Waging War on American Workers

by Stephen Lendman / January 8th, 2011

Target one is America’s middle class, endangered after decades of wealth shifts to super-rich elites besides most high-pay, good benefit jobs, offshored to cheap labor markets — a policy Washington’s duopoly endorses. It’s the most serious threat to middle America since attacks began in the 1970s.

On December 23, 1957, The Dan Smoot Report published novelist Taylor Caldwell’s (1900 – 1985) article, titled “Honoria,” the true story of a former great nation and lessons to be learned from its demise.

She explained how men seeking freedom became Pilgrims, endured terrible hardships, yet survived, prospered, and gained power. They established colonies, believed in God, hard work, public education, and transformed villages into towns and cities.

Others joined them, establishing new colonies, then uniting them. A civil war intervened. The republic was divided. A leader was assassinated, but prosperity followed conflict resolution. However, arrogance, corruption, and foreign entanglements followed. At issue – insatiable greed, not defending civilized world freedoms.

Wars resulted. Repressive laws passed, but Honoria had “a strong, industrious middle class, composed of farmers, artisans, (and) shopkeepers.” However, they posed a threat to wealth and power so had to go to let elites rule unchallenged. Targeted by oppression, they “were reduced to despair,” and began “dwindl(ing) away….Morality was dead.”

The monstrous, bureaucratic state “was happy.” People wanted entertainment, not freedom. Leaders waged more wars. Honoria became more corrupt and extremist. Its middle class eroded, died, and barbarians moved in.

Who was to blame? “Honoria, of course,” at the expense of its own citizens. They sacrificed for the common good but were betrayed. Over hundreds of years, Honoria rose and fell. Its real name? “Ancient Rome,” America its modern equivalent.

America, the New Rome

As constitutional freedoms and middle class prosperity erode, America is slowly dying. Like Rome, two empires share a remarkably common history. Both rose and prospered, then overextended, “rushed to the abyss,” and couldn’t turn back. America is on its edge. Its belligerence exceeds Rome’s. Its excesses are unsustainable. Its middle class is dying, its democracy a mere figure of speech.

Today, super-wealth rules a once great nation, malignant with corruption, delusional grandeur notions, and might ideologically triumphing over right. It’s a self-destructive path harming working Americans most, especially the once vibrant middle class, targeted for destruction. Democracy depends on preserving it as a buffer against tyranny. Slowly, however, it’s suffocating and dying, and with it the remnants of freedom.

A New Congress Highlights An Accelerated Ruinous Path

On January 3, the 112th Congress convened, its agenda accelerating America’s ruin.

In 2011, federal and state governments plan major social services cuts and other ways to address deficit and budget problems through less social spending, layoffs, and other draconian measures. At the same time, America’s aristocracy is flourishing, largely at the expense of exploited workers. Their assets flow upward to make super-rich society richer, facilitated by bipartisan political complicity and corruption.

Incoming House Republicans promise budget cuts of $100 billion, largely on the backs of working Americans who can least afford it. Given Obama’s austerity pledge, bipartisan agreement may target entitlements, including Social Security, Medicare and Medicaid, as well as education, transportation, and other discretionary areas to match 2008 levels. However, achieving it requires 20% cuts across the board from the $477 billion Congress allocated in FY 2010, ending September 30.

According to House Budget Committee chairman Paul Ryan, “That’s where you get the savings.” On January 6, he also told Bloomberg News that potential state defaults won’t be saved by bailouts, saying “We are not interested in a bailout.”

In 1933 at the height of the Great Depression, Arkansas was the last state to default at a time Washington rescues weren’t considered. Today, workers will be punished to assure steady debt service payments. In 2009, California state treasurer, Bill Lockyer, said only a “thermonuclear war” might force default, nothing less.

Less draconian than Republicans, congressional Democrats want FY 2010 spending levels frozen for three years, at least rhetorically. House Republicans, however, control appropriations so expect debt ceiling level confrontations. For one thing, Republicans want spending increases offset by cuts, meaning those affecting working Americans most.

They’ll come at a time that the Economic Policy Institute (EPI) evaluated poverty in the “Great Recession.” Calling official measures outdated, its own analysis shows over 21% of Americans in poverty — based on after-tax market wages and salaries, excluding entitlements, welfare, and other government programs that lower the figure considerably but not for millions not helped. Then add higher cost of living expenses, especially for health, food, gasoline, heating oil, and rent at a time home prices are declining.

With planned FY 2011 budget cuts, greater poverty ahead looms. On January 6, even the Census Bureau raised its numbers, saying 15.7% of the population (not 14.3%) lived in poverty in 2009, or 47.8 million people. Moreover, despite Social Security and Medicare, 16.1% of seniors are impoverished when out-of-pocket medical and other expenses are included. Children are most impacted at 18%, nearly one-fifth of them all. A 2009 EPI report estimated one in four, and for Blacks and Hispanics well over one in three.

In fact, Census Bureau figures way understate reality. Its poverty threshold, for example, is based on an annual $22,050 income for a family of four. Yet urban needs throughout America are much higher. A Chicago family of four needs over $49,000, and in New York over $72,000.

Yet even official data offer insight into America’s worst economic crisis since the Great Depression at a time bipartisan consensus plans social spending cuts when large increases are needed. Even so, public outrage is strangely absent. For how long is at issue.

States Plan Major Budget Cuts and Layoffs

Though slightly lower than in 2009 and 2010, the National Conference of State Legislatures forecasts $83 billion in combined state deficits, requiring greater cuts than earlier, absent federal government help or too little. As a result, major public spending cuts, wage freezes, and lower benefits are planned. Moreover, public employee unions are targeted, threatening organized labor overall.

