Saturday, January 31, 2009


It's this kind of talk that tells me the people on Wall Street are not only morally bankrupt, but simply clueless:

“I think President Obama painted everyone with a broad stroke,” said Brian McCaffrey, 55, a Wall Street lawyer who was on his way to see a client. “The way we pay our taxes is bonuses. The only way that we’ll get any of our bailout money back is from taxes on bonuses. I think bonuses should be looked at on a case by case basis, or you turn into a socialist.”
For now, let's ignore the failed logic (you can only pay taxes if you get bonuses) and the failed math (taxes paid on $14.5 billion in bonuses will pay for $850 billion in bailout money?). To suggest that we run the risk of becoming "socialists" if we take away bonuses for executives who ran their companies into the ground is simply mind-numbing.

Here's another clueless Wall Street welfare queen commenting on Barack Obama's suggestion that bonuses granted to executives in failing companies was "shameful":

“It’s a very slippery slope to go down,” said another insurance broker as he waited to be seated for lunch at Cipriani Downtown. “A blanket statement like that borders on ... socialism.”
No wonder these guys ran our economy into the ground. They have no sense or understanding that capitalism is about rewarding accomplishment and success. You get rewarded for success, not failure.

But here's my favorite Wall Street quote of the day:

“On Main Street, ‘bonus’ sounds like a gift ... But it’s part of the compensation structure of Wall Street. Say I’m a banker and I created $30 million. I should get a part of that.”
Here's my question: What happens when wealth disappears because the investment instruments you created collapse? Who's responsible for the trillions lost in the market over the past 6 months?

- Mark

Friday, January 30, 2009


According to the average income of America's richest 400 households doubled to $263.3 million during the first 6 years of the Bush administration.

Now, I could start with a long presentation on what has happened over the past 8 years under George W. Bush, and even go all the way back to President Reagan to illustrate what has happened since the republican-led "tax-cuts-for-the-rich-let's-make-war-on-labor" policies, but the numbers don't quite paint the right picture.

But graphs do.

Below are three graphs I draw from my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy. First up are the wage gains between the richest and poorest Americans between 1947 and 1979. While there are small differences, on average everyone saw their wages go up at relatively equal rates.

There is not much dispute as to why wage gains were relatively equal across all income levels between 1947 and 1949: FDR's New Deal combined with Truman's Square Deal, and the fact that Eisenhower didn't meddle with their economic handiwork, helped keep all segments of America happy.

Things would change, however, when Ronald Reagan came to office. Here are how wage gains were distributed between 1979 and 2004 . . .

As you can see, the wage gains by the richest Americans skyrocketed after Ronald Reagan entered the White House, while America's middle class and its working poor saw their wage gains effectively collapse. You can imagine what happened when George W. Bush came to office.

Things got so bad that the computer I was using to create these graphs couldn't do percentages. It's probably just as well. The numbers are simply ridiculous . . .

What you're seeing here are income gains of $1.9 million under President Bush for America's richest, while the bottom 90% effectively saw their income gains stop and even go backwards (especially for America's working poor).

I'll be discussing this on tomorrow's program.

- Mark


With more than $18.4 billion in bonuses paid out to executives of failed financial institutions, and with President Obama calling these bonuses "shameful," the NY Times has an article discussing the merits of getting some of this money back. Unfortunately, while the article discusses taxing bonuses retroactively, it ends meekly by saying that this tactic "would hurt New York and other financial centers."


My comment at this point is "Who Cares?" Definitely not those who have seen their nest eggs collapse, or who have lost their homes.

We need to keep in mind that these guys knew what they were doing. Even the ones who weren't malicious understood what was going on. If they didn't, they don't deserve bonuses and, more to the point, should be looking for new a new line of work.

To argue that clawing back at bonuses with retroactive taxes would be bad for business is akin to suggesting that we shouldn't confiscate the ill-gotten goods of drug traffickers because "finders keepers." Where criminal activity and criminal negligence are involved, possession is not 9/10ths of the law.

Some might be inclined to argue that nothing illegal was done by executives who secured bonuses for helping run their companies into the ground. Think again.

As one of my acquaintances from the investment world pointed out, if we look at RICO statutes (1970, Racketeer Influenced & Corrupt Organizations Act; inspired by the Mob) we could pursue a criminal conspiracy to defraud. What's key here is conspiratorial "intent." Only in this case, because finance and corporate law is so opaque, I say let's circumvent the courts. They're overburdened as it is.

If we can grant retroactive tax breaks for a specific industry (and we have) we can also pursue, for lack of a better term, a Financial Industry "Bonus" Tax after the fact.

- Mark

Thursday, January 29, 2009


A nation of morons . . . This is what Republicans think of America.

The House Republican’s party-line “thumbs down” to President Obama’s economic stimulus program, and their rejection of President Obama’s pre-vote olive branch, represents one thing and one thing only: their first step toward regaining power

According to Republicans, if they leave President Obama and the Democrats to deal with President Bush’s economic mess they believe their rejection of the stimulus package will allow them to cast blame and gain some seats in 2010, with the goal of regaining power in 2012.

Unfortunately, this line of thinking is not so far-fetched.

Republicans understand very well that the economic catastrophe facing this country is real. Record deficits, stagnant wages, record personal debt, and an exploding national debt will not disappear any time soon. Still, they don’t want to help President Obama because they also understand that if President Obama’s vision (making government work) and policy initiatives (directed toward social justice) help Americans see light at the end of the tunnel he will be rewarded. So will the Democratic Party.

Simply put, republicans see FDR’s spirit in Barack Obama’s initiatives, and it scares the hell out of them. President Obama has become a political Ghost Whisperer of sorts.

