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Saturday, August 31, 2013

How Central Banks Gained Absolute Control of the World Economy


Larry Summers and the Secret "End-Game" Memo

If the confidential memo is authentic, then Summers shouldn't be serving on the Fed, he should be serving hard time. Hint: It's authentic.

March 16, 2003—Treasury Secretary Timothy Geithner (left) talks alone with NEC Director Lawrence "Larry" Summers (right) in the West Wing Hall.

Photo Credit: By White House (Pete Souza) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

When a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn't believe it.

The Memo confirmed every conspiracy freak's fantasy:  that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet.  When you see 26.3% unemployment in Spain, desperation and hunger in Greece, riots in Indonesia and Detroit in bankruptcy, go back to this End Game memo, the genesis of the blood and tears.

The Treasury official playing the bankers' secret End Game was Larry Summers.  Today, Summers is Barack Obama's leading choice for Chairman of the US Federal Reserve, the world's central bank.  If the confidential memo is authentic, then Summers shouldn't be serving on the Fed, he should be serving hard time in some dungeon reserved for the criminally insane of the finance world.

The memo is authentic.

To get that confirmation, I would have to fly to Geneva  and wangle a meeting with the Secretary General of the World Trade Organization, Pascal Lamy.  I did.  Lamy, the Generalissimo of Globalization, told me,
"The WTO was not created as some dark cabal of multinationals secretly cooking plots against the people…. We don't have cigar-smoking, rich, crazy bankers negotiating."
Then I showed him the memo.

It begins with Summers’ flunky, Timothy Geithner, reminding his boss to call the then most powerful CEOs on the planet and get them to order their lobbyist armies to march:
"As we enter the end-game of the WTO financial services negotiations, I believe it would be a good idea for you to touch base with the CEOs…."
To avoid Summers having to call his office to get the phone numbers (which, under US law, would have to appear on public logs), Geithner listed their private lines.  And here they are:
Goldman Sachs:  John Corzine (212)902-8281
Merrill Lynch:  David Kamanski (212)449-6868
Bank of America, David Coulter (415)622-2255
Citibank:  John Reed (212)559-2732
Chase Manhattan:  Walter Shipley (212)270-1380
Lamy was right: They don't smoke cigars.  Go ahead and dial them.  I did, and sure enough, got a cheery personal hello from Reed–cheery until I revealed I wasn't Larry Summers.  (Note:  The other numbers were swiftly disconnected. And Corzine can't be reached while he faces criminal charges.)

It's not the little cabal of confabs held by Summers and the banksters that's so troubling. The horror is in the purpose of the "end game" itself.

Let me explain:

The year was 1997.  US Treasury Secretary Robert Rubin was pushing hard to de-regulate banks.  That required, first, repeal of the Glass-Steagall Act to dismantle the barrier between commercial banks and investment banks.  It was like replacing bank vaults with roulette wheels.

Second, the banks wanted the right to play a new high-risk game:  "derivatives trading."  JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as "assets."

Deputy Treasury Secretary Summers (soon to replace Rubin as Secretary) body-blocked any attempt to control derivatives.

But what was the use of turning US banks into derivatives casinos if money would flee to nations with safer banking laws?

The answer conceived by the Big Bank Five:  eliminate controls on banks in every nation on the planet – in one single move.    It was as brilliant as it was insanely dangerous.

How could they pull off this mad caper?  The bankers' and Summers' game was to use the Financial Services Agreement, an abstruse and benign addendum to the international trade agreements policed by the World Trade Organization.

Until the bankers began their play, the WTO agreements dealt simply with trade in goods–that is, my cars for your bananas.  The new rules ginned-up by Summers and the banks would force all nations to accept trade in "bads" – toxic assets like financial derivatives.

Until the bankers' re-draft of the FSA, each nation controlled and chartered the banks within their own borders.  The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives "products."

And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

The job of turning the FSA into the bankers' battering ram was given to Geithner, who was named Ambassador to the World Trade Organization.

Bankers Go Bananas 

Why in the world would any nation agree to let its banking system be boarded and seized by financial pirates like JP Morgan?

The answer, in the case of Ecuador, was bananas.   Ecuador was truly a banana republic.  The yellow fruit was that nation's life-and-death source of hard currency.  If it refused to sign the new FSA, Ecuador could feed its bananas to the monkeys and go back into bankruptcy.  Ecuador signed.

And so on–with every single nation bullied into signing.

Every nation but one, I should say.  Brazil's new President, Inacio Lula da Silva, refused.  In retaliation, Brazil was threatened with a virtual embargo of its products by the European Union's Trade Commissioner, one Peter Mandelson, according to another confidential memo I got my hands on.  But Lula's refusenik stance paid off for Brazil which, alone among Western nations, survived and thrived during the 2007-9 bank crisis.

China signed–but got its pound of flesh in return.  It opened its banking sector a crack in return for access and control of the US auto parts and other markets.  (Swiftly, two million US jobs shifted to China.)

The new FSA pulled the lid off the Pandora's box of worldwide derivatives trade.  Among the notorious transactions legalized: Goldman Sachs (where Treasury Secretary Rubin had been Co-Chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation.  Ecuador, its own banking sector de-regulated and demolished, exploded into riots.  Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans.  Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim–and the continent is now being sold off in tiny, cheap pieces to Germany.

Of course, it was not just threats that sold the FSA, but temptation as well.  After all, every evil starts with one bite of an apple offered by a snake.  The apple:  The gleaming piles of lucre hidden in the FSA for local elites.  The snake was named Larry.
Does all this evil and pain flow from a single memo?  Of course not:  the evil was The Game itself, as played by the banker clique.  The memo only revealed their game-plan for checkmate.