On January 3, New York Times writer, Steven Greenhouse, headlined, “Strained States Turning to Laws to Curb Labor Unions,” saying:

Faced with growing budget deficits and restive taxpayers, elected officials from Maine to Alabama, Ohio to Arizona, are pushing new legislation to limit the power of labor unions, particularly those representing government workers, in collective bargaining and politics.

Though largely weak and ineffective, private ones are also being attacked. For example, lawmakers in Indiana, Maine, Missouri and at least seven other states plan legislation to bar private sector unions from requiring rank and file members to pay dues or fees, reducing union treasury funds. Ohio’s new Republican governor, like others, wants public school teacher strikes prohibited, and in Wisconsin, Gov. Scott Walker is targeting the right of state employees to form unions and bargain collectively.

The “bottom line” isn’t putting “balance more on the side of taxpayers” as Walker claims. It crushing organized labor entirely, public and private, driving it back to 19th century impotence. According to Stewart Acuff, Utility Workers Union of America chief of staff:

This is a very serious effort by the radical right wing to cripple the American labor movement and remove it as a serious force in American life. They want unfettered, unrestricted corporate power, and the only thing standing in the way of absolute corporate domination of our society and what’s left of our democracy is the American labor movement.

Not the way it’s been run for years as a result of corrupted union bosses on the take, siding with business, getting big salaries and fancy perks, and being more concerned about their own welfare than rank and file members. Labor historian, Paul Buhle, sees organized labor in a state of collapse. In the March/April 2010 Against the Current issue, his article titled, “Labor at War or in the Tank,” explained “the shrinking world of US organized labor,” saying:

“….a paucity of anything like solidarity, let alone a strategy for a repowered, reorganized, 21st-century labor movement” haunts American worker struggles going forward. Moreover, (r)ecent reports suggest” possible bankruptcy for “any number of the international unions as well as the AFL-CIO at large, a situation made only worse by infighting. This is a bleak irony, indeed, following so much enthusiasm” over Obama’s election. All the more reason for new leadership, information and insight to “be brought to rank-and-file working people within the unions and outside.” In addition, add strong political support at a time it’s totally absent with Democrats as anti-labor as Republicans.

On January 6 on the Progressive Radio News Hour, James Petras explained. In 2008, Big Labor contributed over $400 million to Democrat candidates and tens of millions more in 2010. In return, Obama and congressional Democrats waged war on working Americans, endorsing layoffs, wage and benefit cuts, gutted work rules, lost pensions, and promised hope from the Employee Free Choice Act (EFCA). The Democrat-controlled Congress rejected it.

It would have been the first pro-labor reform since the landmark 1935 Wagner Act, letting workers for the first time bargain collectively with management on even terms. Though modest by comparison, it promised progress at a time organized labor is virtually impotent, because union bosses, like Democrats, side more with business than their own rank and file.

Compounded by huge budget cuts, layoffs, and other social sacrifices, American workers face greater poverty, extended hard times, disenfranchisement, and bleaker futures. Moreover, their pensions are under attack. In December 2010, the Brookings Institution’s, Douglas J. Elliott, headlined, “State and Local Pension Funding Deficits: A Primer,” saying:

By some measures national shortfalls exceed “$3 trillion or more than two years’ worth of state and local tax revenues.” Today’s economic crisis revealed “the severity of the investment risks by very substantially increasing the gap between the value of (pension) assets accumulated (and) the value of pension promises” already made. Major underfunding and eroded investments are core issues of the problem. No easy solutions can resolve them.

Even at today’s overvalued levels, “the stock market would have to almost triple” to close deficits “as measured using risk-free discount rates.” Reforms are also needed, including in “accounting and actuarial rules so that state and local pension plans report liability levels and deficits that are consistent with economic reality,” such as discounting “the uncertainty of the liabilities rather than the expected return on the assets” that don’t materialize in hard times.

A Final Comment

Working Americans, especially middle class ones, are being downsized toward extinction through loss of high pay/good benefit jobs, labor rights, political empowerment, standard of living gains, personal freedoms, and retirement futures.

Replacing private pensions with 401(ks), IRAs and similar schemes failed. Public pensions now face a similar fate, states wanting liability shifted from them to workers, leaving them vulnerable on their own. It’s consistent with destructive neoliberal “reforms,” wanting all public benefits eroded and eliminated. The scheme is venal and underhanded — to create a ruler – serf society, America reduced to third world status super-wealth and growing poverty extremes. Bipartisan political support endorses it.

Stephen Lendman lives in Chicago. Contact him at: lendmanstephen@sbcglobal.net. Also visit his blog site and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM-1PM US Central time for cutting-edge discussions with distinguished guests. All programs are archived for easy listening. Read other articles by Stephen.

This article was posted on Saturday, January 8th, 2011 at 7:00am and is filed under Capitalism, Classism, Corruption, Democrats, Economy/Economics, Obama, Unions.

AlterNet / By Jim Hightower

Hightower: How Wall Street Elites Are Dynamiting Our Democracy

Our society can tolerate such raw selfishness by the privileged few, or it can have democracy. It can't have both.

January 6, 2011 |

By gollies, America is still an exporting powerhouse. In fact, the good ol' U.S.A. is No. 1 in the world in exports! Our corporate leaders, backed by Republicans and Democrats alike in Washington, are now routinely exporting America's most precious goods -- our jobs, factories, technologies and middle-class opportunities.

With unemployment and underemployment devastating millions of families in our country, perhaps you've assumed that U.S. corporations simply aren't hiring these days. Nonsense. They added 1.4 million jobs last year alone -- overseas.

For example, more than half of Caterpillar's new hires in 2010 were in foreign countries. Many more of this giant's jobs are headed offshore in the near future, for Caterpillar, which was once an iconic American brand, has recently invested in three new plants in China. It'll not only manufacture tractors and bulldozers there, but it'll also begin to ship its design work and technology development jobs to China.