So the Republican strategy today is to put some distance between President Bush’s record, and their blind support for his programs. The believe America will forget that they handed President Bush the matches he used to light our national house on fire. Worse, they think this will happen if they say "No" to everything President Obama proposes and wait for the underlying economic tsunami that is poised to wash up on our political shores (the numbers surrounding bank positions on derivatives are truly scary). They are banking on additional meltdowns and bailout fatigue. Like political vultures they are waiting for system rot and the smell of death. Hence the non-cooperation.

Obstructionism and a lack of cooperation worked for Republicans at the national level in 1994 (led by Newt Gingrich), and in 2003 with California Governor Gray Davis (led, in part, by current minority Deputy Whip Kevin McCarthy). The goal is not to govern, but to obtain power. It makes no difference to Republicans that the ideas they offer today – more tax cuts and deregulation – are the exact same ideas that ran this country into the ground under President Bush.

You’re probably scratching your head, and asking yourself, “Are they really thinking like this? ... Do they really think America will forget?" The short answer to these questions is YES.

Like I said, Republicans think America is inhabited by a nation of morons.

- Mark

Wednesday, January 28, 2009


When a national chain went out of business a few years back the service contract that I had purchased for my car went down the drain. My fully paid contract, in effect, was voided. When I asked about having my service contract transferred to another shop I was told it wasn't going to happen. Tough luck for me.

Recently, auto workers and airline employees were asked to renegotiate their contracts because the times "demand" concessions and sacrifice from everyone. They are expected to take it on the chin, and move on. Tough luck for them.

When it comes to our nation's financial sector, however, there's another set of expectations. Executives who were either incompetent or criminally negligent (or is that "criminally stupid"?) don't have to live by the same moral code that you and I are expected to stoically absorb through rough times. As reported on Keith Olbermann's Countdown, AIG executives who sold the empty insurance products that helped to bring our national economy to its knees are getting $450 million in bonuses for selling these destructive products. Their contract says they have to get paid.

But wait. It gets worse. If you recall, AIG is the same firm that blew through $85 billion of bailout money and then had the gall to pay its executives at least $450 million in "retention" bonuses back in November of 2008 - after saying they wouldn't pay bonuses. Nice.

Incredibly, our Bonuses for Incompetent Financial Executives story doesn't end here. The NY Times is reporting:

A poll of 900 financial industry employees released on Wednesday by, a job search Web site, found that while nearly eight out of 10 got bonuses, 46 percent thought they deserved more.
Nearly one-half of bonus recipients believe they deserve more bonus money? You know, I'm not convinced about the eternal damnation story-line. But if there is a fire & brimstone place called Hell, these guys should have reservations (after Hitler and his goons gets in, of course).

Is there even a word in the human vocabulary adequate enough to describe the kind of behavior we're witnessing? Sheesh.

Here's my suggestion: If Congress can grant individual immunities, personal exemptions and specific subsidies to individual market players why can't we get a specific wage and bonus tax for these payouts? Just a thought.

- Mark


My colleague calls it "Obama Cool." Whatever it is, this SNL piece captures it ...

- Mark

Tuesday, January 27, 2009


I think by now most of us realize that the market players involved in creating our financial mess had a stake in the game, and weren't about to blow the whistle on their financial Pot of Gold. We also understand that government agencies were being hacked and bullied into deregulation and lax oversight by a market mentality that had overtaken government bureaucracies. But have you ever wondered why so many experts in the field of economics didn't see the financial train wreck coming? Wonder no more.

The following is from University of Oregon economist Marc Thoma's blog, the Economist's View:

. . . it's becoming a lot easier to understand how financial economists missed the developing bubble and the effect it would have on the macroeconomy. We specialize mightily in academic economics, people will work on very narrow questions for their entire careers and become world class experts on that question, but they tend to forget what they learned in other areas over time, and they can't possibly keep up with developments outside their areas of specialization. So we rely and depend upon the expertise of others to inform us about areas in which we don't normally work.

One thing I've learned from the current episode is not to automatically trust that the most well-known economists in the field have done due diligence before speaking out on an issue, even when that issue is of great public importance, or even to trust that they've thought very hard about the problems they are speaking to. I used to think that, for the most part, the name brands in the field would live up to their reputations, that they would think hard about problems before speaking out in public, that they would provide clarity and insight, but they haven't.

In fact, in many cases they have undermined their reputations and confused the issues. People have been deferential in the past, myself included, and these people have been given authority in the public discourse - even when they are demonstrably wrong their arguments show up in the press as a "he said, she said" presentation. But, unfortunately for the economics profession and for the public generally, the so called best and brightest among us have not lived up to the responsibilities that come with the prominent positions that they hold.
I agree. The experts in academia - and not just economists - became deferential to the experts and politicos in the public square, expecting others to pick up the slack (the Fourth Estate's to blame as well, but that's another post). There are reasons why this happened. It begins with living in the "Dark Ages" of macroeconomics (read Thoma's blog), but deference is the key. My next post will address this point.

And it nails Milton Friedman to the wall.

- Mark


The republicans are running scared because they know that their bankrupt ideas, plus their incompetent governance, broke the country. They're now telling the world that terrorists will be let loose in America if we close Gitmo or, worse, that "terrorist" detainees will be applying for citizenship - in your backyard no less. Spooky stuff.

Seriously, do these guys ever stop being afraid? Apparently not.

On the economic front, republicans are crowing like Chicken Little, telling America that Barack Obama's economic stimulus program is going to break the bank because it's so expensive. The problem is they've gotten religion on fiscal responsibility a bit late. They seem to have forgotten that they stood by and handed Team Bush the fiscal flamethrowers they used to burn through $5 trillion dollars. Oh, and they said nothing as President Bush prepared to leave town, handing Barack Obama trillion dollar deficits as far as the eye can see, and a collapsing economy.

