Economist Paul Krugman discusses why the Democrats might not be able to pass Health Care Reform this time around. In very simple terms he's blaming the Blue Dog Democrats, and the fact that they're tools of the health care industry.
It's a good article. Check it out here.
- Mark
Monday, July 27, 2009
MAINTENANCE? HIGHER FEES? FURLOUGHS? IT'S A TAX
Whenever I teach American Politics (PS 101) at the university I cover economic policymaking and discuss the roll taxes play in building our society. One of the points that I make is that if there's no money in government coffers we either have to go without, borrow, or find new ways to pay for our quality of life. The Republican "tax cut / no new taxes" jihad has given me the perfect example to explain all three.
For example, when you drive down a road and hit a pothole that forces you into the repair shop that's a tax.
My students begin to understand how this works when I explain that every time we cut taxes, or refuse to raise them, that they see the result when their tuition fees are raised. This year, to help settle the state's budget shortfall, students in the California State University system will be paying 30% more in fees. This adds up to almost $1,700 in fees per quarter at CSU, Bakersfield. My friends, when you have to pay almost 30% more for state services that's a tax.
Many of our students will either have to borrow more money, cut back in other areas, or simply drop out.
My colleagues and I at the university have just been notified that, with the furlough plan implemented, we will lose a little over 10% of our salary this coming year. Call it what you want, but the furlough program represents a 10% tax on all affected Cal State employees.
There are various ways to pay for programs and necessary services that have helped to make our state and society the most effective and productive in the world. Imposing higher fees, mandated furloughs, and borrowing are several ways of paying the piper.
But make no mistake. It's a tax.
- Mark
For example, when you drive down a road and hit a pothole that forces you into the repair shop that's a tax. My students begin to understand how this works when I explain that every time we cut taxes, or refuse to raise them, that they see the result when their tuition fees are raised. This year, to help settle the state's budget shortfall, students in the California State University system will be paying 30% more in fees. This adds up to almost $1,700 in fees per quarter at CSU, Bakersfield. My friends, when you have to pay almost 30% more for state services that's a tax.
Many of our students will either have to borrow more money, cut back in other areas, or simply drop out.
My colleagues and I at the university have just been notified that, with the furlough plan implemented, we will lose a little over 10% of our salary this coming year. Call it what you want, but the furlough program represents a 10% tax on all affected Cal State employees.
There are various ways to pay for programs and necessary services that have helped to make our state and society the most effective and productive in the world. Imposing higher fees, mandated furloughs, and borrowing are several ways of paying the piper.
But make no mistake. It's a tax.
- Mark
Thursday, July 23, 2009
CREATING HALF A TRILLION DOLLARS (but not for you and me)
For my part, it seems that Rep. Alan Grayson (D-FL) is one of a handful of members in Congress who actually understand what's going on, and are trying to get some answers on this bailout mess (Ron Paul is another). The following is from nakedcapitalism.com ...
In this YouTube clip, we see Rep. Grayson question Federal Reserve Chairman Ben Bernanke about the creation and distribution of half a trillion dollars ($500,000,000,000) in the form of swaps/loans to other nations.
After being questioned about the Fed's authority to create half a trillion dollars, Bernanke cites Section 14 of the Federal Reserve Act. You can read Section 14 for yourself, but nowhere does it say that the Federal Reserve can create money out of thin air for redistribution to foreign central banks (which, in this case, they turned around and lent to domestic client banks).
The closest Section 14 comes to granting the Fed the authority to create money is Section 14(e), which allows the Fed to trade ("swap") and purchase currency "arising out of actual commercial transactions" that "bear the signature of two or more responsible parties." As far as I can see, bad bets in a casino economy are not covered in Section 14 (Section 14(f) might provide a loophole, but I'll let you be the judge on that one).
One of the highlights in this clip is when Rep. Grayson pretty much laughs in Bernanke's face. The moment (start @ minute 3:19) occurs when Bernanke said that the 30% rise in the dollar, which took place at the same time that the Federal Reserve lent out $500 billion to foreign central banks, was just a "coincidence."
I'm not sure, but it seems to me that the swaps (U.S. dollars sent abroad for other currencies) are being used to cover hundreds of billions in counterparty claims that arose out of the murky underworld of collapsed derivatives, CDOs, CDSs, and the like. European and other banks got caught in a credit crunch and/or simply don't want to use (and inflate) their currency to pay out counterparty claims created by the incredibly bad and stupid bets made by U.S. financial institutions (I have no idea what we're doing with the currencies we're getting from other central banks).
