession of 2008-'09. It was stock manipulation during the 1920s and it was the housing casino over the last two decades. But in both cases it happened because Wall Street was deregulated and got too damn big. As the chart below shows, Wall Street is gobbling up more and more of our country's profits.
We learned after 1929 that economic stability required severe financial regulation. We sat on Wall Street for nearly 50 years and it worked beautifully, especially between WWII and the 1970s. There were virtually no financial crashes anywhere in the world. But once we deregulated finance again, all hell broke loose as the world suffered through more than 150 smaller financial crashes. Finance grew and grew until it took down the entire U.S. economy. 
Along the way, Wall Street offered the easiest path to great riches for the few.
The simplest solution is the one hated by the super-rich: a small sales tax on each and every financial transaction involving stocks, bonds and every kind of derivative. By taxing the casino, we shrink its size and make it less dangerous to the rest of the economy. We also create new revenues for our economy, nearly all of it coming from the top fraction of the top 1 percent. No wonder they don't want us to know that.
Is Knowledge Power?
It's not enough for the greedy rich to buy politicians. They also need to buy our minds. That's why they pay for all this misleading economic education. But if we master the basic economic facts of life, we won't get conned. And we will have a much better chance at building a more just and healthy economy.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It (Chelsea Green, 2009).

Wednesday, December 5, 2012

Wall Street, Coming to Your Town! (and Destroying It)


Disastrous austerity isn't just a European thing.

Photo Credit: Songquan Deng / Shutterstock.com
This article originally appeared in Dissent Magazine.
The European debt crisis, and the ensuing austerity-fueled chaos, can seem to Americans like a distant battle that portends a dark future. Yet a closer look reveals that the future is already here. American austerity has largely taken the form of municipal budget crises precipitated by predatory Wall Street lending practices. The debt financing of U.S. cities and towns, a neoliberal economic model that long precedes the current recession, has inflicted deep and growing suffering on communities across the country.

In July 2012, Mayor Christopher Doherty of Scranton, Pennsylvania, reduced all city employees’ salaries to the minimum wage. With a stroke of his pen, wages for teachers, firefighters, police, and other municipal workers, many of whom had been on the job for decades, dropped to $7.25 per hour. The city, the mayor explained, simply could not pay them more. Ron Allen, who reported the story for NBC Nightly News, repeated this assessment. Cities like Scranton, he said, “just don’t have the money” to pay city employees more than the minimum wage. Officials blamed the crisis on a declining tax base, on reduced revenue from the state, and on public sector labor contracts that the city could no longer afford.
What does it mean to say that a former steel town in decline “just doesn’t have the money” to pay its bills? It means that it no longer has access to credit markets controlled by the big banks. For years, Scranton officials, like officials across the United States, have been selling municipal bonds to finance everything from basic services to development projects. Scranton’s problems careened out of control when they city’s parking authority threatened to default on its bonds. Wall Street responded aggressively by cutting off its credit line, and city workers paid a steep price. American-style austerity arrived in Scranton under the guise of budget cuts blamed on public employees, whose salaries and pensions had nothing to do with the economic crisis.

Scranton’s problems are hardly unique. Municipalities across the country are grappling with declining local tax revenue and reduced federal funding in an era when growth and development are equated with prosperity. This toxic mix has produced a $3.7 trillion municipal debt market, a revenue juggernaut for Wall Street. Municipal bonds are issued by virtually every city, county, and development agency in the United States. The number of taxpayer-backed bonds in circulation is five times higher than only ten years ago. This means that the world’s largest financial firms now hold the purse strings for everything from essential services like sewage treatment plants to large-scale developments such as sports arenas. Municipal bonds are extremely profitable for investors because they are tax-exempt and, like mortgages, can be packaged into securities.

How Did We Get Here?

Part of the municipal debt story can be traced to New York City’s 1975 fiscal crisis, when the city almost defaulted on its debt. New York was able to avoid bankruptcy at the last moment by issuing guaranteed bonds backed by public pension funds. As a result, the Emergency Financial Control Board, the municipal body that controlled the city’s bank accounts, was in the position of rewriting the social contract, exerting control over labor at every level. Union leadership agreed to the deal because they feared a bankruptcy filing would void labor contracts. Only after the city had disciplined the unions did the federal government move in with rescue loans.

New York City had been debt-financed since the 1960s. But the fiscal crisis of 1975 inaugurated a new funding paradigm for distressed municipalities: taxpayer-backed debt is issued to service the debt already on the books. American municipalities are now increasingly financed not with public money, but with private loans, and the pace of this shift has accelerated since 2008. The Center on Budget Policy and Priorities recently reported that thirty-one states will face unsustainable budget gaps in 2013.

