Article 43

 

Monday, January 14, 2013

Austerity American Style Part 7 - Big, Bad Cronies

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“Failure of Epic Proportions”: Treasury Nominee Jack Lews Pro-Bank, Austerity, Deregulation Legacy

Democracy Now
January 11, 2013

Former bank regulator William Black and Rolling Stone’s Matt Taibbi join us to dissect the career of Jack Lew, President Obamas pick to replace Treasury Secretary Timothy Geither. Currently ObamaҒs chief of staff, Lew was an executive at Citigroup from 2006 to 2008 at the time of the financial crisis. He backed financial deregulation efforts while he headed the Office of Management and Budget under President Bill Clinton. During that time, Clinton enacted two key laws to deregulate Wall Street: the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000. Black, a white-collar criminologist and former senior financial regulator, is the author of “The Best Way to Rob a Bank Is to Own One.” A contributing editor for Rolling Stone magazine, Taibbi is the author of “Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.”

JUAN GONZLEZ: President Obama is facing criticism for nominating another former Wall Street executive to become treasury secretary. On Thursday, Obama tapped his own chief of staff, Jack Lew, to replace Timothy Geithner. Lew was an executive at Citigroup from 2006 to 2008 at the time of the financial crisis. He served as chief operating officer of Citigroup’s Alternative Investments unit, A GROUP THAT BET ON the housing market to collapse.

Lew has also long pushed for the deregulation of Wall Street. From 1998 to January 2001, he headed the Office of Management and Budget under President Clinton. During that time, Clinton signed into law two key laws to deregulate Wall Street: the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000.

On Thursday, independent Senator Bernie Sanders of Vermont criticized Lews nomination, saying, quote, “We donҒt need a treasury secretary who thinks that Wall Street deregulation was not responsible for the financial crisis.”

At a press conference at the White House Thursday, President Obama praised Jack Lews record.

PRESIDENT BARACK OBAMA: Jack has the distinction of having worked and succeeded in some of the toughest jobs in Washington and the private sector. As a congressional staffer in the 1980s, he helped negotiate the deal between President Reagan and Tip OҒNeill to save Social Security. Under President Clinton, he presided over three budget surpluses in a row. So, for all the talk out there about deficit reduction, making sure our books are balanced, this is the guy who did itthree times. He helped oversee one of our nationגs finest universities and one of our largest investment banks. In my administration, hes managed operations for the State Department and the budget for the entire executive branch. And over the past year, IҒve sought Jacks advice on virtually every decision that IҒve made, from economic policy to foreign policy.

AMY GOODMAN: For more on the nomination of Jack Lew, as well as other news about Wall Street, were joined by two guest. William Black, author of The Best Way to Rob a Bank Is to Own One_, heҒs associate professor of economics and law at the University of Missouri-Kansas City, former senior financial regulator. His recent 2446848.html">article for the Huffington Post is called “Jacob Lew: Another Brick in the Wall Street on the Potomac.”

Were also joined by Matt Taibbi, contributing editor for Rolling Stone magazine, his latest piece, “Secrets and Lies of the Bailout,” which weҒll talk about in a bit, author of Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.

We welcome you both to Democracy Now! Professor Black, lets start with you. Your assessment of Jack Lew?

WILLIAM BLACK: Well, on financial matters, Jack Lew has been a failure of pretty epic proportions, and he gets promoted precisely because he is willing to be a failure and is so useful to Wall Street interests. So, youҒve mentioned two of the things in terms of the most important and most destructive deregulation under President Clinton by statute. But he was also there for much of the deregulation by rule, and a strong proponent of it, and he was there for much of the cutting of staff. For example, the FDIC, the Federal Deposit Insurance Corporation, lost three-quarters of its staff, and that huge loss began under Clinton. And the whole reinventing government, Lew was a strong supporter of that. And, for example, we were taughtinstructed by Washington that we were to refer to banks as our “clients” in our role as regulators and to think of them as clients.

He goes from there to Wall Street, where he was a complete failure. You noted that part of what Citicorp did was bet that housing would fall. That was actually one of their winning bets. But they actually made a bunch of losing bets, as well. And the unit that he was heading would have not been permissible but for the deregulation of getting rid of Glass-Steagall under President Clinton. And you saw, as an example of Citicorp, why we shouldnגt be doing this. Why would we create a federal subsidy where all of us, through the U.S. government, are on the hook for Citicorps gambling on financial derivatives for its own account, you know, running a casino operation? That makes absolutely no public policy sense.