So what does Barack Obama do during his first week in office? He spent part of this morning talking with congressional republicans, trying to explain the mechanics behind his $825 billion stimulus package. He's looking for bi-partisan support. I hope it works. But it probably won't. Here's why.

Apart from having to acknowledge that their ideas helped run this country into the ground, republicans are deathly afraid that Barack Obama will pull an FDR and lay the ground work for recovery. This is an interesting conundrum for the republicans because while they like spreading lies about FDR they also know that much of the prosperity and economic stability that we experienced in the post-war era was made possible by FDR's New Deal.

For all their talk about Country First, republicans see Barack's success as a threat to their political viability. The well being of the country is not their concern. It's really that simple.

- Mark

Sunday, January 25, 2009


The NY Times has an excellent, and brief, six-step synopsis of what went wrong in our economy. In essence it points to a lax regulatory environment (with derivatives, corporate leverage levels, and subprime lending), failed policy responses (to foreclosures and Wall Street bailouts), and the colossal mismanagement of the TARP bailout money. Much of the article is old hat now, but for those of you having trouble keeping score at home, it's a quick score sheet that's not too technical (Full Disclosure: I also like it because it mirrors what I say in the last three chapters of my book).

In another NY Times article it's made clear that we're not going to get out of this mess until we clean up the "insurance" gambles (credit default swaps) that were bought and sold between financial institutions.

In this market we had market players buying and selling insurance for products, like debt contracts, that they couldn't pay off if the product they were insuring went south. What these guys did would be akin to you selling outrageously cheap car insurance, knowing full well that you wouldn't be able to pay out if people started wrecking their cars. Worse, apart from never planning to pay out on claims, the only thing you were really after was the monthly premiums. Bailing out this group of market players not only rewards bad behavior but will cost trillions of dollars.

Or we could do the smart thing and force losses on those who were gambling on America's economy going south, and didn't really care what they bought as long as they had "insurance." Think about it. If you purchased a bad insurance policy for your car the government wouldn't say, "that's alright, we'll pick up the tab for your wrecked car." We need to force losses on those who perpetuated an irresponsible system, gambling that the government would eventually cover their bets (by enforcing contracts, or by bailing out the industry). Read the article because it has several good recommendations.

What does this all mean? It means we're in a real mess. We've already encumbered at least $2.9 trillion in new debt but have little to show for it. Socializing the losses by having the American taxpayer pick up the pieces for stupid behavior is not good policy.

This is one of the reasons why I believe that partial nationalization of America's failing financial institutions is the best option available. Why? Because we get some control over bank actions (which we have to bailout anyways), and it will put the fear of God into an industry that has yet to learn any lessons from this mess (as they continue to pay out billions in bonuses, refuse to discuss what they're doing with TARP money, etc.).

The NY Times discusses the nationalization issue here.

- Mark

Saturday, January 24, 2009


Billionaire financier, and all-around smart guy, George Soros has an excellent article discussing the choices that face us on the economic front in Thursday's Financial Times. In the article he writes that we have two choices:

1. SOCIALIZE THE LOSSES: Leave the banks in private hands, and buy up their toxic debt (at least $1 Trillion). These toxic instruments would then be put into a monster "aggregator bank." This is what the USSR (United States of Socialist Republicans) wants.

2. PARTIAL NATIONALIZATION: Partially nationalize the banks by purchasing a controlling interest in their stock at current prices, and then inject them with taxpayer money (which would require more than $1 Trillion). Democrats fear this route because they don't to be labeled socialists.
The first option represents a play on what Hank Paulson and the Bush administration did - simply bailout and hand over money to private market players who made incredibly stupid decisions. The only real pain is suffered by the American tax payer. The stupid and greedy win.

The second option offers a clean break with the Bush administration, but would entail imposing significant lossses on shareholders.

I like the second option for two reasons.

First, partial nationalization would allow banks to begin renegotiating with home owners who are either up-side down on their mortgages, or facing a rate adjustment over the next three years. The government will cover the banks losses. We're going to have to cover these losses any ways, so we might as well as do it the right way and get some money into the pockets of Main Street.

The second reason I like partial nationalization is that it would send a signal to shareholders around the world that they need to keep an eye on company executives and watch their investments. They can't continue to privatize the profits and socialize the losses. Simply put, the shareholders and stupid investors who allowed this mess to develop because they didn't want to stop the constantly "inflating profits" gravy train don't deserve a taxpayer bailout.

So, if the choice is between "socializing the losses" (Choice #1) and partial nationalization (Choice #2) I say we do it right and teach "stupid is as stupid does" a lesson.

I'll have more to say on this on today's program.

- Mark

Friday, January 23, 2009

OBAMA: "I WON" . . .

Now, this is what I voted for ...

It turns out that when the republicans heard "bi-partisan" from Barack Obama they thought that meant their failed tax cuts for the rich policies were back on the table, and that they could push Obama on some social issues too. And why not? Our democratic leaders have always caved in to republican threats in the past, especially when it came to national security. Here's what happened:

President Obama listened to Republican gripes about his stimulus package during a meeting with congressional leaders Friday morning - but he also left no doubt about who's in charge of these negotiations. "I won," Obama noted matter-of-factly, according to sources familiar with the conversation.
Like I said in a previous post, it's time for the republicans to take their failed ideas and sit on the bench for a few years.

Republicans will get their chance to try and blame Obama and the democrats for Bush's mess - and they will in a year and a half. However, what they don't understand is that, as Obama noted in his inauguration speech, the earth has moved under their feet. Their ideas on markets and governing have failed. America understands this, and understand that President Obama gets it.