Few public assets are safe from Wall Street’s profit imperative. Public transportation has long been a cash cow for investors. Since 2008, the New York Metropolitan Transportation Authority (MTA) has lost over $600 million as a result of interest rate swaps with JP Morgan Chase, Citigroup, and other big banks. As a result, thousands of transit workers have lost their jobs and hundreds of bus and subway lines have been cut. That is not enough to satisfy the bond market. In March 2013 New York transit riders can expect a new round of fare hikes. Most subway and bus riders are working-class New Yorkers, immigrants, and people of color. They will soon pay even more for the privilege of lining Jamie Dimon’s pockets.

The MTA is not the only municipal organization in the country that runs on debt. The Refund Transit Coalition, a public transportation advocacy group, has uncovered at least 1,100 of these swaps at more than 100 government agencies costing taxpayers $2.5 billion a year. None is more indebted than Boston’s Massachusetts Bay Transportation Authority (MBTA). The story is a familiar one: in 2000 state legislators ended most public subsidies for the MBTA, which was additionally saddled with almost $2 billion in debt, much of it left over from the infamous Big Dig. Wall Street was happy to provide loans so the MBTA could maintain the system’s aging infrastructure and finance expansions.

Twelve years later, Boston’s transit authority spends 33 cents of every dollar it takes in to service its debt. Lawmakers, who have learned the lessons of Scranton all too well, are unwilling to challenge Wall Street. Instead, they have proposed cutting services and raising fares by as much as 43 percent. No one believes this represents a long-term solution. As one Occupy Boston activist noted, “the MBTA has never even asked the banks and bondholders who continue to profit from the [transit system’s] enormous debt to take a similar cut, effectively giving the banks a ‘free ride,’ while forcing T riders—working people, the unemployed, students, seniors, and the disabled—to bear more of the burden.”

Increasing debt loads, along with other neoliberal policies demanding that municipalities do more with less, put cities under enormous pressure to promote private economic growth in lieu of spending public funds on public goods. This imperative is one reason that city officials have pursued controversial development strategies such as declaring a parcel of land “blighted” to allow it to be seized by eminent domain and auctioned to the highest bidder. For example, the Barclays Center, the new arena for the Brooklyn Nets, was built partially on land that was condemned before being transferred to a developer. Cities also generate revenue by leasing public assets to the private sector. In Chicago, for example, the Skyway toll road has been leased to a private company for ninety-nine years. Atlanta even privatized the city water supply, only to cancel the contract years later when residents complained about tainted water.

As the privatization of everything from land to transportation makes clear, taxpayers rarely have a direct say in which bonds are issued and which public assets are sold out from under them. But with municipalities guaranteeing loans by promising that bondholders will be repaid with tax dollars or revenue generated by the debt-funded project, taxpayers are often left footing the bill.
Meanwhile, it remains nearly impossible for municipalities to cancel bond deals. By law, most states cannot declare bankruptcy. And, in many cases, federal bankruptcy codes guarantee that creditors will be repaid. In 1994, Orange County, California declared bankruptcy to repair the damage done when its treasurer took out loans on behalf of the city and then lost $1.6 billion in the securities market. Following what was then the largest bankruptcy filing in U.S. history, the county still paid its bondholders to avoid a tarnished credit rating. Another California city, Stockton, has been implementing severe austerity measures ever since the housing market tanked in 2008 in order to make payments to bondholders. The city cut 25 percent of its police officers, 30 percent of its firefighters, and over 40 percent of all other city employees. The crime rate in Stockton has skyrocketed and unemployment surged, and the city is now considering cutting pension benefits for retirees to pay its debts. The capital of the Golden State, Sacramento, has also cut its police force, by 30 percent, to fill a budget gap, and has seen a similar rise in crime—gun violence, rapes, and robberies have increased dramatically. Communities long ago abandoned by the state are also suffering from austerity. Camden, New Jersey, one of the poorest cities in the United States, recently privatized its police force, laying off officers and canceling union contracts. Today, the Camden police force often does not have the numbers to respond to crimes that don’t involve murder or serious injury.

As cities like Scranton seek to eliminate unsustainable debts, investors grow more demanding. Bond insurers involved in bankruptcy negotiations in Stockton and San Bernardino have even suggested that bondholders have a claim to CalPERS, the retirement fund for California’s public workers. Though the retirement system is constitutionally protected, this is a troubling development because bondholders’ demands are almost always given priority. A recent CBO report noted that “of the 18,400 municipal bond issuers rated by Moody’s Investors Service from 1970 to 2009, only 54 defaulted during that period.” Bonds are bets that banks don’t lose.

Though the debt financing of U.S. cities is not illegal, that doesn’t mean deals are made fairly and transparently. We recently learned that interest rates around the world have been manipulated for years for the benefit of a few firms. Yet the LIBOR scandal is not surprising when one considers that municipal interest rate fraud has been going on for years with no public outcry. In his report on municipal bond rigging in Rolling Stone, Matt Taibbi explainedhow Wall Street has “skimmed untold billions” from hundreds of municipalities—and how they continued to invest in bonds even after they were caught. “Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again,” Taibbi wrote. “Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.” The debt financing of municipal government is an activity promoted and protected by the regulatory arm of the federal government.