And the memo reveals a lot about Summers and Obama.

While billions of sorry souls are still hurting from worldwide banker-made disaster, Rubin and Summers didn't do too badly.  Rubin's deregulation of banks had permitted the creation of a financial monstrosity called "Citigroup."  Within weeks of leaving office, Rubin was named director, then Chairman of Citigroup—which went bankrupt while managing to pay Rubin a total of $126 million.

Then Rubin took on another post:  as key campaign benefactor to a young State Senator, Barack Obama.  Only days after his election as President, Obama, at Rubin's insistence, gave Summers the odd post of US "Economics Tsar" and made Geithner his Tsarina (that is, Secretary of Treasury).  In 2010, Summers gave up his royalist robes to return to "consulting" for Citibank and other creatures of bank deregulation whose payments have raised Summers' net worth by $31 million since the "end-game" memo. That Obama would, at Robert Rubin's demand, now choose Summers to run the Federal Reserve Board means that, unfortunately, we are far from the end of the game.

Greg Palast is the author of the new book, Millionaires & Ballot Bandits: How to Steal an Election in 9 Easy Steps, including a comic book by Ted Rall and an introduction by Robert F. Kennedy Jr. (7 Stories Press, 2012). View Palast's reports for BBC TV and Democracy Now! at gregpalast.com

Tuesday, August 27, 2013

Our Giant Banks Own Airports, Control Power Plants, Hoard Vast Amounts of Commodities and Much More -- How Can We Stop Them from Controlling the Lifelines of the Economy?




Our Giant Banks Own Airports, Control Power Plants, Hoard Vast Amounts of Commodities and Much More -- How Can We Stop Them from Controlling the Lifelines of the Economy?


Aren’t there rules against that? And where are the banks getting the money?

Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy. How have they pulled this off, and where have they gotten the money?

In a letter to Federal Reserve Chairman Ben Bernanke dated June 27, 2013, US Representative Alan Grayson and three co-signers expressed concern about the expansion of large banks into what have traditionally been non-financial commercial spheres. Specifically:
[W]e are concerned about how large banks have recently expanded their businesses into such fields as electric power production, oil refining and distribution, owning and operating of public assets such as ports and airports, and even uranium mining.
After listing some disturbing examples, they observed:
According to legal scholar Saule Omarova, over the past five years, there has been a “quiet transformation of U.S. financial holding companies.” These financial services companies have become global merchants that seek to extract rent from any commercial or financial business activity within their reach.  They have used legal authority in Graham-Leach-Bliley to subvert the “foundational principle of separation of banking from commerce”. . . .
It seems like there is a significant macro-economic risk in having a massive entity like, say JP Morgan, both issuing credit cards and mortgages, managing municipal bond offerings, selling gasoline and electric power, running large oil tankers, trading derivatives, and owning and operating airports, in multiple countries.
A “macro” risk indeed – not just to our economy but to our democracy and our individual and national sovereignty. Giant banks are buying up our country’s infrastructure – the power and supply chains that are vital to the economy. Aren’t there rules against that? And where are the banks getting the money?

How Banks Launder Money Through the Repo Market

In an illuminating series of articles on Seeking Alpha titled “Repoed!”, Colin Lokey argues that the investment arms of large Wall Street banks are using their “excess” deposits – the excess of deposits over loans – as collateral for borrowing in the repo market. Repos, or “repurchase agreements,” are used to raise short-term capital. Securities are sold to investors overnight and repurchased the next day, usually day after day.

The deposit-to-loan gap for all US banks is now about $2 trillion, and nearly half of this gap is in Bank of America, JP Morgan Chase, and Wells Fargo alone. It seems that the largest banks are using the majority of their deposits (along with the Federal Reserve’s quantitative easing dollars) not to back loans to individuals and businesses but to borrow for their own trading. Buying assets with borrowed money is called a “leveraged buyout.” The banks are leveraging our money to buy up ports, airports, toll roads, power, and massive stores of commodities.

Using these excess deposits directly for their own speculative trading would be blatantly illegal, but the banks have been able to avoid the appearance of impropriety by borrowing from the repo market. (See my earlier article here.) The banks’ excess deposits are first used to purchase Treasury bonds, agency securities, and other highly liquid, “safe” securities. These liquid assets are then pledged as collateral in repo transactions, allowing the banks to get “clean” cash to invest as they please. They can channel this laundered money into risky assets such as derivatives, corporate bonds, and equities (stock).

That means they can buy up companies. Lokey writes, “It is common knowledge that prop [proprietary] trading desks at banks can and do invest in a variety of assets, including stocks.” Prop trading desks invest for the banks’ own accounts. This was something that depository banks were forbidden to do by the New Deal-era Glass-Steagall Act but that was allowed in 1999 by the Gramm-Leach-Bliley Act, which repealed those portions of Glass-Steagall.
The result has been a massively risky $700-plus trillion speculative derivatives bubble. Lokey quotes from an article by Bill Frezza in the January 2013 Huffington Post titled “Too-Big-To-Fail Banks Gamble With Bernanke Bucks”:
If you think [the cash cushion from excess deposits] makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these “banks” to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around.
That Explains the Mountain of Excess Reserves

Historically, banks have attempted to maintain a loan-to-deposit ratio of close to 100%, meaning they were “fully loaned up” and making money on their deposits. Today, however, that ratio is only 72% on average; and for the big derivative banks, it is much lower. For JPMorgan, it is only 31%. The unlent portion represents the “excess deposits” available to be tapped as collateral for the repo market.

