Who Holds Wall Street Accountable?
Posted: October 5, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, Surreality, Team Obama, The Bonus Class, The Great Recession, The Media SUCKS, U.S. Economy | Tags: Andrew Ross Sorkin, Bear Stearns, Goldman Sachs, Hank Paulson, Investment banks, Matt Taibbi, Morgan Stanley, Simmons Bedding Company, Wall Street Comments Off on Who Holds Wall Street Accountable?
If your answer included any of number regulators or congress with its oversight duties or the traditional media with its watchdog of the public duties sorta answer, that would be a wrong answer. There were so many articles today about past and present Wall Street tomfoolery that I almost forgot to check the Wall Street Journal or The Hill. Instead, I”m relying on my subscriptions to things I’m supposed to be reading in the bath tub with Chopin playing in the background and a glass of Pinot Grigio nearby. Today, the best read came from Vanity Fare and was written by Andrew Ross Sorkin. (My Vanity Fare showed up today along with my latest copy of The Economist with the cover shouting “After the Storm: How to make the best of the Recovery.” ) My bottom line is still that Wall Street caused this and they are not only NOT cleaning it up, they are not being cleaned up.
I’m also checking out Matt Taibbi and TaibBlog now that his infamous vampire squid article in July’s Rolling Stone defined the shadowy world of Goldman Sachs better than just about any thing I’ve recently read. Matt’s blog today takes on naked selling or ‘naked swindling’ in the succinct framing of the Wall Street Deal that I now consider better jargon than that of the derivatives blah blah blah that I was taught in any of my PhD level corporate finance or investment classes. I may be able to do the proof for the Black Scholes formula but I will never be able to prove its social usefulness.
Actually, this takes me back to the Grey Lady and my first read of the day about the now bankrupt Simmons Bedding company that was the cash cow purposely inflicted with mad cow disease. Now days, it’s still more about the arbitrage deal and the leveraged deal that produces dividends than it is about what a company produces and the lives of the workers and long time managers who produce valuable stuff. It’s no longer build it and they will come. It’s leverage it to the hilt, take your dividends now, and find the next sucker with the next model that can hyperactivate the milking machine. It’s another real life example of Gordan Gekko and the greed is good speech. Spend some time with the Simmons story before you hit Taibblog and definitely the Sorkin article in Vanity Fare. It’ll put you in the right frame of mind.
Some times being Right doesn’t always make you Feel Good
Posted: October 3, 2009 Filed under: Global Financial Crisis, Team Obama, The Bonus Class, The Great Recession, The Media SUCKS, U.S. Economy, Voter Ignorance | Tags: balanced budget amendment, DeLong, Krugman, Obamanomics, Reaganomics, Stiglitz, stimulus plan, unemployment Comments Off on Some times being Right doesn’t always make you Feel Good
You may remember back in January that I was not happy and very outspoken about the size of the Obama Stimulus plan. I was not impressed by the content or with the mix between tax cuts and direct government spending. You may recall that the Blue Dogs interminable resistance to do anything that might wake their sleeping Republican voters and the desire on the part of POTUS to appease the unappeasable remnants of the Republican party led to a very watered down plan. At the time, all that I could hope was that it might be enough to get the ball rolling. However, I felt that the historical multiplier –especially for taxes– was not going to kick in the way it had in the past.
The release of the miserable unemployment data yesterday (not all that unexpected as you’ll recall) as well as an estimate of our output gap now clearly squares with my earlier view as well as the earlier views of Brad deLong, Paul Krugman, Mark Thoma and Joseph Stiglitz among others. The stimulus was clearly not the blue pill the economy needed. (That last link is from me saying this same thing in July.)
The Washington Monthly says the decision to appease centrists and Republicans looks even worse in retrospect. Now, the media gets it. Color me completely unsurprised because I told you so back then that it wasn’t going to be enough. I even mentioned it recently when it appeared the stimulus plans of German, France, and Japan had already lifted those economies from the worst of it last spring. These countries emphasized direct government spending. We mostly shuffled a few funds as stop gaps and the created a bunch of tax cuts that no one really needs right now.
In February, when the debate over the economic stimulus package was at its height, a handful of “centrist” Senate Republicans said they’d block a vote on recovery efforts unless the majority agreed to slash over $100 billion from the bill.