Likewise, DuPont, once proud of its U.S. workforce, has slashed its number of American employees in recent years, while increasing its Asia-Pacific workforce by more than half. Indeed, DuPont no longer considers itself American -- "We are a global player," sniffs its chief innovation officer.

Such homemade brands as Coca-Cola, Dell and IBM are also among the multitude of corporations abandoning our shores and our middle class. Of course, they keep their posh headquarters here so they and their top executives can continue enjoying all that America has to offer.

Calvin Coolidge once famously asserted that "what's good for business is good for America." That's myopic enough, but today's narcissistic CEOs are even more self-centered, declaring that "what's good for business is good for business, America be damned."

In fact, profits are up, the stock market is roaring, corporations are awash in cash, CEOs are reaping fabulous paychecks again, and -- did you hear? -- holiday spending reached its highest level in four years. Forget last year's talk of gloom, all economic indicators are now on zoom, headed for a new boom!

Well, maybe not all indicators. There is still that pesky little problem of joblessness, for instance. Most politicos and economists, however, no longer want to be bothered with the fact that millions of our people are either unemployed or underemployed. Jobs, they say dismissively, are merely a "lagging economic indicator," a problem that'll take care of itself in the by and by. Just be patient. And be quiet.

But jobs have been "lagging" for years now, and there's no sign that this problem will ever take care of itself. To the contrary, America's corporate elite have learned that they can prosper by deliberately holding the workaday majority in a new normal of job insecurity.

No one at the top wants to admit it, but big business has quietly been imposing a structural transformation on our economy, shifting from a workforce of permanent employees to one in which most jobs are temporary, scarce, low-paid, without benefits and with no upward mobility. Of the 1.2 million jobs created by the private sector last year, for example, 26 percent were temporary positions, and in November, temp jobs soared to 80 percent of that month's total.

What's happening here is not merely a matter of a few million folks being momentarily down on their luck, but of an intentional dismantling of America's middle-class structure.

The Powers That Be can talk all they want about a boom, but working families -- America's majority -- know better. A boom for whom? they ask. They can plainly see that self-serving elites are jury-rigging the job market, lowering the standard of living and closing opportunities for millions.

The elites don't know it yet, but they are playing with dynamite. Our society can tolerate such raw selfishness by the privileged few, or it can have democracy. It can't have both.

To find out more about Jim Hightower, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM

Jim Hightower is a national radio commentator, writer, public speaker, and author of the new book, "Swim Against the Current: Even a Dead Fish Can Go With the Flow." (Wiley, March 2008) He publishes the monthly "Hightower Lowdown," co-edited by Phillip Frazer.

Casinos Make More Sense than the Stock Market

by Ernesto Raj Peshkov-Chow / January 5th, 2011

According to a New York Times article on the day before Christmas, one of the world’s biggest bond traders, Cantor Fitzgerald, now owns Nevada’s biggest legal bookie for sports bets. People who enjoy the occasional trip to Las Vegas should be very worried. Of course, some have described the past few decades of capitalism as the “casino economy,” but for my money that’s an insult to gaming houses.

I mean a casino has a hell of a lot more clarity than the stock market. Take Blackjack, for example. I bet $100 and I get back $200 if my cards are closer to 21 than the dealer’s, or I get $250 if I turn over an ace and a face card. Every time the cards are dealt, either I win or the casino wins or a push. Nice and clear.

But on the stock market I bet a thousand dollars in shares of Plunder Mining Corp. and what happens? The price goes up or down, but why? How many of us really understand how the stock market works? Sure, we nod in agreement when the analyst comes on the six o’clock news and says, “Bond prices rose six basis points and the Dow dropped 43 points today on news the November employment figures were higher than expected.”

The truth is I understand that like I understand how an 184,000-kilogram Boeing 747 with 524 people and my Aunt Jenny’s bottomless suitcase on board can leave Hong Kong and appear in Vancouver about the same time it left.

A bull market, they say. A miracle, they called it back when JC did the same with loaves and fishes.

A Ponzi scheme is when people who buy in first get paid their big returns by the people who come in later and it eventually crumbles. Or is that the stock market?

Derivatives? Say what? My cousins from New Jersey?

We’re told what they do on Wall Street or the City or Bay Street is part of the real economy and what they do on the Strip is gambling. Seems to me, real gambling is when you don’t understand what is going on. Think about it: If I bet my pension on whether or not the little ball is going to fall in a red slot or a black slot, at least I can see what happens. If I hand it over to a mutual fund, I don’t have a clue.

If I put my hundred on the table, the least they can do is show me the cards to prove whether I won or lost. On a Las Vegas craps table I can see the pit boss check the dice and cameras watching all the action to prevent cheating.

On Wall Street? No pit boss, no cameras, not even some guys named Guido and Tony to take a cheater out in the alley. Two years after a company steals $10 billion, the government starts a court case that lasts another 14 years with appeals and five rich guys end up spending a few months in jail and losing their trading privileges.

I’m with Conrad Black in finding the rules of the system extremely confusing. Or like those poor guys from companies like Enron and Adelphia who were charged with fraud and corporate wrongdoing. For years they were fudging numbers, putting the interests of themselves ahead of others and driving down workers’ wages and it got them stinking rich. Stories were written and people marveled about their big houses and their wild, lavish parties.

Then one day the music stops playing, a few people can’t find chairs and what happens? Instead of being heroes they’re called criminals.

I mean, looking after No. 1, screwing small investors, screwing workers, isn’t that what capitalism is all about?

It’s so unfair. They pick on the poor guys who steal hundreds of millions, but what do they do about the bankers and bond dealers who grabbed hundreds of billions? Bail them out. Crank up the government printing presses and holler, “load ‘em up and let’s do it all over again.”