The Fed’s quantitative easing contributes to this collateral pool by converting less-liquid mortgage-backed securities into cash in the banks’ reserve accounts. This cash is not something the banks can spend for their own proprietary trading, but they can invest it in “safe” securities – Treasuries and similar securities that are also the sort of collateral acceptable in the repo market. Using this repo collateral, the banks can then acquire the laundered cash with which they can invest or speculate for their own accounts.

Lokey notes that US Treasuries are now being bought by banks in record quantities. These bonds stay on the banks’ books for Fed supervision purposes, even as they are being pledged to other parties to get cash via repo. The fact that such pledging is going on can be determined from the banks’ balance sheets, but it takes some detective work. Explaining the intricacies of this process, the evidence that it is being done, and how it is hidden in plain sight takes Lokey three articles, to which the reader is referred. Suffice it to say here that he makes a compelling case.

Can They Do That?

Countering the argument that “banks can’t really do anything with their excess reserves” and that “there is no evidence that they are being rehypothecated,” Lokey points to data coming to light in conjunction with JPMorgan’s $6 billion “London Whale” fiasco. He calls it “clear-cut proof that banks trade stocks (and virtually everything else) with excess deposits.” JPM’s London-based Chief Investment Office [CIO] reported:
JPMorgan’s businesses take in more in deposits that they make in loans and, as a result, the Firm has excess cash that must be invested to meet future liquidity needs and provide a reasonable return. The primary reponsibility of CIO, working with JPMorgan’s Treasury, is to manage this excess cash. CIO invests the bulk of JPMorgan’s excess cash in high credit quality, fixed income securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage backed securities, corporate securities, sovereign securities, and collateralized loan obligations.
Lokey comments:
That passage is unequivocal—it is as unambiguous as it could possibly be. JPMorgan invests excess deposits in a variety of assets for its own account and as the above clearly indicates, there isn’t much they won’t invest those deposits in. Sure, the first things mentioned are “high quality fixed income securities,” but by the end of the list, deposits are being invested in corporate securities [stock] and CLOs [collateralized loan obligations]. . . . [T]he idea that deposits are invested only in Treasury bonds, agencies, or derivatives related to such “risk free” securities is patently false.
He adds:
[I]t is no coincidence that stocks have rallied as the Fed has pumped money into the coffers of the primary dealers while ICI data shows retail investors have pulled nearly a half trillion from U.S. equity funds over the same period. It is the banks that are propping stocks.
Another Argument for Public Banking

All this helps explain why the largest Wall Street banks have radically scaled back their lending to the local economy. It appears that JPMorgan’s loan-to-deposit ratio is only 31% not because the bank could find no creditworthy borrowers for the other 69% but because it can profit more from buying airports and commodities through its prop trading desk than from making loans to small local businesses.

Small and medium-sized businesses are responsible for creating most of the jobs in the economy, and they are struggling today to get the credit they need to operate. That is one of many reasons that banking needs to be a public utility. Publicly-owned banks can direct credit where it is needed in the local economy; can protect public funds from confiscation through “bail-ins”resulting from bad gambling in by big derivative banks; and can augment public coffers with banking revenues, allowing local governments to cut taxes, add services, and salvage public assets from fire-sale privatization. Publicly-owned banks have a long and successful history, and recent studies have found them to be the safest in the world.

As Representative Grayson and co-signers observed in their letter to Chairman Bernanke, the banking system is now dominated by “global merchants that seek to extract rent from any commercial or financial business activity within their reach.” They represent a return to a feudal landlord economy of unearned profits from rent-seeking. We need a banking system that focuses not on casino profiteering or feudal rent-seeking but on promoting economic and social well-being; and that is the mandate of the public banking sector globally.

Ellen Brown is an attorney, author, and president of the Public Banking Institute. She is the author of Web of Debt, and a sequel, The Public Bank Solution.   

Saturday, August 24, 2013

Plutocrats' New Pitch: Let Us Rob You Now So You Can Plan Ahead for Poverty



Plutocrats' New Pitch: Let Us Rob You Now So You Can Plan Ahead for Poverty

Pete Peterson & Co. kindly want to take your Social Security away to prevent you from imagining a dignified future.

Photo Credit: Shutterstock.com

Somehow, I’ve wound up on the mailing list for a group of oligarchs campaigning to swindle Americans out of their hard-earned retirement insurance. Hedge fund billionaire Pete Peterson, the budget buffoons Erskine Bowles and Alan Simpson, and the rest of their merry band of hustlers over at the hilariously named Committee for a Responsible Budget have asked me to consider their latest proposal.

So I thought I’d oblige them, what the heck.

Judging from the shrill headline in their mailing, these men (and a token woman or two) wish to sell me on the idea of “Social Security Reform and the Cost of Delay.”

The cost of delay? Boys, I hear you on that. Any delay in ripping me off must be very costly — for you.

Social Security, the most prudently managed and economically sound retirement program the country has ever seen, and with the very lowest costs, is preventing you from piling up even more money in your bank accounts. Trust me, I really do understand how you feel:  Financiers desperately wish to get their mitts on American retirements so they can charge all sorts of outrageous fees. And you hate the prospect of having to pay higher taxes in the future if you don’t “fix” Social Security.