The group, which didn’t have any specific policy goals in mind and simply liked the idea of a small bill, specifically targeted $40 billion in proposed aid to states. Helping rescue states, Sen. Collins & Co. said, does not stimulate the economy, and as such doesn’t belong in the legislation. Democratic leaders reluctantly went along — they weren’t given a choice since Republicans refused to give the bill an up-or-down vote — and the $40 billion in state aid was eliminated.
At the time, it seemed like a very bad idea. That’s because it was a very bad idea.
In the past, government hiring had managed to somewhat offset losses in the private sector, but government jobs declined by 53,000, with the biggest number of cuts on the local and state levels. Even the Postal Service, which is included in the public-sector job statistics, dropped 5,300 jobs.
“The major surprise came from the public sector, where every level of government cut back,” Naroff said. “The budget crises at the state and local levels have caused an awful lot of belt-tightening.”
It’s still about the Jobs!
Posted: October 2, 2009 Filed under: Global Financial Crisis, The Great Recession, U.S. Economy | Tags: discouraged workers, Paul Krugman, Robert Riech, Underemployment, unemployment Comments Off on It’s still about the Jobs!
I keep repeating this like a mantra, but an economy that relies on households buying 70% of it’s production, and households that rely on wages for 67% of their income, is not going to get healthy until it creates more jobs. That’s why Robert Riech, Paul Krugman, and this Cajun Country Economist are still stuck on job creation and the unemployment rate. It appears the DJ and other stock indexes are taking notice too. This is from today’s Gray Lady.
The American economy lost 263,000 jobs in September — far more than expected — and the unemployment rate rose to 9.8 percent, the government reported on Friday, dimming prospects of any meaningful job growth by the end of the year.
The Labor Department’s monthly snapshot of unemployment dashed hopes that the pace of job losses would continue to slow as the economy clawed its way back from a deep recession. Economists had expected 175,000 monthly job losses.
“People have been celebrating that we’re through the financial crisis, but the underlying issues are all still there,” said Dean Baker, co-director of the Center for Economic and Policy Research. “We’ve lost trillions of dollars in housing wealth, and consumption’s going to be weak. It’s not the ’30s, but there’s really nothing to boost the economy.”
You’ll recall that it’s been two years since the NBER dated the beginning of this Great Recession. That means the U.S. economy has been hemorrhaging jobs for TWO years now. We’ve got it bad and that ain’t good. Robert Reich, President Clinton’s former Labor Secretary has the “Truth about Jobs” in his blog entry today.
Unemployment will almost certainly in double-digits next year — and may remain there for some time. And for every person who shows up as unemployed in the Bureau of Labor Statistics’ household survey, you can bet there’s another either too discouraged to look for work or working part time who’d rather have a full-time job or else taking home less pay than before (I’m in the last category, now that the University of California has instituted pay cuts). And there’s yet another person who’s more fearful that he or she will be next to lose a job.
In other words, ten percent unemployment really means twenty percent underemployment or anxious employment. All of which translates directly into late payments on mortgages, credit cards, auto and student loans, and loss of health insurance. It also means sleeplessness for tens of millions of Americans. And, of course, fewer purchases (more on this in a moment).
Unemployment of this magnitude and duration also translates into ugly politics, because fear and anxiety are fertile grounds for demagogues wielding the politics of resentment against immigrants, blacks, the poor, government leaders, business leaders, Jews, and other easy targets. It’s already started.
That’s right! Because of the way we actually count the unemployed, there are actually a lot more problems out there 
than the unemployment rate measures. All you have to be is employed 1 hour of paid work and that dumps you into the ranks of employed. So that means if you’ve been furloughed, had your hours cut, or had to take up part time employment, you may be miserably underemployed, but your still employed. You also have to be have been actively searching for a job if you don’t have one for the last four weeks to stay in the ranks of the unemployed. You start giving up, you’re considered not in the labor force and by definition not eligible to join the numbers of the unemployed. (These are so-called discouraged workers.)
Our Dysfunctional Government
Posted: September 25, 2009 Filed under: Surreality, The Media SUCKS, U.S. Economy, Voter Ignorance | Tags: Corruption as an American Artform 1 Comment
It was the levees stupid!
I used to tell my students down here in New Orleans how smoothly things ran in Minneapolis compared to here until that Interstate Bridge fell into the river. Then I realized we were just the canary in the coal mine.