Keep your Wall Street, the City and Bay Street; I’ll gamble elsewhere. At least at a Vegas casino the same rules apply to everyone. At least they did before the bond dealers got involved.

Ernie Peshkov-Chow is the author of Great Multicultural North - A Canadian Primer for Hosers, Immigrants and Socialists, recently released by Fernwood Publishing. Peshkov-Chow is a left-wing, hockey-loving, mongrel-Canadian, working-class activist in the tradition of Ginger Goodwin or Joe Hill, who sometimes takes over the mind and body of longtime Canadian journalist Gary Engler. Read other articles by Ernesto.

This article was posted on Wednesday, January 5th, 2011 at 7:00am and is filed under Economy/Economics, General

January 5, 2011 at 15:55:25

The Real Reason Fannie and Freddie Lost So Much Money

By David Fiderer (about the author)

opednews.com

How did Fannie and Freddie lose so much money? There are many reasons, but the two most important ones are Alt-A and interest-only loans, which generated most of the losses. These are not products for low or moderate-income borrowers. But they are products that invite fraud. Reports by the Federal Housing Finance Agency and the St. Louis Fed lay it all out in context. Once again, we see how the root causes of the real estate bubble are traceable to interest rates and fraud.

Interest Rates: Greenspan's Boom/Bust Cycles

The chart below from the St. Louis Fed is one of the best illustrations anywhere of how Fed policy creates predictable boom/bust cycles in the mortgage lending business. It could be titled, "What Alan Greenspan Wrought."

Since the 1980s, lenders have benefited from booms caused -- not by loans for new home purchases, which rose steadily year after year -- but by refinancing waves caused by drops in mortgage rates. Each ensuing bust, or sharp drop in refinancing volumes, began after rates started rising, or after everyone who wanted to refinance had already done so.

The chart illustrates two successive boom/bust cycles. The first applied to Fannie and Freddie (the Agencies), which specialized in 30-year fixed-rate loans. There was a 2001 - 2003 boom, when 90% of the GSEs' loans were fixed-rate. "Between 1971 and 2002, the fed-funds rate and the [fixed] mortgage rate moved in lockstep," wrote Greenspan. On December 31, 2000, the fed-funds rate was 6.5%. Six months later it was 3.75%. By year-end, it was 1.75%. He triggered the biggest refinancing boom in history, which accelerated when he slashed the Fed Funds rate to 1.25% in November 2002. At the end of 2000, America had $5.1 trillion in single-family residential mortgage debt. During 2001- 2003, $6.1 trillion had been refinanced (page 21 of Greenspan's study) .

Fed Funds Rate

During the ensuing bust of 2004 - 2006, the GSEs' loan volumes fell by more than 60%. The dropoff could have been worse but for the spike in cash-out refinancings, which were rationalized by rising real estate values. Fiscal year 2000 was the last time that a decisive majority of Fannie's loans were extended for home purchases. It was more a matter of people using their homes as piggybanks, as opposed to people buying homes they couldn't afford. It was a phenomenon that Greenspan followed closely.

Subprime/Alt-A and ARMs

The second cycle, which applied to subprime and the Alt-A loans, began with a 2004 - 2006 boom. The subprime/Alt-A bust began in 2007 and continues into the indefinite future. This was the first-ever boom tied to short-term interest rates. The St. Louis Fed, tracking the data on mortgage securitizations, shows how in 2004, for the first time ever, the majority of Alt-A originations were ARMs. Over three-quarters of subprime loans were ARMs, with the lion's share subject to reset after three years.

Greenspan promoted the second refinancing boom, both by continuing to reduce short-term rates after fixed-rate mortgage pricing flattened out in 2002, and by promoting ARMs. "Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives," wrote USA Today on February 24, 2004.

But ARMs blow up.

ARMs are much riskier than fixed-rate loans. Their failure rate shoots up whenever interest rates rise. Lew Ranieri, who invented mortgage securitizations and warned regulators and the rating agencies about reckless lending practices five years ago, explained the problem with ARMs last August, at lunch meeting hosted by Treasury and HUD to discuss, "Funding Housing and the Role of Securitization." he said:

I can give you a history of how many different types of floating rate loans we tried simply because the market wants more floating rate than it wants fixed. Every one of them blew up until Jim Montgomery created the California ARMs with caps and a floor. We never had a floating rate that didn't blow up on us. And that one is only a collar. All of these other structures that we have now never stood the test of time. You have nothing to prove to me that it's not going to blow up in your face.

So the only structure that we know that has stood the test of time, when they don't monkey with it, is the 15-year self-amortizing and the 30-year and the Jim Montgomery [coffee?] ARM, although that's only a collar. So when there are violent interest rate moves it gets kind of scary.

So as surely as the sun sets in the west, ARMs started defaulting after the fed-funds rate moved upward and their initial teaser rates were reset. In May 2004, the fed-funds rate was 1%. In May 2006, the fed-funds rate was 5%. Viola. Delinquencies among all ARMs spiked. By June 30, 2008, the rate of serious delinquencies among subprime ARMs was five times what it was three years earlier, according to the Mortgage Bankers Association. Serious delinquencies among prime ARMs had increased more than tenfold over the same period.

Source: Mortgage Bankers Association

Fraud: Government Policy to Keep the GSEs Out of Subprime

"Evidence indicates that the vast majority of mortgage fraud and predatory lending activities -- including excessive fees, provision of credit life insurance and prepayment penalties -- occurs in the conventional subprime lending market," said HUD Secretary Andrew Cuomo in 2000, citing a joint HUD/Treasury study on the topic. So the Clinton Administration drafted regulations to shut Fannie and Freddie out of the segment of the subprime market dominated by Wall Street securitizations. Cuomo wanted to go further, and lobbied for legislation to categorically prohibit many subprime lending practices. But at the end of the day, his influence only extended to the GSEs. Phil Gramm prevented any legislation from moving forward, and Alan Greenspan, who had the authority to oversee and regulate the mortgage lending business, continued his steadfast policy of refusing to do anything.