- Mark

Thursday, January 22, 2009


So far banks have either hoarded bailout money, spent it on shareholders, paid out billions in bonuses, or simply refused to lend to others - preferring to keep the money for their rainy day. Now we have banks foreclosing on builders with perfect records. I heard about this practice from an acquaintence, who had a couple million dollar loan called in despite making all of his payments. And he was liquid!

Anyways, it may be time for us to start thinking about what the Swedes did. They nationalized sinking banks, and made money doing it. Read the story. At the very least, it provides a negotiating tactic.

- Mark


President Obama is closing secret prisons, related detention camps, and Guantanamo. Already the right wing crazies are running scared, arguing that the "security" we experienced under President Bush (never mind 9/11) will be compromised. This is usually followed by some bedwetting and the assertion that the "terrorists will return to the battlefield ... because they've done it before."

Two points (and this is how you answer the crazies).

RIGHT WING CRAZY: We didn't experience an attack after 9/11, so we must keep President Bush's policies in place.
RESPONSE: While there is a correlation between the sun rising and the rooster's crowing, the rooster doesn't get credit for the sun coming up.

This will no doubt be followed by the unsubstantiated claim that the terrorists will return to the battlefield, like this one.

RIGHT WING CRAZY: "Terror suspects who have been held but released from Guantanamo Bay are increasingly returning to the fight against the United States and its allies, the Pentagon said ..."
RESPONSE: Bush Department of Defense data, and their previous reports, are both contradictory and don't suport the cases cited by public officials.

Don't believe me? Here's the evidence.

- Mark

UPDATE: The Crazies will no doubt jump on this NY Times story of released Guantanamo detainee Said Ali al-Shihri joining a Yemeni al Qaeda group. Here's the problem. We released the guy to the Saudis, where al-Shihri escaped after entering a terrorist "rehabilitation" program.

As my daughter would say, "Hellooo ... we released him to the Saudis?".

Here's another issue to ponder, which wasn't mentioned in the article: Was al-Shihri tortured during interrogation? This is important to know because if he was it could mean that George Bush's tactics have created a hornet's nest for future generations to deal with.


OK, let's say that while teaching here at CSU, Bakersfield I mismanage my classes, fail to publish, and do things that drive my department's reputation into the ground, all of which gets it merged with the Department of Sociology. Should I become eligible for a bonus? I would be if I were teaching at CSU, Merrill Lynch.

The Financial Times is reporting that out of $15 billion paid out last year in salary and benefits to employees at bankrupt Merrill Lynch that between $3 and $4 billion in December bonuses was given to executives. All they had to do was mismanage their business, fail to make money, and lead Merrill Lynch into bankruptcy and a forced merger.

Making matters worse,

Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its [bankruptcy driven] sale to Bank of America . . . In past years, Merrill had paid bonuses later – usually late January or early February, according to company officials.

After Merrill Lynch decided to give out billions in bonuses, BofA officials learned that Merrill’s fourth-quarter losses would be greater than expected and began talks with the U.S. Treasury on securing additional bailout money!

The result? BofA will receive an additional $20 billion in taxpayer money (beyond the original $25 billion earmarked for Merrill Lynch). You can read the sordid details here.

- Mark

Wednesday, January 21, 2009


I watched Keith Olbermann tonight and caught his interview with Russell Tice, a former NSA analyst. In a few words, this is what Tice said about the Bush administration's domestic spying program:

1. THE DRAGNET RAN DEEP: Domestic spying went beyond suspected terrorists, and those suspected of chatting with terrorists. It ran deep.

2. 1st AMENDMENT COMPROMISED: Tice saw certain non-terror groups get discarded from the dragnet, only to learn that they had actually been segregated and recategorized by Bush supporters and cronies at NSA. Specifically, journalists or journalist organizations were tapped.
If what Tice says is true - and we have no reason to doubt him at this point - Bush needs to be prosecuted.

Here's the clip.

- Mark


In case you haven't seen it yet . . .

- Mark

Tuesday, January 20, 2009


Here's Rush Limbaugh on Barack Obama: "I hope he fails."

Here's his rationale:

Were the liberals out there hoping Bush succeeded or were they out there trying to destroy him before he was even inaugurated?
Rush forgets that liberals weren't out to "destroy" Bush. Rather, liberals questioned his legitimacy because he cheated. End of story.

Still, liberals like me wanted Bush to do well. After all, we are in this together. In fact, because of Bush's ties and early policy leanings on Mexico, I actually said he might become a pretty good president if he got NAFTA and immigration right. Others agreed. I know because I was at a bi-national conference with Mexican agriculture experts and other academics in Washington, D.C. when Mexico's Vicente Fox and George W. Bush got together to discuss NAFTA and immigration early in September of 2001. We were cautiously optimistic.

Then 9/11 hit.

I still count my lucky stars that I decided to return on my regularly scheduled flight, rather than stay an extra day in DC to visit with a friend I hadn't seen in years. If I had stayed I would have been on American Airlines flight 77, which hit the Pentagon. You can imagine, if I wanted Bush to do well before, I was especially supportive after 9/11.

In fact, I was called to do a series of commentaries on CBS's Channel 29 and publicly said on TV that I wanted Bush to do well. We all did. It was the moment, and it was genuine. But Bush screwed it up. Big time. None of us wanted what Bush has left Barack Obama. I seriously fear our nation's economic collapse because of the mess Bush has left us all.

At the end of the day, while liberals might have seen President Bush's election as tainted, the vast majority of us wanted him to do well. Why anyone would want any president to fail in this environment is beyond me.

Rush Limbaugh is no patriot. He's an idiot and a fool.