I know how diligently you've tried to privatize America's best-loved program in order to get this show going. You must be bone tired! And I also fully get that as rich people interested far more in the size of your bank accounts than anything so trifling as, say, the strength and health of your country, you hate paying taxes of any kind. You deeply resent such citizen responsibilities, and so you want to cut Social Security as quickly as possible (calling your cutting “reform,” you clever marketing devils!) because doing so will lessen your already minuscule tax burden. Your aim is to hurt America’s retirement program to the point where you can bring up your privatization hustle again. Does that about sum it up?

The thing is, though, cutting Social Security does not make any economic sense for the other 99 percent of the country. The program is in very good shape, hard-working Americans have paid into it, and if (and that’s a big if) any adjustments need to be made a decade or two down the road, we can talk about it then. For now, the only real justification for cutting seems to be the prospect of fattening your bank accounts. Sorry, not sold. I know that's one less yacht for you but I think you can live with it.

Your fear-mongering pitch to me is filled with all sorts of extraordinary economic predictions, which are all the more amazing as none of you had so much as the ghost of an idea that the financial crisis was coming. But never mind, you in your infinite wisdom know that based on your calculations, if you don’t rob me by cutting Social Security now, I will lose benefits in the future. You may not realize I actually read economic projections written by legitimate economists, who inform me that your predictions are worth about as much as those of a carnival fortune-teller. Probably less.
In their paper, “Deficit Fantasies in the Great Recession,” Thomas Ferguson and Robert Johnson, both of the Institute of New Economic Thinking, write:
“Current discussions of Social Security [fall] into two groups: One rails on about how ‘runaway entitlements’ are leading to a deficit explosion; while the other advises patronizingly that Social Security can be saved in the long run by timely changes, typically involving a mix of taxes and benefit cuts, including, notably, yet another rise in the age of eligibility for the program. Neither point of view is persuasive.”
The authors explain how the “deficit explosion” story can be immediately dismissed, but you’re probably aware that that particular line isn’t really working anymore, since more Americans have figured out that 1) Social Security has nearly nothing to do with the deficit; and 2) the deficit is rapidly shrinking. Bummer for you!

So you’ve turned to the old lie about Social Security solvency. Unfortunately for you, economists who have looked closely at the issue do not buy it. Ferguson and Johnson write:
"It is true that Social Security tax receipts declined during the Great Recession, so that for the first time since 1983, the program’s outlays exceeded revenues by a small amount. But this in no way threatens the program’s basic solvency. In 1983, Congress enacted into law recommendations of the Greenspan Commission to raise Social Security taxes to cover the retirement bulge coming from baby boomers. Since then, the program has piled up enormous surpluses. These have been invested in government bonds, thus helping to finance the rest of the government. 
As the baby boomers mature, the surplus funds will be drawn down. The 2010 Report of the Trustees of the Social Security Trust Fund projects that the Trust Fund and interest earnings from it will suffice to cover all benefit payments until 2037. Even then, the Fund will not be empty – the Trustees Report projects that the Trust Fund would still cover 75% of all benefits due.” [The latest report from 2012 says more or less the same thing].
So listen up, fellas, if we do need to make a little tweak down the road, let’s make a deal. Since taxpayers like me funded the bank bailouts, how about raising the cap on earnings subject to the Social Security tax, which is currently just a little over $100,000? Wait, what’s that you say? You don’t like that because it means that you would pay your share and I would not get screwed. Well, that's not very sporting of you, is it? Seems like the 1 percent has done pretty well over the last few decades.

Overall, though, I must say I am impressed by the consistency of your crystal-ball reading, because your predictions always point miraculously to the same conclusion: “We’ve got to take your money now, because the future is going to be very bad!”

I appreciate your concern. Mugging me now allows me to better plan ahead for a bleak and ill-funded future. Thanks to your consideration, I could go ahead and start purchasing cat food now and perhaps develop a taste for it. But I think I’d rather just hold on to my Social Security if it’s all the same to you. I kind of think that robbing me of a dignified retirement (which, frankly, looks pretty paltry compared to the rest of the civilized world) is not going to do much for the health of the economy or the cohesion of society.

I have this funny feeling that young people forced to take time away from their jobs to care for poverty-stricken parents and more strain on disability rosters (which you are always complaining about, remember?!?) and less money in the pockets of elderly consumers to pay for healthcare and food doesn’t really sound like a good idea.
Let’s be real, boys. You already got away with murder with your swindles leading up to the Great Recession, and you’ve sucked a lot more money out of the pockets of regular folks in the years since then, spreading your embarrassingly discredited austerity messages (how funny was that Stephen Colbert bit on your favorite debunked economists, Reinhart and Rogoff!). You've triumphed in getting teachers laid off and pensions stripped and whatnot. You have been very successful, and you can raise a glass of bubbly to the financial coup you’ve pulled off. There’s not really much more left to rob, in case you haven’t noticed.

But there are limits. A look at history might suggest to you that pillaging too many people of too much for too long may actually result in said people deciding they have had enough of you. Occupy was a hint.

Yet despite the fact that survey after survey reveals Americans do not want to see cuts to Social Security, and in the face of studies by political scientists who prove that such policy views as yours only reflect the designs of the wealthy, you are undeterred. Time, you warn me, is running out if I don’t start playing your tune and ask policy makers to enact these “changes” you insist upon to make you richer.

Here’s a warning from me: With profits for the wealthy at Gilded Age levels, the population looks to be waking up. Time may be running out for you.

Lynn Parramore is an AlterNet senior editor. She is cofounder of Recessionwire, founding editor of New Deal 2.0, and author of 'Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture.' She received her Ph.d in English and Cultural Theory from NYU, where she has taught essay writing and semiotics. She is the Director of AlterNet's New Economic Dialogue Project. Follow her on Twitter @LynnParramore.