Again, and I'm only speculating here, but it seems to me that the Fed is using it's authority to cover the calamity our financial institutions caused when they created and sold their incredibly shallow bets to the rest of the world. This also may explain, in part, why we've encumbered between $7-9 trillion in obligations through the Federal Reserve (to date).
And Republicans are fixated on President Obama's birth certificate and/or creating his "Waterloo" moment? Wonderful.
- Mark
In this YouTube clip, we see Rep. Grayson question Federal Reserve Chairman Ben Bernanke about the creation and distribution of half a trillion dollars ($500,000,000,000) in the form of swaps/loans to other nations.
After being questioned about the Fed's authority to create half a trillion dollars, Bernanke cites Section 14 of the Federal Reserve Act. You can read Section 14 for yourself, but nowhere does it say that the Federal Reserve can create money out of thin air for redistribution to foreign central banks (which, in this case, they turned around and lent to domestic client banks).
The closest Section 14 comes to granting the Fed the authority to create money is Section 14(e), which allows the Fed to trade ("swap") and purchase currency "arising out of actual commercial transactions" that "bear the signature of two or more responsible parties." As far as I can see, bad bets in a casino economy are not covered in Section 14 (Section 14(f) might provide a loophole, but I'll let you be the judge on that one).
One of the highlights in this clip is when Rep. Grayson pretty much laughs in Bernanke's face. The moment (start @ minute 3:19) occurs when Bernanke said that the 30% rise in the dollar, which took place at the same time that the Federal Reserve lent out $500 billion to foreign central banks, was just a "coincidence."
I'm not sure, but it seems to me that the swaps (U.S. dollars sent abroad for other currencies) are being used to cover hundreds of billions in counterparty claims that arose out of the murky underworld of collapsed derivatives, CDOs, CDSs, and the like. European and other banks got caught in a credit crunch and/or simply don't want to use (and inflate) their currency to pay out counterparty claims created by the incredibly bad and stupid bets made by U.S. financial institutions (I have no idea what we're doing with the currencies we're getting from other central banks).
Again, and I'm only speculating here, but it seems to me that the Fed is using it's authority to cover the calamity our financial institutions caused when they created and sold their incredibly shallow bets to the rest of the world. This also may explain, in part, why we've encumbered between $7-9 trillion in obligations through the Federal Reserve (to date).
And Republicans are fixated on President Obama's birth certificate and/or creating his "Waterloo" moment? Wonderful.
- Mark
TAKING ON THE IDIOT FRINGE
Jon Stewart takes on the idiot-fringe from the far right - which include Republican members of Congress - who think President Obama is not a U.S. citizen (if your computer can't support this, try this).
In this clip Stewart plays CNN's list of evidence debunking the Birther Nonsense, which comes from statements from the Republican governor of Hawaii, Political Fact Check, the Director of the Hawaii Department of Health, and from Hawaii newspaper announcements of Barack Obama's birth in 1961.
By the way, don't we have an economy to fix, and wars to fight?
Idiots.
- Mark
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| The Born Identity | ||||
| ||||
In this clip Stewart plays CNN's list of evidence debunking the Birther Nonsense, which comes from statements from the Republican governor of Hawaii, Political Fact Check, the Director of the Hawaii Department of Health, and from Hawaii newspaper announcements of Barack Obama's birth in 1961.
By the way, don't we have an economy to fix, and wars to fight?
Idiots.
- Mark
Wednesday, July 22, 2009
THE MYTH OF THE FREE MARKET
In this interview about my book, The Myth of the Free Market, I discuss some of the concepts I write about with Bakersfield's local NBC affiliate (KGET 17) morning anchor Kiyoshi Tomono. If your computer can't support the spot you can try this Youtube site or this one.
Also, among the many radio interviews I've done, I did a an interview with regional NPR host, Terry Phillips, about three months ago. He hosts the Quality of Life segment many of you have listened to here in the San Joaquin Valley. You can access it here. Click on "author interview." This is my favorite interview.
- Mark
Also, among the many radio interviews I've done, I did a an interview with regional NPR host, Terry Phillips, about three months ago. He hosts the Quality of Life segment many of you have listened to here in the San Joaquin Valley. You can access it here. Click on "author interview." This is my favorite interview.