- Mark


Wow. The conservative, republican-supporting, Washington Times has an editorial calling for Barack Obama to support "the rule of law" by going after President Bush and those in this administration who participated in torture. While the article is a bit winded, it makes the following points (not necessarily in this order):

In the New York Times, Former Solicitor General Charles Fried has argued against prosecutions because the suspected Bush administration culprits fell short of the criminality of Adolf Hitler, Josef Stalin or Mao Tse-tung! That absurdity is akin to reserving murder prosecutions to the likes of Jack the Ripper . . .

Unpunished lawlessness by government officials invites lawlessness generally. Supreme Court Justice Louis D. Brandeis taught in Olmstead v. United States (1928): "Decency, security and liberty alike demand that government officials shall be subjected to the same rules of conduct that are commands to the citizen. In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously . . . Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy" . . .

Mr. Bush, Mr. Cheney, Mr. Rumsfeld, Mr. Gonzales and others . . . took an oath to "defend the Constitution of the United States," not their idiosyncratic notions of what was good for the country . . .
- Mark


- Mark

Saturday, January 17, 2009


Unfortunately, President Bush and his administration – and not liberals or the media – have drawn a new moral line in the sand for America. The issue of whether to charge and prosecute Bush administration officials who participated in torturing prisoners raises, once again, the issue of what America represents.

On one side, we have those who believe we are a City on a Hill, a shining beacon for humanity. On the other side are those who believe the ends justify the means.

Respect for “inalienable rights” and the belief that the rule of law is driving force in human history . . . or chaining naked and soiled prisoners together, then waterboarding them . . . which route best promotes American ideals? This used to be clear.

My friends, America represents an ideal as much as it is a country. And only America can live up to it's ideals.

We simply cannot persuade the world that we wear the White Hat when we embrace acts that are morally repugnant as a matter of policy. Let me give you an example how this works. After WWII the U.S. was faced with a dilemma: What do we do with captured Nazis? We had every excuse and – many thought – every right to seek reprisals against those who acted on behalf of a cruel, vile, criminal state. At the time many wouldn’t have cried foul if we had summarily executed, tortured, or even forced labor on those suspected of working with the Nazis.

In the end, however, this wasn’t the route Franklin D. Roosevelt took. Presented with two policy paths – one well known to human history, the other less recognized – FDR followed the lead of Frost’s fictional character, and took “the road less traveled”. And as history has demonstrated, the choice he made “all the difference” in the world.

Let’s take a look at what FDR – and Harry S. Truman – ultimately rejected.

In 1944, with victory over the Axis powers on the horizon, FDR asked the War Department to devise a plan for bringing war criminals to justice. But before he received it Treasury Secretary, Henry Morgenthau, sent his thoughts on the matter. His “eye-for-an-eye” proposal called for shooting prominent Nazi leaders on sight, and advocated banishing others to distant corners of the world. Under the Morgenthau Plan German POWs would be cast as modern slave labor, and forced to rebuild Europe. According to noted historian, Walter LaFaber, the treasury secretary's goal was to destroy Germany's remaining industrial base and turn the country into an agricultural, pastoral economic wasteland.

And then there was the Secretary of War’s proposal.

Henry Stimson saw things differently. Recalling how the serpents of Nazism crawled out from the rocks of national humiliation, economic depression and the tattered remnants of Versailles, Stimson was convinced that an economically healthy and vibrant Germany was necessary for European recovery.

The proposal Stimson endorsed called for trying responsible Nazi leaders in court. The Stimson Plan would label war time atrocities as war crimes and categorized the Nazi regime as a criminal conspiracy.

FDR was faced with a decision that many believed allowed for and justified punitive measures. After initially endorsing Morgenthau’s plan – vengeance is a difficult emotion to control – FDR supported the Stimson Plan.

In the process humanity won out. The significance of forgoing the enslavement and brutal treatment of captured Nazis cannot be overestimated.

Because of FDR’s decision the West was able to focus on discrediting a vile movement, their leaders, and their ideas. We established the Nuremberg Trials, which showcased Nazi ideals. This allowed the world to judge Nazi party hacks and their deeds on the merits. No martyrs were created. Nazism was exposed as a wretched idea, with those on trial exposed as humanity's backwash. The world saw how false nationalism and fear mongering, combined with a lack of conscience, had pushed the human experiment in the wrong direction.

By exposing the acts of ideologically driven zealots the United States not only showed how civilized societies function, but demonstrated that certain “inalienable rights” are a gift for the ages that can be shared with the rest of the world.

An added benefit was the imprint our actions left on the Germans who had lived through the excesses of Nazism. They – many of whom cheered Hitler’s tactics and his goons – saw with their own eyes how their POWs had returned. Family and friends had returned healthy and whole. This generation became admirers of America, and ambassadors of the American ideal.

The Nuremburg Trials served to transform Germany’s understanding of justice and human dignity. An ugly set of ideals was disgraced for generations. Today Germany stands as a lesson in democracy.

Over two hundred years the U.S. has experienced revolution, civil war, two global conflicts, and endured a divisive painful civil rights movement. Though the ugliness of war and racial conflict, what emerged was a set of ideals that legitimized America’s moral standing. We lost this moral ground over the past 8 years.

The Bush administration’s initial wink and a nod policy on torture, and Bush and Cheney’s now clear embrace of these disgusting policy tactics are once again pitting those who understand the American ideal against a group of zealots who had no problem sacrificing America's moral authority to the Alter of Fear.

Prosecuting those in the Bush administration who designed and participated in this ugly moment in American history would go a long way in rebuilding America’s moral authority around the world. We should bring culpable Bush administration officials up on charges.

Which side are you on?

- Mark

Friday, January 16, 2009


Keith Olbermann and the people at MSNBC have outdone themselves . . .