Out of concern that, "mortgages with predatory features undermine homeownership by low-and moderate-income families in derogation of the GSEs' Charter missions," (65 FR 65069, Oct. 31, 2000), Cuomo's HUD excluded ''Mortgages contrary to good lending practices,'' from being counted toward meeting Affordable Housing Goals (65 FR 65085). HUD also said it would also exclude "B&C loans" (i.e. subprime loans) from its calculation of the size of the overall market. (65 FR 65090).

The new regulations specifically excluded loans with: (a) Excessive fees, (b) Prepayment penalties, (c) Single premium credit life insurance, (or d) Evidence that the lender did not adequately consider the borrower's ability to make payments, plus any loans that the HUD secretary deemed to violate good lending practices. The GSEs could not include any loans from any lenders that steered prime borrowers to higher priced subprime products, or, acting as a loan servicer, failed to accurately report a borrower's repayment history.

Cuomo's exclusion of prepayment penalties, with limited carve-outs, made it almost impossible to buy into a mortgage securitization -- subprime or otherwise -- comprised of ARMs. Investors and rating agencies demand those penalties as an offset the prepayment risk in a static loan pool. Otherwise, creditworthy borrowers would refinance whenever rates moved in their favor, while the weaker borrowers, who could not refinance, worsened the default rate.

Private Label Deals Are The Worst

Cuomo's regulations stood the test of time because mortgages financed by Wall Street's private label securitizations performed exponentially worse that the rest of the market. A report from Amherst Securities divides mortgages between private label securitizations and everything else, including GSE loans. For private label deals, the rate of nonperformance is 31.1%; for all other mortgages, it's 8.6%. An FHFA comparison between GSE and private label loan performance confirms that:

The relatively worse performance of private-label MBS-financed mortgages was consistent across origination years and, within each year, across nearly all groups of loans with similar LTV ratios and FICO scores.

Violating the Spirit of Anti-Predatory Regs

Whether or not the GSEs followed the spirit and letter of those regulations is an entirely different matter. Then there's the question of whether the Bush Administration exerted any effort to enforce the regulations against predatory lending or the laws against mortgage fraud.

Interest-only loans or option ARMs, which make principal paydown optional, seem no less predatory than the products that Cuomo specifically excluded. These products have no legitimate business purpose. Consider a $100,000 amortizing mortgage with 6% interest. The monthly installments are $600. The installments on an interest-only loan are $500. If you can't handle that $100 difference, then you can't handle an upward shift in short-term interest rates, or a decline in the value of your home.

Alt-A should not be conflated with subprime. Look for a definition of Alt-A or subprime and you'll most likely get a fuzzy answer. Both segments show off high levels of fraud and high delinquency and default rates. But they are intended for very different market segments. In general, Alt-A borrowers have high FICO scores -- they are normally categorized as "A" rated -- and they finance less than 80% of the appraised value. At year-end 2008, the average FICO scores of Fannie's and Freddie's Alt-A loans, 719 and 725 respectively, were almost identical to that of their overall portfolio balances, and they financed, on average, 72% of the appraised property value. The key distinguishing characteristic about alt-A loan packages is that they have low documentation. The source of the of the borrower's income is frequently not confirmed. In addition, if the Alt-A loan were originated from a non-bank lender, the transaction would have escaped the scrutiny of anti-money laundering rules, which required documentation of the source of the initial down payment. In other words, the deal bypassed two key protections against fraud. The sources of credit comfort aren't necessarily worth much, since FICO scores can be rigged, and home appraisals can be inflated.

FICO scores are not based on income, which is why subprime borrowers should not be equated with low-income borrowers. Subprime is almost always defined as a borrower below a certain FICO cutoff. Moody's categorized mortgages according to FICO score: Subprime was below 625, Midprime was 625 - 700, Prime was above 700. The weighted average FICO of the ABX subprime indices was around 630.

Fannie and Freddie's originations, as segmented by FICO scores, were remarkably stable. And the overwhelming majority of loans in all categories were fixed-rate. The problem was that, within the subset of ARMs and among the high-FICO borrowers, they offered the worst types of loan products. Those loans definitely did not fit the requirements for the GSEs' Affordable Housing Goals.

How the Worst Loans Overlapped

The FHFA laid out what went wrong. First, it confirmed the two immutable rules of real estate lending: 1. Location, location, location; and 2. Timing is everything. That is, the biggest losses were in the states which saw the biggest price declines, and the biggest losses were from loans booked close to the peak of the bubble, which was around June 2006. All these categories overlap. A disproportionate share of Alt-A loans were booked near the peak of the bubble in states which saw the biggest price declines, and a disproportionate share of those loans were ARMs or interest-only.

The Private Sector Enabled Fannie and Freddie To Lay Off The Risk

Look back to the first chart from the St. Louis Fed, and you can figure out what happened. The GSEs were like most private lenders. When faced with reduced revenues and profits from their core business, they became willing to make up the shortfall by going downmarket. How did they get comfortable with the increased risk? With private mortgage insurance. The private market, in its wisdom, chose to insure almost all of the Fannie's and Freddie's loans with an original LTV in excess of 90%. Private insurers covered more than 30% of the GSEs' exposure to all loans with FICO scores below 660. They covered 35% of Fannie's interest-only exposure and almost 40% of its Alt-A exposure. Of course, GSEs made the mistake of believing that those insurers' double-A and single-A ratings meant something.

Even worse, they made the mistake of believing in the triple-A ratings assigned to the private label Alt-A and Option-ARM bonds they acquired. Those bonds incurred $25 billion in writedowns.