What Can Be Done?

Strike Debt, a group (of which I am a member) inspired by Occupy Wall Street, has begun to address municipal bonds as part of a larger critique of debt as a system of wealth extraction. Strike Debt asserts that debt is a primary mechanism through which the 1 percent profits from the 99 percent. Debt affects everyone, especially those who are too poor to access low-interest credit. And Wall Street is the primary culprit. Framing municipal debt as part of a global system poses significant opportunities for organizers because it connects anti-austerity movements abroad to debt resistance efforts at home. Once we reframe debt as a problem that affects us all—as municipal debt obviously does—it becomes easier to imagine that we have enormous power to withdraw our consent.

Strike Debt’s analysis of debt as a system of wealth extraction is also a critique of capitalism. Municipal debt is more than just another example of Wall Street greed and local corruption. It may be the biggest scandal yet because it is not a scandal it all. U.S. cities, towns, and districts are now increasingly debt financed, which means they cannot operate without access to the credit markets controlled by the big banks. This illustrates that Wall Street’s class war against cities cannot be mitigated with more regulation. In fact, the SEC protects investors, not municipalities, from the consequences of bond deals gone bad. Even renegotiating debt often requires new loans. “When muni bond issuers unwind deals and pay enormous exit fees to Wall Street,” the New York Times recently reported, “they typically issue new debt to do so. In recent years, for example, New York State has paid $243 million to terminate such transactions; $191 million was financed by new debt issuance.” Raiding cities for wealth, which produces a cycle of indebtedness, is not illegal or unusual. It is simply the way Wall Street does business.

The idea that some debts cannot and should not be paid is gaining traction. In 2011, for example, Jefferson County, Alabama declared bankruptcy (the largest in U.S. history) to rid itself of $4 billion in debt, much of it issued by corrupt officials to finance a sewer project that left people in a predominantly low-income, African-American community without a functioning sewer. Some do not want to renegotiate the debt. Instead, they reject it outright. As one Occupy activist in Birmingham noted, “[the debt] shouldn’t ever have been issued, and therefore it shouldn’t exist. It shouldn’t have been spent. Since it shouldn’t have existed, we’re not going to pay it.” This statement could become a slogan for debt resistance movements across the country because it insists that debtors are a class, a collective “we” that can decide when enough is enough.

Some municipalities are fighting back, too. After their pay was cut to minimum wage, Scranton’s municipal unions sued the city, and their wages were restored. Baltimore, a city where more than 80 percent of school children qualify for free- or reduced-price lunch, is suing more than a dozen big banks for manipulating LIBOR, the benchmark for interest rates on many financial products. In July, a group called Boston Fare Strike declared a Free Fare Day and held turnstiles open for subway riders to protest fare hikes that enrich the 1 percent. Activists in Chicago are organizing community debt audits with the goal of identifying illegitimate debts that must be abolished. And finally, in a case that has gained national attention, Oakland, CA is trying to sever its relationship with Goldman Sachs for good. In the late 1990s, Oakland issued $187 million in bonds as part of an interest-rate swap. After the credit markets froze in 2008, Oakland could no longer make its payments to Goldman. The city council voted to cancel the deal, though Goldman insists the city must pay. CEO Lloyd Blankfein explained his firm’s unwillingness to let Oakland out of its contract. “The fact of the matter is,” he said, “we’re a bank.”

Blankfein is not wrong. Plundering U.S. cities is what large financial firms do. This is a troubling reality. A bankruptcy attorney featured on the NBC News report about Scranton offered this grim assessment: cutting worker pay is necessary to avoid “more drastic measures.” The reporter didn’t explain this statement, leaving viewers to imagine what terrible fate awaits those who don’t accept the reigning neoliberal orthodoxy that city budgets must be balanced by cutting worker pay, gutting public services, and issuing more debt to profit the 1 percent.

In fact, it is Wall Street that should be afraid of any disruption to business as usual. The cycle of debt illustrates that we cannot fix the problem through austerity. This tactic only deepens the devastation, since low wages further erode the tax base for cities, leaving them vulnerable to predatory lenders. It’s difficult to imagine how the debt financing of American cities could be scaled back without completely rethinking our economic system. Strike Debt is making the case that, in the United States as in Europe, the solution lies not in austerity but in investing in a genuine commons and in providing equitable access to public resources. These are precisely the “drastic measures” alluded to on NBC News. The question we must ask is,drastic for whom?

Ann Larson is an organizer of Strike Debt. She is also a teacher, a writer, and a resident of Brooklyn.