Friday, August 23, 2013

Walmart's Latest Scheme to Replace the Middle Class With an Underclass Forced to Buy its Shoddy Goods

News & Politics  


Walmart's Latest Scheme to Replace the Middle Class With an Underclass Forced to Buy its Shoddy Goods

Walmart's planned takeover of urban markets threatens to cut off other viable economic development options.

Photo Credit: walmartmovie.com
This article was published in partnership with the Institute for Local Self-Reliance.
Almost 30 years ago, as the U.S. was bleeding jobs, Walmart launched a "Buy America" program and started hanging "Made in America" signs in its 750 stores.  It was a marketing success, cementing the retailer's popularity in the country's struggling, blue-collar heartland.  A few years later, NBC's Dateline revealed the program to be a sham.  Sure, Walmart was willing to buy U.S.-made goods — so long as they were as cheap as imports, which, of course, they weren't.  Dateline found that Walmart's sourcing was in fact rapidly shifting to Asia. 
This year, Walmart is back with a new "Buy America" program.  In January, the company announced that it would purchase an additional $50 billion worth of domestic goods over the next decade.  This week, Walmart is convening several hundred suppliers, along with a handful of governors, for a summit on U.S. manufacturing
This sounds pretty substantial, but in fact it's just a more sophisticated and media savvy version of Walmart's hollow 1980s Buy America campaign.  For starters, $50 billion over a decade may sound huge at first, but measured against Walmart's galactic size, it's not.  An additional $5 billion a year amounts to only 1.5 percent of what Walmart currently spends on inventory.
Worse, very little of this small increase in spending on American-made goods will actually result in new U.S. production and jobs.  Most of the projected increase will simply be a byproduct of Walmart's continued takeover of the grocery industry.  Most grocery products sold in the U.S. are produced here.  As Walmart expands its share of U.S. grocery sales — it now captures 25 percent, up from 6 percent in 1998 — it will buy more U.S. foods.  But this doesn't mean new jobs, because other grocers are losing market share and buying less.  What it does mean is lower wages.  As I reported earlier this year, Walmart's growing control of the grocery sector is pushing down wages throughout food production
Groceries now account for 55 percent of Walmart's U.S. revenue, up from 24 percent in 2003.  The company is planning to grow that ratio even further, with about 100 Neighborhood Market stores (Walmart's new-ish supermarket format) in the pipeline this year alone, along with 125 new supercenters.  So we can expect that at least half of Walmart's new spending on U.S. goods will be for groceries, with no net gain in jobs and, very likely, a further decline in wages. 
As for the rest, to a large extent, Walmart is simply taking credit for a shift that has already happened.  Over the last few years, U.S. manufacturing has undergone a modest revival, owing mainly to rising labor costs in China.  Unfortunately, it's not at all clear that this revival will do much to resurrect the American middle class, because a lot of the new production is highly automated and located in the anti-union South. 
This is especially true for the companies supplying Walmart.  Take 1888 Mills, a Georgia towel maker that has a new (and much-publicized) contract to produce American-made towels for Walmart.  The company, which plans to maintain its overseas workforce of 14,000 for the bulk of its production, will be adding only 35 jobs at its U.S. factory to meet Walmart's multi-year purchase agreement.  The jobs pay $12-14 an hour.  
In a way, Walmart's Buy America program represents the home stretch of the economic transformation the company set in motion decades ago, when it set out to replace the American middle class, rooted in small business ownership and unionized jobs, with a vast underclass that has little choice but to rely on the shoddy, short-lived products sold at big-box stores to get by. 
The only way out of this is to curtail Walmart's continued expansion, particularly its planned takeover of urban markets, which threatens to cut off other viable economic development options.  Walmart's growth in cities, for example, could disrupt a small but promising corner of the manufacturing revival: a plethora of new consumer goods manufacturers in cities like New York, Los Angeles, and San Francisco that are responding to growing public demand for long-lasting, locally made products. These small start-ups need a diverse marketplace of independent retailers and small local chains to reach consumers — precisely the ecosystem that Walmart, buoyed by its Buy America marketing, aims to eradicate. 

Stacy Mitchell is a senior researcher at the Institute for Local Self-Reliance, where she directs an initiative on independent business. Catch her recent TEDx Talk: Why We Can't Shop Our Way to a Better Economy

Tuesday, August 20, 2013

How Corporate America Used the Great Recession to Turn Good Jobs Into Bad Ones


Published on Tuesday, August 20, 2013 by TomDispatch.com

Abracadabra: You’re a Part-Timer


Watch closely: I’m about to demystify the sleight-of-hand by which good jobs were transformed into bad jobs, full-time workers with benefits into freelancers with nothing, during the dark days of the Great Recession.