Then he comes into the Obama administration, and he was disastrously wrong. He tried very hard to impose austerity on the United States back in 2011, which is - he wanted, you know, THE EUROPEAN STRATEGY, which has pushed the eurozone back into recession, and Spain, Greece and Italy into Great Depression levels of unemployment.

And this is the guy, after all of these failures, who also is intellectually dishonest. He will not own up to his role and deregulations role and de-supervisionҒs role in producing this crisisand not just this crisis, but the Enron-era crisis and the savings-and-loan debacle.

JUAN GONZׁLEZ: Well, Matt Taibbi, your reaction to the nomination of Jack Lew by President Obama?

MATT TAIBBI: I think theres a couple things. I agree with everything that Professor Black said. I think itҒsthe symbolism of this choice is, I think, very important for people, just the mere fact of picking somebody from Citigroup and from that same Bob Rubin nexus that Timothy Geithner came from. And, you know, you heard Barack Obama, as heגs introducing Jack Lew, praising Tim Geithner as somebody whos going to go down in history as one of the great treasury secretaries of all time. I think what this tells everybody is that Jack Lew is going to represent absolute continuity with the previous treasury secretary, who had a very specific agenda when it came to Wall Street. And I think weҒre just going to expect more of the same, more of the same really being overt and covert support of these too-big-to-fail institutions that Lew worked for, Citigroup being the worst and most disastrous example of that kind of company. So I think it’s the choice of somebody from that particular firm is fraught with pretty upsetting symbolism for the country, I think.

AMY GOODMAN: I want to go back to 2010, when Jack Lew appeared before the Senate Budget Committee for a confirmation hearing after he was nominated by President Obama to head the Office of Management and Budget. During the hearing, he was questioned by Senator Bernie Sanders.

SEN. BERNIE SANDERS: Do you believe that the deregulation of Wall Street, pushed by people like Alan Greenspan, Robert Rubin, contributed significantly to the disaster we saw on Wall Street several years ago?

JACK LEW: Senator, Ias when we discussed, I mentioned to you, I donגt consider myself an expert in some of these aspects of the financial industry. My experience in the financial industry has been as a manager, not as an investment adviser. My sense is, as someone who has, you know, generally been familiar with these trends, is that the problems in the financial industry preceded deregulation. There was an increasing emphasis on highly abstract leveraged derivative products that got us to the point that, in the period of time leading up to the financial crisis, risks were taken. They werent fully embraced. They werenҒt well understood. I dont personally know the extent to which deregulation drove it, but I donҒt believe that deregulation was the, you know, proximate cause. I would defer to others who are more expert about the industry to try and parse it better than that.

AMY GOODMAN: Thats Jack Lew responding to Bernie Sanders, who, when President Obama announced his nomination of treasury secretaryҗto treasury secretary of Jack Lew, Senator Sanders said, “We dont need a treasury secretary who thinks that Wall Street deregulation was not responsible for the financial crisis.” Professor Black?

WILLIAM BLACK: Well, I mean, we can agree that he lacks expertise in the area, but he was supposed to have expertise. This was supposed to be his area of expertise, both in his role as OMB head under Clinton, and then, of course, as being in the industry and actually implementing the fruits of this deregulation.

So - and he has the history, in one sense, correct. He says the problem arose before deregulation. Thats true that derivatives were already a problem before deregulation. And so, Brooksley Born proposes to deal with the problem by having a regulation to deal with credit default swaps. And then the Clinton administration, in league with Greenspan, in league with Phil Gramm, and with one of the important architects of all of this being Jack Lew, squashes Brooksley Born to destroy the proposed regulation and to pass something, the Commodity Futures Modernization Act - talk about a dishonest phrase that not only said, “You, Brooksley Born, cannot go forward with this particular regulation,” the statute actually said, “We hereby withdraw all regulatory powers to protect the nation, period. From the federal government, from the state and local governments, we exempt you from the gambling laws. We exempt you from the boiler room laws to prevent fraudulent operations.” It’s one of the most extraordinary abusive things in the world, heavily involved with AIGs ability to produce not just the disaster at AIG, but the disaster of credit - of the CDOs that blew up a larger portion of the world. And those CDOs would not have been possible without these credit default swaps.