Still, it’s really hard to describe the degree of dysfunction surrounding all levels of government down here in Louisiana to any one that’s never actually lived here. It easily takes 15 – 20 minutes to get some one to respond to your 911 call. The New Orleans Parish Prison just got cited by the Justice Department has having such basic problems that they routinely violate prisoner’s civil rights. The roads are beyond terrible. What’s worse is the parade of people with government contracts and positions–many connected with ex Congressman Jefferson–who routinely skim money from nonprofits meant to help the city’s tremendous number of poor. Some of the worst scandals have involved the New Orleans Public School District where vendors, school board members, and a long time former school superintendent embezzled millions of dollars meant to educate our most vulnerable citizens. Thankfully, we have a justice department that is intent on cleaning out this hornet’s nest (with apologies to our basketball team). People down here have just gotten used to the situation so much that it makes you want to cry.
So, like I said, since I’d lived in Minneapolis which is a high tax but fairly functional part of the country, imagine my surprise when a portion of the of the interstate just dropped into the river. I thought they had only underfunded and underbuilt the levees down here. It turned out the problem is much bigger than that.
If you haven’t seen this month’s issue of Scientific American, then head to their website and read this piece called “The Failing U.S. Government–The Crisis of Public Management”. It’s a fairly short article but enough of a jaw dropper to make me ask repeatedly: what is wrong with this country? We used to take pride in our nation’s infrastructure. Projects like The Hoover Dam, the Golden Gate Bridge, and the nation’s interstate system were as much sources of pride as our nation’s romp on the Moon. They were symbols of American can-doism. I remember that as a kid, the parents would throw us into a brand new Ford LTD stationwagon that dad would order into the dealership that year especially for that purpose each year. We’d go search down a few national gems each summer until we had a new check marks on a list of every major American accomplishment and National Park. It was something to wave your little flag about then. What has happened to the shining beacon of progress we chased in the 1960s?
Support your new Alphabet Soup Agency
Posted: September 19, 2009 Filed under: Global Financial Crisis, U.S. Economy | Tags: Consumer Financial Protection Agency 3 Comments
A central component of the Obama administration’s Wall Street reform policy is creation of the Consumer Financial Protection Agency (CFPA). He mentioned it earlier this week in his speech as well as today in his radio address. The banks are not happy about the agency. I thought I’d spend some time on what is being proposed.
Obama emphasized the need for the legislature to move quickly to enact a centerpiece of his plan, the Consumer Financial Protection Agency. (This sentence links to the bill.)
“Part of what led to this crisis were not just decisions made on Wall Street, but also unsustainable mortgage loans made across the country. While many folks took on more than they knew they could afford, too often folks signed contracts they didn’t fully understand offered by lenders who didn’t always tell the truth,” Obama argued. “That’s why we need clear rules, clearly enforced. And that’s what this agency will do.”
The legislature making the CFPA a legal entity is pending in the House. The responsibility for passage and creation of the bill lay with Congressman Barney Frank (D-MA) and the Financial Services Committee. Frank is the principal author. The LA Times has a succinct explanation of what the plans are for the new agency.
Why should you care? What might the agency do for you — or to you? Here’s a quick overview:
To begin with, be aware that the agency’s powers and oversight would extend far beyond mortgages and real estate — into all credit cards, debit cards, consumer loans, payday loans, credit reporting agencies, debt collection, stored-value cards and even investment advisory and financial advisory services, to name only part of the list.
It would have the authority to alter long-common practices that nettle consumers, such as mandatory arbitration clauses in the fine print of contracts that automatically send business-consumer disputes to arbitrators rather than to courts. The agency could ban or limit such clauses in specific products if they are shown to tilt against consumers’ interests.
The agency would write the user-safety rules for virtually all consumer financial products and would have the legal firepower to levy huge fines — tens of thousands of dollars a day per violation in some cases — and prosecute lenders, brokers and others who break the rules.
The agency would be the dominant federal consumer protector in all home real estate settlements. It would regulate “affiliated” title, escrow and financing businesses connected with realty firms and builders. It would oversee equal credit opportunity and fair housing, and would set standards for all mortgage offerings, whether from the biggest national banks or the smallest local brokers. Generally it wouldn’t seek outright bans on mortgage products that carry elevated risks — interest-only loans, for instance — but would require that lenders restrict such mortgages to well-informed applicants who can document that they understand the risks and can afford the payments.
Within its first year, the agency would be tasked with creating consumer-friendly, uniform disclosures for all home purchase and financing transactions, starting with a combined “good-faith estimates” and truth-in-lending statement.
The core idea behind the proposal, supporters say, is to pull together consumer oversight powers that are now scattered among various agencies, and to put consumer interests where they should be — much higher on the priority list than they were during the years leading up to the housing and credit bubble and bust.
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