Bottom Line: At the end of the day, the GSEs' biggest problems came from loans that had nothing to do with Affordable Housing Goals, because they had the predatory attributes that some politicians had sought to outlaw. The GSEs' chief enabler for acquiring toxic loans was the private insurance market, and, perhaps, regulators who were indifferent to the dangers of predatory lending.

For over 20 years, David has been a banker covering the energy industry for several global banks in New York. Currently, he is working on several journalism projects dealing with corporate and political corruption that, so far, have escaped serious (more...)

The views expressed in this article are the sole responsibility of the author
and do not necessarily reflect those of this website or its editors.

Food Prices Reach Record High

NIA
National Inflation Association
Preparing Americans for Hyperinflation

Food Prices Reach Record High

According to the Food and Agriculture Organization (FAO), their index of of 55 food commodities has surged to a new all time high of 214.7 points, surpassing its previous highest record from June of 2008 of 213.5 points.

In other words, food prices (nominally) are at a record high, despite the fact that the BLS claims that current year-over-year food price inflation is only 1.5%. According to the FAO, “It will be foolish to assume this is the peak.”

NIA is projecting that the U.S. will see double-digit food price inflation in the first half of 2011. In 2010, Americans were lucky with most of our food price inflation being exported to China. With riots breaking out in China over food prices, food riots in the U.S. could be next.

During the past week, sugar futures reached a new 30-year high, coffee futures reached a new 13-year high, orange juice futures reached a new 3-year high, corn futures reached a new 29-month high, soybean futures reached a new 27-month high, and palm oil futures reached a new 33-month high. NIA believes that Americans will fully feel recent agricultural commodity price increases at their local supermarket within the next six months. NIA predicts that food inflation will become America’s top crisis of 2011.

Click here to see NIA’s President on FOX Business discussing food inflation.

Click here to see NIA’s food price projection report.

For more information from the FAO on the World Food Situation, click here.

Published on Wednesday, January 5, 2011 by the Associated Press

Census: Number of Poor May Be Millions Higher

by Hope Yen

WASHINGTON -- The number of poor people in the U.S. is millions higher than previously known, with 1 in 6 Americans — many of them 65 and older — struggling in poverty due to rising medical care and other costs, according to preliminary census figures released Wednesday.

A homeless person leaves the Urban Ministry soup kitchen in Charlotte, North Carolina November 15, 2009. With the potential to add more older Americans to the ranks of the poor, the numbers may underscore a need for continued — if not expanded — old-age benefits as a government safety net.(REUTERS/Carlos Barria/Files)

At the same time, government aid programs such as tax credits and food stamps kept many people out of poverty, helping to ensure the poverty rate did not balloon even higher during the recession in 2009, Obama's first year in office.

Under a new revised census formula, overall poverty in 2009 stood at 15.7 percent, or 47.8 million people. That's compared to the official 2009 rate of 14.3 percent, or 43.6 million, that was reported by the Census Bureau last September.

Across all demographic groups, Americans 65 and older sustained the largest increases in poverty under the revised formula — nearly doubling to 16.1 percent. As a whole, working-age adults 18-64 also saw increases in poverty, as well as whites and Hispanics. Children, blacks and unmarried couples were less likely to be considered poor under the new measure.

Due to new adjustments for geographical variations in costs of living, people residing in the suburbs, the Northeast and West were the regions mostly likely to have poor people — nearly 1 in 5 in the West.

The new measure will not replace the official poverty rate but will be published alongside the traditional figure this fall as a "supplement" for federal agencies and state governments to determine anti-poverty policies. Economists have long criticized the official poverty measure as inadequate because it only includes pretax cash income and does not account for medical, transportation and work expenses.

"Under the new measure, we can clearly see the effects of our government policies," said Kathleen Short, a Census Bureau research economist who calculated the revised poverty numbers. "When you're accounting for in-kind benefits and tax credits, you're bringing many people in extreme poverty off the very bottom."

The official measure is based on a 1955 cost of an emergency food diet and does not factor in other living costs. Nor does it consider non-cash government aid when calculating income, which surged higher in 2009 during the recession.

Short's analysis, published Wednesday as part of a series of census working papers on poverty, shows that out-of-pocket medical expenses had a significant impact in affecting the number of poor — without those costs, poverty would have dropped from 15.7 percent to 12.4 percent.

The effect was seen most notably among older Americans. Under the official poverty rate, about 8.9 percent lived in poverty, mostly because they benefit from Social Security cash payments. But when taking into account out-of-pocket medical expenses and other factors, that number rises to 16.1 percent.

The numbers cited for 2009 are preliminary, but census officials say they offer a good representative look at the state of U.S. poverty and where the numbers are headed when new 2010 figures are released this fall.

Among the findings:

_Transportation, commuting and child care costs weigh on working-age Americans. The official poverty rate for those ages 18 to 64 is currently 12.9 percent, the highest since 1960s levels that launched the war on poverty. Under the revised formula, working-age poverty increases even higher, to 14.8 percent.

_Without the earned income tax credit, the poverty rate under the revised formula would jump from 15.7 percent to 17.7 percent. The absence of food stamps separately would increase the poverty rate to 17.2 percent.

_Taking into account millions of uninsured people in the U.S. had little effect in increasing poverty, mostly because those without insurance tend to forgo medical care rather than find ways to pay for it. Those with government-sponsored insurance generally saw decreases in poverty under the new formula, while those with employer-provided coverage saw increases. Still overall poverty for those with public insurance vs. employer insurance was higher, 31.1 percent compared to 7.2 percent.

_Under the revised formula, the West had the most people in poverty at 19.2 percent. It was followed by the South (16.1 percent), the Northeast (14.3 percent) and the Midwest (12.5 percent).