So, this is a guy who designed the disaster, participated in the disaster on Wall Street, was made rich by it. We havent talked about the fact that he got a huge bonus for destroying - helping to destroy the world at Citicorp. And he got it through the bailout of Citicorp by the U.S. government. So he produces disaster, profits from the disaster, we pay him bonuses for causing the disaster, and then we have the absurdity of the president of the United States saying that this is a man with a track record of unmitigated success. It is exactly the opposite, in terms of finance. He is a worthy successor to Tim Geithner, in that he has screwed up everything substantively he has ever touched.

JUAN GONZLEZ: William Black, IRd like to ask you about another aspect of Lews portfolio: his stance on austerity. You have raised questions in terms of his continued support of austerity measures, as opposed to efforts by the government to stimulate the economy. Could you talk about that?

WILLIAM BLACK: Yeah, and this is an irony, as well, in terms of the political aspects and Obama. So, under Lew, in his new incarnation a while back as OMB head of - for Obama, I have a piece that talks about how OMB under Obama sounds almost exactly like the tea party. So, it adopts all of their rubric about, you know, these terrible social programs, this terrible safety net and how its going to imperil our nation, and what we need to do is be balancing the budget - in other words, austerity.

Now, had Obama succeeded in following Lews recommendation in July 2011, when they were trying to negotiate the so-called “grand bargain,” which is really the grand betrayal of the safety net - unemployment in July 2011 was 9.1 percent. AUSTERITY in the United States would have done just what it did in Europe. Unemployment would have surged. So, all through 2012, the election year, unemployment would have been going up well above 10 percent, quite possibly into the 11 and 12 percent range, which is where it is in Europe. Obama would have been toast; would have been no chance. He would have been crushed in the election. The Democrats would have lost control of the Senate, and such. And these folks, even today, are claiming that the failure to achieve the grand betrayal and to cut the safety net is their great disappointment. So, they not only tried to destroy themselves and the country, they are continuing to do that, and indeed, but for Harry Reid literally throwing the Obama administrations suggestion that they do cuts to the safety net in the fireplace and burning it up, they would have gotten it as part of this interim austerity deal that was just done about eight days ago.

AMY GOODMAN: We’re going to break, then come back to this discussion with William Black, professor at University of Missouri-Kansas City, and Matt Taibbi, Rolling Stone editor. “Secrets and Lies of the Bailout” [is] his latest piece. This is Democracy Now! Back in a minute.

SOURCE

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No More Corporate Welfare

By Sheldon Richman
The Project to Restore America
January 15, 2013

When Congress and President Obama came up with their beyond-the-last-minute deal to put off addressing the coming fiscal crisis, the Wall Street Journal TURNED THE SPOTLIGHT ON a little-noticed, yet too typical aspect of Washington’s machinations: “The bill’s seedier underside is the $40 billion or so in tax payoffs to every crony capitalist and special pleader with a lobbyist worth his million-dollar salary. Congress and the White House want everyone to ignore this corporate-welfare blowout,” the Journal reported. 

So a bill that was represented as the first steps toward fiscal responsibility (try not to laugh too hard) contained billions of dollars in corporate welfare. And it was a bipartisan affair.

How sad. How Washington! 

Beneficiaries of the various special tax treatments and exceptions includes owners of NASCAR speedways, companies in American Samoa, rum producers, businesses on Indian reservations, railroads, Hollywood moviemakers, and green-energy firms, including wind-power equipment producers.

As the Journal commented, “The great joke here is that Washington pretends to want to pass ‘comprehensive tax reform,’ even as each year it adds more tax giveaways that distort the tax code and keep tax rates higher than they have to be.”

CORPORATE WELFARE is nothing new, of course, and according to Cato Institute budget analyst Tad DeHaven, in “Corporate Welfare in the Federal Budget,” fiscal 2012 saw $98 billion in “programs that provide payments or unique benefits and advantages to specific companies or industries.” (DeHaven acknowledges that defining and calculating corporate welfare is “not an exact science.” Indeed, not. To the extent the U.S. military safeguards access to, say, Middle East oil fields, that portion of the Pentagon budget can be regarded as corporate welfare, but it’s not usually thought of that way. Similarly, highway subsidies to commercial shippers may give certain firms advantages over firms that don’t engage in lost-distance shipping.)