- Mark


I don't know about anyone else, but I've about had it with George Bush's Lying "But-Don't-Blame-Me" Tour as he prepares to leave the White House. Never have I seen a more self-indulgent and pathetically "reflective" exhibition over a failed record and stunning incompetence.

While Bush acknowledges mistakes like the "Mission Accomplished" banner, and using taunting words ("Bring 'em on"), America's Nero steadfastly refuses to accept that he politicized the intelligence, decided to invade Iraq long before 9/11, signed off on torture as a matter of policy, was incompetent in New Orleans, fiddled while the economy exploded on his watch, and led a host of other failures that would gnaw and embarrass almost any other normal human being.

Today I saw a clip of Bush lying (once again), claiming that he entered the White House with a recession and is leaving with a recession - acting as if the economy he is leaving us is akin to what he inherited from Bill Clinton (and, no, we weren't in a recession in 2001). What a moron.

But the most galling of all of President Bush's Lying Tour bag of lies is his claim that one of his greatest accomplishments is that we were not attacked after 9/11. As MSNBC's Martin Wolfe put it, while there is a relationship between the rooster crowing and the sun coming up, the rooster doesn't get credit for the sun's appearance.

I don't know about anyone else, but when it comes to poultry and President Bush, all I can think about is this guy . . .

For those of you who don't recall, this guy is from Foghorn Leghorn. He was the original Chicken Hawk.

- Mark

Thursday, January 15, 2009


Let's assume that you're in battle and you get wounded. Do you do the hard scrub and clean out the mess before it gets infected, or do you take some penicillin and hope it clears up on its own?

After pulling us through a recent Martin Wolf (the UK's Financial Times) article, this is the question posed by Yves Smith over at Naked Capitalism. Looking at the economic challenges we face, Wolf makes it clear that we're screwed. From private expenditures to balance of trade deficits, to falling industrial output and corporate debt loads, things are looking really bad . . . long into the future. Things are so bad that Wolf thinks (and I agree) that Barack Obama needs a stimulus package at least 2.5 times bigger that what he is asking for.

The rationale is quite simple.

With corporations and almost everyone else in America overextended we can do one of two things. We can force a "slow bleed" of $350 billion stimulus packages every 6 months on America (which will piss everyone off). Or do we do the bold thing and spend the $3-4 trillion we need to buy out homeowners and consumers who are sitting on a pile of bad debt that has the financial industry fretting over their future bottom lines? (which will only piss off the few remaining "free marketeers" and their fellow Flat Earth Society members).

There's more to this story, but I say we forget deficits for now (we've done it before) and spend. Let's do the hard scrub and clean out the mess before Bush's Economic Debaclypse spreads and turns our economy gangrene.

I'll discuss how we should spend on this Saturday's program.

- Mark

Wednesday, January 14, 2009


The UK's Financial Times has one of the best overviews of the global financial credit squeeze and market meltdown that I've seen. From Bernie Madoff and the U.S. economy, to Euroean bank exposure and the "fallen giants" around the world, the Financial Times' interactive review of the global financial crisis is first rate.

You can check it out here.

- Mark

Tuesday, January 13, 2009


Columnist David Sirota explains why the Bush-Obama request for the remaining $350 billion should be turned down. While I don't always support Sirota, I agree with his rationale.

REASON 1: Treasury Says It Doesn't Need the Money

REASON 2: "New" Conditions Are Filled With Loopholes & Omissions

REASON 3: Congress Still Abdicating Its Oversight Responsibilities

REASON 4: Nobody Has Explained Why This Is the Best Way to Spend $350 Billion
Check out Sirota's entire article here. I'll have more to say about this on this Saturday's radio program.

- Mark

Monday, January 12, 2009


OK, I know it's just January 10, but this Frank Rich article ("Eight Years of Madoff") is a masterpiece. After going through a short list of the criminal activities and political blunders of the Bush administration, Rich makes a cogent but cautionary point about pursuing the criminality and incompetence of the Bush years:

If we get bogged down in adjudicating every Bush White House wrong, how will we have the energy, time or focus to deal with the all-hands-on-deck crises that this administration’s malfeasance and ineptitude have bequeathed us?
Rich then points out that because nothing less than our nation's honor is at stake that "every legal effort must be made to stop what seems like a wholesale effort by the outgoing White House to withhold, hide and possibly destroy huge chunks of its electronic and paper trail." With more than $10 Trillion in new debt and obligations piled up by Bush, Rich makes what probably is the best case for pursuing investigations, or creating high-level commissions . . .
The more we learn about where all the bodies and billions were buried on our path to ruin, the easier it may be for our new president to make the case for a bold, whatever-it-takes New Deal.
Put another way, it's not just our national honor and the rule of law that are at stake. Bush's incompetence needs to be revealed or else we could lose sight of the financial and political debacles confronting us.

- Mark


I was out this weekend but a colleague sent me a couple of articles that fit into what I've been posting or commenting on over the past year . . .

First up is this article ("The Failure of Our 401(k)s") from the LA Times, which outlines how the 401k program that we were sold back in the late 1970s became the financial smoke & mirrors that corporate America needed to start defunding corporate retirement plans. Their argument ran something like this: "Hey, you already have a 401(k), why do we need to fund you again?". The real stroke of genius lay in how the 401(k) plan allowed industry executives to shelter income (which reduced their tax load) while funneling money into the financial sector that otherwise would not have gone that way.

Moral of the Story: Wall Street got a free injection, which made them feel like masters of the universe; today we get less purchasing power, and a perilous private retirement system.

The next LA Times article ("Financial Scoundrels Have Little to Fear from the Law") makes it clear that, whatever the final outcome of the current economic mess, few of the perpatrators will actually be fingered and/or sent to jail. The reason is quite clear. Unless you were really reckless (like Enron's Ken Lay or Bernie Madoff) there really is no law against being greedy or criminally stupid.