First, be aware of what a weird economic downturn and recovery this has been.  From the end of an “average” American recession, it ordinarily takes slightly less than a year to reach or surpass the previous employment peak.  But in June 2013 -- four full years after the official end of the Great Recession -- we had recovered only 6.6 million jobs, or just three-quarters of the 8.7 million jobs we lost.
Here’s the truly mysterious aspect of this “recovery”: 21% of the jobs lost during the Great Recession were low wage, meaning they paid $13.83 an hour or less.  But 58% of the jobs regained fall into that category. A common explanation for that startling statistic is that the bad jobs are coming back first and the good jobs will follow.  
But let me suggest another explanation: the good jobs are here among us right now -- it’s just their wages, their benefits, and the long-term security that have vanished.
Consider the experiences of two workers I initially interviewed for my book Down the Up Escalator: How the 99% Live in the Great Recession and you’ll see just how some companies used the recession to accomplish this magician’s disappearing trick.
Freelance Nation
Ina Bromberg genuinely likes to outfit people.  Trim and well dressed herself, Ina sells petites at the Madison Avenue flagship store of a designer brand boutique with several hundred outlets.  Even I had heard of the label.  I had to ask what its exact place in the fashion hierarchy was, though.  “We fall into a niche below Barney’s-Bergdorf-Chanel,” she explained.
In the course of a 20-year career, Ina, now in her sixties, had been the company’s top-earning national sales associate more than once.  Her loyal clients return each season saying, “You know what I like.  What have you got for me?”
When I first met her during the Great Recession, however, her hours had been cut back.  “They’ve moved the entire sales staff onto flexible schedules,” she explained.  “On Thursday, we are told what our schedule will be for the following week.  When they told me my new hours that first week, it was down to ten.  I said, ‘Why don’t you just lay me off?  I can collect unemployment.’  And [my boss] said, ‘No, no, it won’t be this way every week.’”
“Maybe this is their way of sharing the work in order to keep the experienced people till the recession is over,” I suggested. That used to be standard practice during a downturn.
Ina didn’t think so.  She referred me to an article about her firm on a fashion website.  “Read the responses,” she said.  “These are by people who worked in the office -- probably not anymore.  They say that in some of the stores they’ve taken all the full time people and made them part-time.  And with that, there’s no more sick days, no more vacation days, no more commissions for anyone.  They say they’re going to do that to all the stores, even New York.”
“Do your managers claim that the short hours are just for the recession?” I asked.  “Do they thank you for making sacrifices till business picks up?”
“Not that I ever heard,” Ina answered.  “I think -- and I’ve been saying this for a year and a half -- their ultimate goal is to have all part-time sales people working shifts of four-and-a-half hours.  That way they’re not responsible for lunch, they have a lot of bodies, they pay no commissions, no benefits, and it’s a constant turnover.  This is what I think they want even after the recession because,” here she leaned in as though to reveal a secret, “they haven’t stopped hiring people.”  She checked to see if I grasped the significance of that.
I did and so did her fellow saleswomen, but it’s hard to go job-hunting during a recession.  While a few of the old professionals had already left, most were holding on, chewing over any bits of information they could pick up that might indicate management’s intentions.  “In our store we know they’ve continued the health benefits until March,” Ina said.  “What will happen after is what we’re trying to find out.”
Eventually, the company broke the suspense.  Managers called the remaining full-timers into the office and gave them two choices.  They could take a small severance package and collect unemployment or they could stay at truncated versions of their old jobs if they wished, but as part-timers with no benefits and no commissions.  In a way, the company had made government unemployment benefits a part of its buyout package. They were saying, in effect: you go voluntarily and we’ll agree that we laid you off.
Four years after the official end of the recession I interviewed Ina again.  She was the only one of the former sales staff still working there.  Her earnings were less than a quarter of what they’d been a few years earlier.

“I can afford to retire,” she assured me.   “In a way, I already am.  I just like coming out of the house and seeing my regular customers.  But everyone who had to support themselves left.  All the new people are young,” Ina complained. “They have no commitment to the job.  They skip days whenever they feel like it.
“But why shouldn’t they?” she said suddenly, reversing her judgmental tone.  “It used to be if you missed a day, you missed a chance to earn commissions.  It mattered.  But at nine or ten dollars an hour, if they have something else to do they skip it.
“The job is only worth it if you’re a college student and the hours are a perfect fit for your schedule.  If that changes the next term, they leave.  And it doesn’t seem to make a difference to the company.  They treat employees like nothing now.  I don’t mean it has to be a family, but it isn’t even a team.”