Manipulating the tax code to benefit particular interests has obvious appeal for politicians - it’s a source of power and influence - and a code that did not permit such manipulation would be much less attractive to them. Outright cash subsidies from the taxpayers, while not unheard of, smacks too much of cronyism and is more likely to alienate taxpayers. But complicated exceptions written into the tax laws can be presented as creative governance on behalf of the public interest. But it is cronyism as offensive as outright subsidies.

The benefits of a market economy lie in free competition. When the market is rigged by politics, benefits are diverted from consumers to politically chosen producers (who can be counted on to reward their patrons). This is what CORPORATE WELFARE accomplishes. In a freely functioning market economy, all products compete with one another, and producers compete not only for customers, but also for scarce factors of production, including labor, land, and materials. Remember: We live in a world of scarcity. Factors used for one purpose cannot be used for another. Tradeoffs are necessary. The price system, which is ultimately configured by consumer preferences, guides the competitive process by which the factors of production are employed in their various purposes. For example, an entrepreneur who expects her product to be more profitable than a rival’s product will be in a better position to bid factors away from the rival, and if the entrepreneur’s forecast is correct, consumers will have been well served. 

But if the government intervenes with corporate welfare to lower the rival’s costs, whether by specially reducing taxes or some other manipulative method, consumers will be defied because products they prefer will not be produced or not produced in the quantities desired. The politically connected businessperson will profit at their expense, as well as the expense of the competitors who were treated discriminately by the tax code, especially if the government buys the favored product. 

Corporate welfare is not primarily about lowering taxes. That would be a worthwhile goal, of course, and could be achieved simply by slashing tax rates and simplifying the code. But when taxes are lowered selectively by writing complicated exceptions into the law, the goal is to bestow privileges on cronies, not to reduce the burden of government on all. Corporate welfare, among its many sins, violates equal protection under the law.

Essential to a free society is people’s ability to go about their peaceful business unmolested by government. A good part of that activity includes producing goods and services for consumers, who in turn are free to say yes or no to the offerings. Corporate welfare is a way for politicians to maintain the faקade of a free economy while rewarding some activities and punishing others. The politicians substitute their preferences for the preferences of consumers, distorting relative prices in the process. Thus if government artificially makes it more profitable to produce wind turbines than washing machines, political judgments replace economic judgments. This is not something to be welcomed. Such political judgments are made by men and women who never face the market test and who risk no capital of their own. The failures of their schemes will not be easily traceable to their decisions (what politician or bureaucrat suffered because of the Solyndra fiasco?), and much of the cost of those policies will be in the form of goods and services not produced because of the diversion of resources. Thus voters will be in a poor condition to assess the performance of politicians, making officeholders largely unaccountable for their economic meddling. Inevitably, the authors of corporate-welfare schemes will blame the nonexistent “the free market.”

Even if a particular citizen were to understand the source of the problem, it would take a herculean effort to unseat the politician(s) responsible, and if even that exceeded, it would not necessarily change anything. That citizen would still be forced to support the meddlesome system.

Contrast this with the free-functioning market economy. If entrepreneurs err and destroy value by misusing scarce resources, consumers’ retribution may be swift: They can simply withhold their money and reject the ill-conceived products, forcing the entrepreneur out of business and shifting resources to more able hands. Ironically, it is the free market that puts control into the hands of the people. Political democracy is only the palest approximation of the “true democracy” of the marketplace.

As we can see, consumer clout far exceeds voter clout, and therefore economic producerswhen they have no access to government privilege or shelter from competitionחare far more responsive to the people than are politicians. Officeholders create theatrical effects to impress voters. Entrepreneurs have to produce results. 

Tax benefits directed at particular interests are often defended on grounds of “market failure.” It’s said that under some circumstances rational individual behavior in the market yields a less-than-optimal outcome for the whole public. This can be answered in several ways. First, if such failures truly exist, they represent profit opportunities to entrepreneurs. There’s a general principle here that is often overlooked. The case for competitive markets is not that they are perfecthow could they be when they are filled with fallible human beings? Rather, the case is that discovery and correction of errors produces entrepreneurial profit. No lure is more powerful than the prospect of profit. 

Moreover, even in the unlikely event a market failure couldn’t be corrected, it would not follow that a government solution would be better than adapting to the situation. Why assume politicians won’t make things worse, particularly in light of the perverse incentive system described earlier? There is simply no reason to believe that political operatives can have the incentives or information needed for ameliorating undesired market outcomes. One cannot invoke market failure without coming to grips with government failure.