Moral of the Story: White Collar crime pays, especially if it's tied to being criminally stupid.

- Mark

Friday, January 9, 2009


According to the LA Times, a woman in Britain litterally shopped herself to death. She was found buried under her numerous new suitcases and unopened stuff:

"An expert search team and environmental health officers were also called in to help and on Wednesday evening her body was finally found buried under the suitcases.

The house was stacked with brand-new umbrellas, candles, ornaments, trinkets, clothes and electrical items, many of them unopened, as well as piles of videotapes."
Keep this in mind the next time someone says "shopping never hurt anyone."

- Mark

Wednesday, January 7, 2009


In my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy, I make it clear that government regulators had an idea what was happening, but stood by as market players promoted and took advantage of a weak regulatory environment. Knowledge of the dynamics that led to our current market meltdown goes all the way back to 1998! In a few words, the market meltdown should not be seen as a surprise, or a once in a lifetime event (as Alan Greenspan claims). The biggest players knew what was happening, and kept on pushing for more deregulation. It's hard to come to any other conclusion than these idiots saw it coming . . . What follows below is from Chapter 12 of my book.

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... [In 1998] the Federal Deposit Insurance Corporation issued a set of guidelines for member banks managing transactions that involved bundled loans that were sold as collateralized securities. Concerned that deposit-taking institutions had not exercised sufficient risk management when handling these loan contracts the F.D.I.C distributed a “Statements of Policy” at the beginning of 1998 making it clear collateralized security transactions were on their radar screen.

While it set out to reacquaint institutions with basic due diligence procedures, it also listed ways private firms could defraud F.D.I.C-backed institutions. More bluntly, the Statements of Policy (SOP) guidelines said private financial institutions weren’t always playing fair with F.D.I.C. backed institutions, especially when it came to complex financial instruments.

Among the embarrassingly basic rules of caution covered included “know your counterparty,” credit analysis, and credit limit reviews. The guidelines were so simple it was difficult to tell whether they were issued for the new finance guy at the local car dealership, or were really geared for seasoned, F.D.I.C. affiliated banking institutions.

Still, one thing stood out – in the wake of the 2008 market collapse – the 1998 SOP offered a Crow’s Nest view of what went wrong. Pointing to the tactics of subsidiaries belonging to “financially stronger and better-known firms” the SOP warns that larger corporations “may not be legally obligated to stand behind the transactions of related companies,” so the subsidiary may not be credit worthy. The F.D.I.C.’s advice? Don’t trust the other guys “character” or “integrity” until you get “the stronger firms” signature.

That this needed to be said should have raised red flags back in 1998. Incredibly, the guidelines get even more basic.

We all know when we purchase a new car we have to deal with the sales staff. We’re then shuffled off into cubicles where we have to deal with the finance and credit team, who also want to sell us stuff. There’s a reason why the dealerships keep these two positions apart. Sales staff, anxious to sell a car, will either lower credit standards or overlook red flags on a customer’s credit report. Not so in the F.D.I.C. institutions.

Apparently burned by too many conflict of interest transactions involving sales and finance pulling double duty, the F.D.I.C. found it necessary to remind banking institutions that credit evaluations for CDO transactions, for example, should be done by “individuals who routinely make credit decisions” and not those involved in sales. The F.D.I.C institutions were then provided with the incredibly sage advice that they should be on the look out for buyers who were already “overextended.”

Perhaps the greatest words of caution are saved for institutions inclined to believe CDO instruments could be used as market collateral. F.D.I.C. guidelines make it clear that simply because an institution has a CDO-affiliated instrument doesn’t mean it’s sitting on an asset whose book value is equal to its market value.

The 1998 guidelines suggests, for example, that if a $100 million CDO transaction has occurred that “experience has shown” the underlying product or contract “will not serve as protection” if the subsidiary fails, or if the firm does not have control over the security. Put more simply, the tone of the 1998 SOP guidelines tell us market players and the federal government knew that U.S. financial institutions were sitting on a financial powder keg long before the 2008 market melt down began . . .

- Mark

Monday, January 5, 2009


In one of my previous posts I suggested that the problems we confront are not simply tied to what's happening in the housing market, and the unscrupulous financial practices that led to the real estate market boom and bust. For this reason I argue that simply throwing a trillion dollars at the banks will not be enough to get our economy moving again. In addition to undoing bad legislation, one of the biggest challenges Barack Obama confronts is how to get American consumers spending, thus creating demand and job growth. The problem is that American consumers are swamped by debt and burdened by stagnant wages. I describe what's happening in Chapter 2 of my book, The Myth of the Free Market: The Role of the State in a Capitalist Economy (Kumarian Press, March 2009), which I reproduce here.

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When personal bankruptcies in the United States hit 1.5 million in 2002 and then went to 1.6 million in 2003, one of the goals of the US Congress was to find a way to reduce the number of bankruptcy filings. This led to bankruptcy reform legislation in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

After climbing to 2 million bankruptcies in 2005, filings dropped to 600,000 in 2006. The problem was solved, right? Think again. Bankruptcy filings rose to 822,590 in 2007 and were on pace to reach 1 million at the end of 2008. What explains the surge in bankruptcy filings? Several developments are at work here.

First, Congress catered to the interests of the financial industry but failed to address the principle causes of bankruptcy. Second, the industry raised fees and reduced grace periods after the BAPCPA was passed. Finally, the credit card companies lent people even more money after 2005 because it became more profitable to do so.

According to noted bankruptcy attorney Leon D. Bayer, in addition to making it more difficult to file for personal bankruptcy, the 2005 legislation didn’t wipe out the reasons people file for bankruptcy. More than 90 percent of all personal bankruptcies are filed for three reasons: job loss, divorce, or catastrophic illness. There’s little that Congress can do about these life events.