I recently checked her company’s website under “careers” and it was true; they were advertising for more than 70 sales assistants for their various North American stores.  All but one of the positions was listed as part-time.  The sole full time job happened to be in Canada.
In other words, under the shadow of the recession, the company hadn’t sent jobs offshore or eliminated them.  It had simply replaced decently paying full-time employment, including benefits, with low-wage, contingent employment without benefits.  It had, that is, pulled the old switcheroo, turning good jobs into bad ones on premises.
Entering the Freelance Life
Here’s how the same magic trick works a little higher up the food chain.
Greg Feldman was a full-time professional doing computer graphics for an educational publisher which produces test preparation materials for school districts.  One day during the recession, his company laid off some 20 staffers including him.  As far as I can tell, its business wasn’t declining.  (Standardized test prep must be one of the last things desperate school districts cut.)
“When I got home I went into panic mode,” Feldman remembered.  “I said I better redo my resume before the weekend.  And I did.  But there were a couple of openings I could have applied for that day -- one full time, one long-term temp.  But I waited till after the weekend to send it in.  That was in November [2008] and this is February [2009].  I’m on the websites every day and I haven’t come across any other regular staff positions since those two.”
Four years later Feldman was piecing together his living by combining a steady but low-paying part-time job with freelance gigs.  He still considers himself unemployed.  Whenever we speak he enumerates the new computer graphics programs he’s mastered and asks me about job leads.
But is Feldman really unemployed by post-recession standards?  He may not have a full-time job with his old company, but neither does just about anyone else who did the work he used to do for them. It’s by no means impossible, I once suggested to Feldman, that he himself might wind up working for his old firm through a subcontractor.  
“Possible but not likely,” he answered. “What I heard is that they send that work overseas now.”
The Good Old Switcheroo
When America’s industrial workers were hit hard in the 1970s and 1980s, the excuse for breaking their unions, lowering their wages, and outsourcing their work was that we had to compete with foreign manufacturers.  But not to worry, it was then suggested, there might be tough times ahead for a few blue-collar troglodytes who couldn’t be retrained, but the rest of us would soon be data manipulators in a booming postindustrial society.
Feldman is as postindustrial as you can get and his former company doesn’t even compete with foreign firms.  It seems, though, that corporate headquarters no longer needs excuses or explanations to make workers cheaper and more replaceable.   
The recession itself certainly doesn’t explain such job transformations.  Traditionally, during recessions employers reduced hours or laid people off in a way that would enable them to reconstitute an experienced work force when business picked up.  In the meantime, they competed on price and took less profit.  As a result, the share of national income that went to owners and investors used to decline during such periods, while the share that went to workers actually rose.
No longer.  Ina’s and Greg’s employers used the downturn to dump entire departments and reorganize themselves so that the same work, the same jobs, requiring the same skills, would henceforth, in good times and bad, be done by contingent workers.  Many other companies seem to be doing the same thing.  One sign of that: during the course of the Great Recession corporate profits went up by 25%-30%, while wages as a share of national income fell to their lowest point since that number began to be recorded after World War II.
According to the latest Labor Department figures, 65% of the jobs added to the economy in July 2013 were part-time.  The average hourly wage fell slightly. Interpreters of those statistics will make it sound as though it’s simply a matter of factories firing and burger joints hiring.   That, at least, would be a situation that could be reversed over time.  If, however, golden jobs are being transmuted into lead by the reverse alchemy described in this piece, then they’re not coming back gradually, certainly not without a growing labor movement and a fight.
I checked back recently with Ina Bromberg to see if anything had changed for the saleswomen in her store as the nation crawled into what’s now called “recovery.”
“The hours are creeping back up,” she said, and pointed to an irony.  “When they started all this they told us that short shifts make us more efficient.  Now, they’re letting a few people work, six, seven, even eight hours some days.”
I asked if benefits and commission were also creeping back.
“Of course not!” she answered.
“It’s sad in a way,” Ina mused.  “If one of these young women gets eight hours for a while, she’ll think she has a regular job.  None of them can remember what a regular job was like.”
Ina is describing a perfect sleight of hand.  Good jobs disappeared into bad jobs so deftly that hardly anyone has noticed the switcheroo.  Soon enough the zombie jobs that replace the real ones will move among us as if they were normal.  If you sense that there’s something missing, there must be something wrong with you.  Get with the program.  We’re becoming a freelance nation.

Comcast, Time Warner Cable, Verizon and Other Telecoms Fighting to Cash In... on You



Comcast, Time Warner Cable, Verizon and Other Telecoms Fighting to Cash In... on You

An aggressive anti-consumer effort is underway, aimed at turning your private behavior into dollar signs.


Photo Credit: Shutterstock.com

They call it "modernizing the rules." We call it "cashing in on your privacy."

Comcast, Time Warner Cable, Verizon, DIRECTV, and other giant U.S. cable and telecommunications companies are going hard-core with an aggressive anti-consumer agenda aimed at turning your private behavior into dollar signs. Citing antiregulatory buzzwords like "competition" and "economic growth', they are lobbying hard to loosen privacy rules in Washington for a very simple reason: They’ve got their hands on the wires that connect millions of homes with Internet and television services, and they want to sell information about your use of them to the highest bidder.

These companies are trying to move away from their traditional treatment as public utilities and get treated more like Google and Facebook. The shift they seek would strip authority from America’s privacy watchdog, the Federal Communications Commission and expand the mandate of the Federal Trade Commission. The FTC has brought privacy cases against Google and Facebook, but it lacks authority to be a truly effective privacy enforcer and has been seen as unresponsive to public pressure to get tough on powerful Internet players. The FCC, on the other hand, strengthened privacy rules in 2007 and has extracted large fines from Big Telecom for violating customer data-protection protocol. The FCC has a tendency to look at the potential for wrongdoing before it happens, whereas the FTC tends pay attention only after the fact.

Naturally, Big Telecom would rather interact with the FTC. It must be pointed out, however, that Obama has picked Tom Wheeler, an industry insider, to be the next head of the FCC, and it looks like he's going to get the job. Wheeler is, among other things, a venture capitalist, an Obama fundraiser, and a former top telecom lobbyist — not exactly the qualities one wants in a watchdog. Obama has referred to Wheeler as “the only member of both the cable television and the wireless industry hall of fame.” Very reassuring.

Writing in the Financial Times, Stephanie Kirchgaessner explains telecom logic for selling your private information, which is essentially, “hey, everybody’s doing it”:
“Proponents say the move would simplify an antiquated regulatory structure that has not kept pace with the changing media landscape. Traditional media companies face tougher restrictions than their new media rivals even though the services they offer are becoming increasingly similar.”
Oh, really! Actually, the move is simply a strategy to create a Wild West regulatory atmosphere in which your private information is, well, no longer private.

There’s plenty of dough to be made for Big Telecom from third-party marketers and others who would like to know who you’re calling, what TV shows you watch, and so on. What happens to that information once it gets sold? Might identity thieves or other nefarious entities like to get their hands on your data? We already know Big Telecom has been implicated in NSA spying. They don’t exactly have your back. Perhaps executives are thinking, why not get paid for what we give away to the government for free? And that, ladies and gentlemen, is yet another reason that government spying is so dangerous. It's contagious.