Sheldon Richman is the vice president of The Future of Freedom Foundation (FFF) and editor of its monthly, Future of Freedom. He is the author of three books published by FFF: Separating School & State: How to Liberate America’s Families (1994); Your Money or Your Life: Why We Must Abolish the Income Tax (1999); and Tethered Citizens: Time to Repeal the Welfare State (2001). Previously, Richman was the editor of The Freeman (Foundation for Economic Education), 1997-2012.

SOURCE

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Obama Nominates Americas Biggest Walmart Cheerleader as His Chief Economic Adviser
Jason Furman thinks Walmart is a ғprogressive success story.

By Lynn Parramore
Alternet
June 11, 2013

On June 10, 2013, President Obama announced his intention to nominate Jason Furman to become the next chairman of the Council of Economic Advisers. This is a big-time, highly influential post. So what kind of economist is Furman?

One who thinks Walmart is the best thing since sliced bread.

For Furman, Walmart is nothing short of a miracle for America’s poor and working-class folks. For him, progressives should be cheering the firm: he even wrote a 16-page paper titled, ”Walmart: A Progressive Success Story,” which was posted on the Center for American Progress website. Heres a sample of Furmanomics:

“By acting in the interests of its shareholders, WalMart has innovated and expanded competition, resulting in huge benefits for the American middle class and even proportionately larger benefits for moderate-income Americans.”

Furman has championed the company’s low prices as a big boost to lower-income folks, and views Walmart jobs as good opportunities, never mind the low wages. In 2006, Jason Furman wrote a letter to author Barbara Ehrenreich, published on Slate, in which he extolled the Walmart business model:

A range of studies has found that Wal-Mart’s prices are 8 percent to 39 percent below the prices of its competitors. The single most careful economic study, co-authored by the well-respected MIT economist Jerry Hausman, found that grocery sales by Wal-Mart and other big-box stores made consumers better off to the tune of 25 percent of food consumption. That doesn’t mean much for those of us in the top fifth of the income distribution we spend only about 3.5 percent of our income on food at home and, at least in my case, most of that shopping is done at high-priced supermarkets like Whole Foods. But that’s a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household income - unless the family lives in New York City or one of the other places that have successfully kept Wal-Mart and its ilk away.”

In Furmans view, ғthe US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous.

For the man who will have President ObamaԒs ear on vital matters like jobs, the evidence of whether Walmarts wages and benefits are substandard is ғmurky. And he doesnԒt much care for those who question Walmarts approach: In the 2006 dialogue with Ehrenreich on Slate, he upbraided activists who had pushed the firm to increase wages and offer better benefits:

“The collateral damage from these efforts to get Wal-Mart to raise its wages and benefits is way too enormous and damaging to working people and the economy more broadly for me to sit by idly and sing ‘Kum-Ba-Ya’ in the interests of progressive harmony.Ҕ

Unsurprisingly, most progressives do not share Furmans rosy view of Walmart. As activist and philanthropist Leo Hindery, Jr. wrote in his article ғ WalMarts Giant Sucking Sound,Ҕ the companys business model has been detrimental to the American economy and sucks the vitality our of our communities. Yes, Walmart has lowered prices for American customers, though not as much as Furman claims, but it has also helped to kill the American labor movement which ensures workers a fair shake, it has helped to send jobs overseas, and it has instilled practices, like relying on part-time employees whose wages are so low they can’t sustain themselves without relying on government assistance, that spread misery everywhere. In the maniacal quest to lower prices, it has pioneered the use of ever-cheaper materials and lowered the quality of consumer goods. It has been accused of predatory pricing, a practice in which a business sets a price on an item very low, even incurring a loss, in order to drive a competitor out of business and establish a monopoly. In emphasizing shareholder value over all else, it has forgotten its responsibiltiy to other stakeholders in the company, like workers or taxpayers whose investments help the company succeed. The negative impact of Walmart’s business model impacts people whether or not they shop at the store, a phenomenon explored by Charles Fisher in his book, The Wal-Mart Effect.

SOURCE

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Austerity American Style
[PART 1] - Ending The Safety Net
[PART 2] - Enough Is Enough
[PART 3] - Big, Bad Businessmen
[PART 4] - Big, Bad Banks
[PART 5] - Selling Out The Public
[PART 6] - No Jobs Plan
[PART 7] - Big, Bad Cronies
[PART 7] - Red-State Model

Posted by Elvis on 01/14/13 •
Section Dying America • Section Austerity American Style
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