Because no provisions were made in the BAPCPA to work with people who are hit by these real-life incidents, debtors soon found that the notion of “broke and in debt” was no longer good enough. The newly divorced, the medically recovering, and the unemployed would have to wait until they hit distressed debtor status to qualify for bankruptcy. Debtors, after all, had to be taught a lesson. This helps explain why military personnel in the National Guard were not given special consideration either. A deadbeat is a deadbeat according to the industry—there are no exceptions. And Congress agreed.

So, rather than addressing the underlying causes that lead to bankruptcy in America, the 2005 legislation simply deferred and, more realistically, compounded the situation for those confronting uninvited financial problems.

Now, you’re probably scratching your head and asking why legislators didn’t anticipate this. It’s a good question. To start, we must acknowledge that the biggest supporters of the 2005 legislation were the credit card companies. They aren’t run by dummies. Some may get greedy, which compels them to make dumb decisions as a group over time, but the companies are not run by inherently dumb people. The executives in the credit card industry saw that bankruptcy filings were going through the roof in 2005. They also understood that there was an economic bubble waiting to burst. So they moved to protect themselves and their “fee and penalty” gold mine (fee income accounted for 31 percent of industry profits in 2001, whereas total income from late fees jumped from $1.7 billion in 1996 to $7.3 billion in 2003 ).

To be sure, the industry knew that the vast majority of Americans filing for bankruptcy were placed in their situation by uninvited life circumstances—job loss, divorce, or illness. But the details of their lives were viewed by disengaged industry lobbyists as being as “unfortunate” as they were unimportant. Like the Vegas strip, the goal of “The House” (the credit industry) is to get people in the door, at the table, and to keep them there. If they’re not at the table, you can’t get debtors, no matter what their circumstances, in the fee and penalty cycle. So the industry went to “their muscle” (i.e., Congress) to make it more difficult for debtors both to qualify for bankruptcy and to discharge their credit card debt. And they got their wish.

Then, in spite of promising that consumers would benefit from the legislation (because fewer losses would accrue to the creditors), the industry immediately reduced grace periods, increased interest rates, and hiked late and over-limit fees (among others). Because the industry already had “universal default” authority, which allows the industry to hike rates on a clients account if the client is late making a payment on a competitor’s account, the industry prepared itself for even greater profits. Profits for the industry jumped from about $30 billion per year in 2005 to almost $40 billion in 2007. But the reasons for record profits after 2005 can’t be traced simply to increased fees, higher rates, and shorter grace periods.

By helping the credit card industry reduce bankruptcy filings after 2005, Congress ensured that the companies would have fewer losses and more earnings (although I’m not sure whether favorable legislation that generates more income for an industry counts as genuine “earnings”). With more money at hand, the industry, incredibly enough, lent more. You would think that they would have learned a lesson from being just one year removed from record bankruptcies—and the fact that Americans had a savings rate that was effectively zero. Think again. In 2007, according to Laurent Belsie at the National Bureau of Economic Research, the credit card companies did the following:

[They] started lending more, even to consumers with bad credit. Credit card debt increased more quickly during the past two years [2006–2007] than at any time during the previous five years.
Comfortable in the knowledge that it was more difficult for borrowers to enter into bankruptcy proceedings, the credit industry determined that it was in their financial interest to lend more. Teaser rates, cashable checks, and other industry gimmicks filled our mailboxes. And why not? By raising the bar necessary to file for bankruptcy, the industry knew that fees, penalties, and other charges would add significantly to their client’s debt load. According to Robert D. Manning, author of The Credit Card Nation, all of this is a good thing for the industry because

In the old days, the best customer was someone who could pay off their loan. Today the best client of the banking industry is someone who will never pay off their loan.
Keeping distressed debtors in the game longer can make for fatter profits. But there is something else at work here. The industry is increasingly bundling credit card debt into debt contracts. And why not? The credit card companies have hundreds of billions of dollars that are owed to them by consumers. Rather than maintain a debt of, say, $6,000—which most middle-class Americans can’t pay off in the immediate term—it’s much easier to bundle and sell the debts that are owed to investors who are looking for income streams, with interest.

Because the debt is secured by the payments of the credit card holder, the debtor becomes the “collateral” paying the debt—hence, a collateralized debt obligation (CDO). And, with the 2005 BAPCPA to maintain debtor compliance, credit card debtors become government-enforced collateral.

The practice of selling credit card CDOs has become so profitable that, by the end of 2007, “one-third of Capital One’s $151 billion in managed loans had been sold as securities.” This figure is sure to grow. After home equity loans came to a crashing halt in 2007 and 2008, consumers have been forced to rely on their credit cards more and more, often just to pay their mortgages. This helps explain why the credit card industry opposed the 2008 Credit Card Holder’s Bill of Rights (HR 5244), which, among other things, imposed industry restrictions on questionable fees, sudden rate hikes, and payment time frames.

These developments explain why the 2005 BAPCPA has become such a moneymaker for the credit card industry. The harder it is for someone to pay off his or her credit card debt, the longer it will be before the debt is paid. And debt that can’t be repaid, or repudiated, becomes a continuous source of industry income.

Julie L. Williams, chief counsel of the Comptroller of the Currency, explains what’s happened: “Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset.” Put another way, the bankruptcy bill of 2005 turned personal misfortune and consumer debt into yet another income stream for financiers and Wall Street.

Without addressing conditions in the economy, the three primary causes behind bankruptcy, or what the industry has done to entice clients, the BAPCPA does much to violate the integrity of market capitalism while undermining the spirit of Adam Smith’s order of nature and reason.

- Mark