The supplemental figures could take on added significance at a time when many in the government point to an overhaul of Medicare and Social Security as the best hope for reducing the ballooning federal debt. With the potential to add more older Americans to the ranks of the poor, the numbers may underscore a need for continued — if not expanded — old-age benefits as a government safety net.

© 2011 Associated Press

AlterNet.org

ECONOMY

Huffington Post / By Sam Harris

Is the Ruination of America Possible?

While the United States has suffered the worst recession in living memory, things have only gotten better for the wealthy.

January 5, 2011 |

While the United States has suffered the worst recession in living memory, I find that I have very few financial concerns. Many of my friends are in the same position: Most of us attended private schools and good universities, and we will be able to provide these same opportunities to our own children. No one in my immediate circle has a family member serving in Afghanistan or Iraq. In fact, in the aftermath of September 11th, 2001, the only sacrifice we were asked to make for our beloved country was to go shopping. Nearly a decade has passed, with our nation's influence and infrastructure crumbling by the hour, and yet those of us who have been so fortunate as to actually live the American dream -- rather than merely dream it -- have been spared every inconvenience. Now we are told that we will soon receive a large tax cut for all our troubles. What is the word for the feeling this provokes in me? Imagine being safely seated in lifeboat, while countless others drown, only to learn that another lifeboat has been secured to take your luggage to shore...

Most Americans believe that a person should enjoy the full fruits of his or her labors, however abundant. In this light, taxation tends to be seen as an intrinsic evil. It is worth noting, however, that throughout the 1950's -- a decade for which American conservatives pretend to feel a harrowing sense of nostalgia -- the marginal tax rate for the wealthy was over 90 percent. In fact, prior to the 1980's it never dipped below 70 percent. Since 1982, however, it has come down by half. In the meantime, the average net worth of the richest 1 percent of Americans has doubled (to $18.5 million), while that of the poorest 40 percent has fallen by 63 percent (to $2,200). Thirty years ago, top U.S. executives made about 50 times the salary of their average employees. In 2007, the average worker would have had to toil for 1,100 years to earn what his CEO brought home between Christmas in Aspen and Christmas on St. Barthes.

We now live in a country in which the bottom 40 percent (120 million people) owns just 0.3 percent of the wealth. Data of this kind make one feel that one is participating in a vast psychological experiment: Just how much inequality can free people endure? Have you seen Ralph Lauren's car collection? Yes, it is beautiful. It also cost hundreds of millions of dollars. "So what?" many people will say. "It's his money. He earned it. He should be able to do whatever he wants with it." In conservative circles, expressing any doubt on this point has long been synonymous with Marxism.

And yet over one million American children are now homeless. People on Medicare are being denied life-saving organ transplants that were routinely covered before the recession. Over one quarter of our nation's bridges are structurally deficient. When might be a convenient time to ask the richest Americans to help solve problems of this kind? How about now?

It is easy to understand why even the most generous person might be averse to paying taxes: Our legislative process has been hostage to short-term political interests and other perverse incentives for as long as anyone can remember. Consequently, our government wastes an extraordinary amount of money. It also seems uncontroversial to say that whatever can be best accomplished in the private sector should be. Our tax code must also be reformed -- and it might even be true that the income tax should be lowered on everyone, provided we find a better source of revenue to pay our bills. But I can't imagine that anyone seriously believes that the current level of wealth inequality in the United States is good and worth maintaining, or that our government's first priority should be to spare a privileged person like myself the slightest hardship as this once great nation falls into ruin.

And the ruination of the United States really does seem possible. It has been widely reported, for instance, that students in Shanghai far surpass our own in science, reading, and math. In fact, when compared to other countries, American students are now disconcertingly average (slightly below in math), where the average includes utopias like Kyrgyzstan, Azerbaijan, Albania, Kazakhstan, and Indonesia. President Obama was right to recognize this as a "Sputnik moment." But it is worse than that. This story was immediately followed by a report about giddy Creationists in the state of Kentucky being offered $40 million in tax subsidies to produce a full-scale model of Noah's ark. More horrible still, this ludicrous use of public money is probably a wise investment, given that such a monument to scientific ignorance will be guaranteed to attract an ovine influx of Christian tourists from neighboring states. Seeing facts of this kind, juxtaposed without irony or remedy at this dire moment in history, it is hard not to feel that one is witnessing America's irreversible decline. Needless to say, most Americans have no choice but to send their children to terrible schools -- where they will learn the lesser part of nothing and emerge already beggared by a national debt now on course to reach $20 trillion. And yet Republicans in every state can successfully campaign on a promise to spend less on luxuries like education, while delivering tax cuts to people who, if asked to guess their own net worth, could not come within $10 million of the correct figure if their lives depended on it.

American opposition to the "redistribution of wealth" has achieved the luster of a religious creed. And, as with all religions, one finds the faithful witlessly espousing doctrines that harm almost everyone, including their own children. For instance, while most Americans have no chance of earning or inheriting significant wealth, 68 percent want the estate tax eliminated (and 31 percent consider it to be the "worst" and "least fair" tax levied by the federal government). Most believe that limiting this tax, which affects only 0.2 percent of the population, should be the top priority of the current Congress.

The truth, however, is that everyone must favor the "redistribution of wealth" at some point. This relates directly to the issue of education: as the necessity of doing boring and dangerous work disappears -- whether because we have built better machines and infrastructure, or shipped our least desirable jobs overseas -- people need to be better educated so that they can apply themselves to more interesting work. Who will pay for this? There is only one group of people who can pay for anything at this point: the wealthy.