The regulatory change would mean getting a new law passed in Congress. So the industry has gotten up a new lobbying group with an Orwellian name: the 21st Century Privacy Coalition. It is led by two revolving-door champions, Jon Leibowitz, who just left his post as chairman of the FTC and former Rep. Mary Bono Mack, a California Republican, who, as Mike Ludwig of Truthout put it “raked in thousands of dollars of donations from the telecom industry before leaving Congress last year.”

Barack Obama has very close ties to the cable industry, which lavished his campaign with money in the 2012 election cycle. Recently while vacationing in Martha’s Vineyard, he hit the golf course with Comcast CEO Brian Roberts, who also came over to the house for a friendly visit.

Gee, wonder what they discussed over lemonade?

Lynn Parramore is an AlterNet senior editor. She is cofounder of Recessionwire, founding editor of New Deal 2.0, and author of 'Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture.' She received her Ph.d in English and Cultural Theory from NYU, where she has taught essay writing and semiotics. She is the Director of AlterNet's New Economic Dialogue Project. Follow her on Twitter @LynnParramore.

$75 For Ice Cubes? The Absurd Things Rich People Are Blowing Their Cash on



$75 For Ice Cubes? The Absurd Things Rich People Are Blowing Their Cash on

A small group of Americans is now sitting on more wealth than they could possibly know what to do with as growing numbers of ordinary families struggle.


While most Americans struggle through this grinding downturn, a rarified few are doing quite well. Corporate profits hit an all-time high last week,and businesses are keeping more of their loot away from the taxman than ever before (while wages, as a share of our economy, reached an all-time low). The stock market is booming, and Wall Street compensation has more than bounced back from the crash.

A small group of Americans is now sitting on more wealth than they could possibly know what to do with.
Consider a product selling in a gourmet store in New York's tony SoHo district. “Gläce Luxury Ice is a meticulously designed and differentiated ice brand specifically designed for use in premium drinks and cocktails,” reads a pitch at the website of Dean and Deluca. “Gläce Ice pieces are individually carved from a 300 lb block to ensure flawless quality and a zero-taste profile, never contaminating the essence of premium liquors.”

If you're so inclined, you can purchase a package of 10 of these fancy ice cubes. It'll run you $75 bucks, or $7.50 per cube (not including "Next Day Shipping to ensure freshness").

At the same time, New York's much-abused homeless population is now at Great Depression levels, and according to a 2011 study conducted by the city, almost half of New Yorkers (46 percent) are living below or near the poverty line (defined as making less than 150% of the federal threshold).

As stark as the picture of inequality has become nation-wide, there are a handful of metropolitan areas that have become hyper-unequal. In these cities, the haves have driven up prices on all manner of goods to a degree that it's becoming all but impossible for ordinary families to live in them.

These hubs of feast or famine tell us a lot about the state of the global economy. Take a look at the 10 metropolitan areas with the highest cost of living. With the exception of Orange County, California, flush with tourism dollars and a refuge for the Hollywood elite, and New York, where Wall Street towers over technology and tourism, they all share one thing in common: they're anchored by industries that are heavily protected from international competition by the government.
This gives the lie to the ubiquitous euphemism of “free trade.” As economists like Dean Baker have been pointing out forever, we use free trade to put manufacturing and other low-end workers into global competition, while relentlessly seeking greater patent protections and intellectual property rights for other industries.

Three of the cities with the highest cost of living are in the Bay Area, where tech is king. A one-bedroom apartment in San Francisco now goes for $2,800, on average. One in five Bay Area residents live in poverty, but few of them live in San Francisco—prices push them to the suburbs. Meanwhile, tech is creating enough wealth for billionaire-nerd Sean Parker to blow as much as $7 million on his Lord of the Rings-themed wedding, including $2.5 million to cover the environmental issues associated with it.

Stamford, Connecticut, is also on the list. It's not only a bedroom community for Wall Street movers and shakers, but home to some of the country's leading pharmaceutical companies, which have successfully lobbied to extend their patent rights around the world, often at great human cost in poorer countries.

An exception is the Washington, DC, area, which stands as living proof of the economic benefits of public spending. Two years ago, much earlier in the “recovery,” I wrote that “the best local economy in the United States, by far, is the DC metropolitan area.”
Average incomes in the region top $150,000, more than triple the national average. The reason for Washington's affluence (or parts of Washington's affluence – the Capitol also has abundant poverty) is clear: while the rest of the economy is facing a crisis in demand as a result of high unemployment and stagnant wages in the private sector, the Capitol, in classic Keynesian style, is making up for it with plenty of public spending, which has skyrocketed since 9/11 – defense and homeland security contractors, and other firms providing goods and services to the government are flush.
(The only outlier on the high-priced cities list is Honolulu. There, flocks of tourists bolster the economy, there's an abundance of military spending and it serves as a global shipping hub between East and West. But goods also cost a fortune because most of them have to be shipped in from thousands of miles away, and there is limited land available for sale.)

Contrast these cities with Detroit, which was once a wealthy city based on solid manufacturing jobs that lifted all boats, but has been decimated by auto manufacturers offshoring their production overseas and then re-importing the goods to sell here at home. Or you could look at a hundred other cities and towns across America that are facing a similar dilemma from the same cause.

As a nation, we lead the developed world in inequality, but that really doesn't tell the whole story.

Joshua Holland is a freelance writer and editor-at-large at AlterNet. He's the author of The 15 Biggest Lies About the Economy. Drop him an email or follow him on Twitter.