To make matters more difficult, Americans have made a religious fetish of something called "self-reliance." Most seem to think that while a person may not be responsible for the opportunities he gets in life, each is entirely responsible for what he makes of these opportunities. This is, without question, a false view of the human condition. Consider the biography of any "self-made" American, from Benjamin Franklin on down, and you will find that his success was entirely dependent on background conditions that he did not make, and of which he was a mere beneficiary. There is not a person on earth who chose his genome, or the country of his birth, or the political and economic conditions that prevailed at moments crucial to his progress. Consequently, no one is responsible for his intelligence, range of talents, or ability to do productive work. If you have struggled to make the most of what Nature gave you, you must still admit that Nature also gave you the ability and inclination to struggle. How much credit do I deserve for not having Down syndrome or any other disorder that would make my current work impossible? None whatsoever. And yet devotees of self-reliance rail against those who would receive entitlements of various sorts -- health care, education, etc. -- while feeling unselfconsciously entitled to their relative good fortune. Yes, we must encourage people to work to the best of their abilities and discourage free riders wherever we can -- but it seems only decent at this moment to admit how much luck is required to succeed at anything in this life. Those who have been especially lucky -- the smart, well-connected, and rich -- should count their blessings, and then share some of these blessings with the rest of society.

The wealthiest Americans often live as though they and their children had nothing to gain from investments in education, infrastructure, clean-energy, and scientific research. For instance, the billionaire Steve Ballmer, CEO of Microsoft, recently helped kill a proposition that would have created an income tax for the richest 1 percent in Washington (one of seven states that has no personal income tax). All of these funds would have gone to improve his state's failing schools. What kind of society does Ballmer want to live in -- one that is teeming with poor, uneducated people? Who does he expect to buy his products? Where will he find his next batch of software engineers? Perhaps Ballmer is simply worried that the government will spend his money badly -- after all, we currently spend more than almost every other country on education, with abysmal results. Well, then he should say so -- and rather than devote hundreds of thousands of dollars to stoking anti-tax paranoia in his state, he should direct some of his vast wealth toward improving education, like his colleague Bill Gates has begun to do.

There are, in fact, some signs that a new age of heroic philanthropy might be dawning. For instance, the two wealthiest men in America, Bill Gates and Warren Buffett, recently invited their fellow billionaires to pledge the majority of their wealth to the public good. This is a wonderfully sane and long overdue initiative about which it is unforgivable to be even slightly cynical. But it is not sufficient. Most of this money will stay parked in trusts and endowments for decades, and much of it will go toward projects that are less than crucial to the future of our society. It seems to me, however, that Gates and Buffett could easily expand and target this effort: asking those who have pledged, along with the rest of the wealthiest Americans, to immediately donate a percentage of their net worth to a larger fund. This group of benefactors would include not only the super-rich, but people of far more modest means. I do not have 1/1000 the wealth of Steve Ballmer, but I certainly count myself among the people who should be asked to sacrifice for the future of this country. The combined wealth of the men and women on the Forbes 400 list is $1.37 trillion. By some estimates, there are at least another 1,500 billionaires in the United States. Something tells me that anyone with a billion dollars could safely part with 25 percent of his or her wealth -- without being forced to sell any boats, planes, vacation homes, or art. As of 2009, there were 980,000 families with a net worth exceeding $5 million (not including their primary residence). Would a one-time donation of 5 percent really be too much to ask to rescue our society from the maw of history?

Some readers will point out that I am free to donate to the treasury even now. But such solitary sacrifice would be utterly ineffectual, and I am no more eager than anyone else is to fill the pork barrels of corrupt politicians. However, if Gates and Buffett created a mechanism that bypassed the current dysfunction of government, earmarking the money for unambiguously worthy projects, I suspect that there are millions of people like myself who would not hesitate to invest in the future of America.

Imagine that Gates and Buffett raised a trillion dollars this way: what should we spend it on? The first thing to acknowledge is that almost any use of this money would be better than just letting it sit. Mindlessly repairing every bridge, tunnel, runway, harbor, reservoir, and recreation area in the United States would be an improvement over what are currently doing. However, here are the two areas of investment that strike me as most promising:

Education: It is difficult to think of anything more important than providing the best education possible for our children. They will develop the next technologies, medical cures, and global industries, while mitigating their unintended effects, or they will fail to do these things and consign us all to oblivion. The future of this country will be entirely shaped by boys and girls who are just now learning to think. What are we teaching them? Are we equipping them to create a world worth living in? It doesn't seem so. Our public school system is an international disgrace. Even the most advantaged children in the United States do not learn as much as children in other countries do. Yes, the inefficiencies in our current system could be remedied, and must be, and these savings can then be put to good use -- but there is no question that a true breakthrough in education will require an immense investment of further resources. Here's an expensive place to start: make college free for anyone who can't afford it.

Clean Energy: As Thomas Friedman and many others have pointed out, our dependence on nonrenewable sources of energy is not only bad for our economy and the environment, it is obliges us to subsidize both sides of the clash of civilizations. Much of the money we spend on oil is used to export the lunatic ideology of conservative Islam -- building mosques and madrassas by the tens of thousands, recruiting jihadists, and funding terrorist atrocities. We should have devoted ourselves to a clean-energy Manhattan Project thirty years ago. Success on this front would still yield enormous wealth in this country, while simultaneously bankrupting the Middle Eastern states that only pretend to be our allies. Our failure to rise to this challenge already counts as one of the greatest instances of masochistic stupidity in human history. Why prolong it?

I am aware that a proposal of this kind is bound to seem quixotic. But what's to stop the wealthiest Americans from sponsoring a 21st Century Renaissance? What politician would object to our immediately spending a trillion dollars on improvements in education and energy security? Perhaps there are even better targets for this money. Let Gates and Buffett convene a team of brilliant people to lay out the priorities. But again, we should remember that they could scarcely fail to improve our situation. Simply repaving our roads, the dilapidation of which causes $54 billion in damage to our cars every year, would be better than doing nothing.

Sam Harris is a neuroscientist and the author of the New York Times bestsellers, The End of Faith, Letter to a Christian Nation, and The Moral Landscape.