- Mark
Tuesday, July 21, 2009
FIXING SOCIAL SECURITY ... and other thoughts
A little over four years ago I wrote this op-ed article for the Bakersfield Californian. At the time the Bush administration was pushing hard to privatize Social Security. In layman terms "privatization" meant turning Social Security accounts - and their funds - over to Wall Street investment houses for them to invest. The argument at the time was that Wall Street understands finance and money better than government, and can be counted on to do the right thing. Ooops.
Among the points I made in the article was that Social Security wasn't in as much trouble as the scare-mongerers (i.e. the Bush administration & FOX News) were making it out to be. I also provided several solutions for fixing the system. Here they are:
Today, every dollar earned past $106,800 is not taxed by the Social Security system.
This means that if you earn $1 million per year every dollar past $106,800 is not taxed by social security. Why is this important? Because the Wall Street Journal is reporting that the pay of wage earners who receive more than the Social Security wage base ($106,800) increased by 78%, or nearly $1 trillion, over the past decade. This means that nearly $1 trillion dollars in national income that could be taxed like your salary (or mine) is not taxed. The total ammount represents about 17% of national income that is exempt. Here's what the WSJ says about this:
And, besides, it's not like our nation needs the money. We can depend on the Chinese and the Saudis forever, can't we? (So much for Country First.)
At the end of the day, the Social Security tax is a regressive tax that affects the working poor and America's Middle Class disproportionately. That we allow bonus-drenched Wall Street bankers and their minions to continue feeding at the trough of bailouts and favorable legislation - without feeling the taxman's pinch like you and I - is a travesty.
- Mark
Among the points I made in the article was that Social Security wasn't in as much trouble as the scare-mongerers (i.e. the Bush administration & FOX News) were making it out to be. I also provided several solutions for fixing the system. Here they are:
1) Rescind Bush’s tax cuts for the rich. This would add approximately $1.8 trillion to government coffers over the next ten years.Of these, because of this Wall Street Journal article ("Pay of Top Earners Erodes Social Security"), the proposed remedy that sticks out today is #2. When I wrote the article in 2005 all income above $90,000 was exempt from the payroll tax. This meant that every dollar earned past $90,000 was not assessed a Social Security tax and that approximately 15% of all national income was released from the social security tax.
2) Raise the cap on payroll taxes.
3) Raise the eligibility requirements, or reduce social security cost of living increases (COLAs) by one-half percent per year.
Today, every dollar earned past $106,800 is not taxed by the Social Security system.
This means that if you earn $1 million per year every dollar past $106,800 is not taxed by social security. Why is this important? Because the Wall Street Journal is reporting that the pay of wage earners who receive more than the Social Security wage base ($106,800) increased by 78%, or nearly $1 trillion, over the past decade. This means that nearly $1 trillion dollars in national income that could be taxed like your salary (or mine) is not taxed. The total ammount represents about 17% of national income that is exempt. Here's what the WSJ says about this:
Social Security Administration actuaries estimate removing the earnings ceiling could eliminate the trust fund's deficit altogether for the next 75 years, or nearly eliminate it if credit toward benefits was provided for the additional taxable earnings.Republicans and other "fiscal conservatives" are, of course, opposed to the idea leveling the social security tax playing field. Wall Street bankers and their politically-connected patrons, after all, have earned every bailout dollar that they've received. How dare we threaten to tax their bailout-escorted riches?
And, besides, it's not like our nation needs the money. We can depend on the Chinese and the Saudis forever, can't we? (So much for Country First.)
At the end of the day, the Social Security tax is a regressive tax that affects the working poor and America's Middle Class disproportionately. That we allow bonus-drenched Wall Street bankers and their minions to continue feeding at the trough of bailouts and favorable legislation - without feeling the taxman's pinch like you and I - is a travesty.
- Mark
Monday, July 20, 2009
HOLD THE CHAMPAGNE
What I post below the asterisks below is from nakedcapitalism.com.
Those of you who follow this blog regularly will recognize the argument from many of my earlier posts. In a few words, I've been saying that the "recovery" on Wall Street (and in our economy) is an illusion because it's based on taxpayer subsidies and favorable legislation. I'm posting this argument from nakedcapitalism.com because (1) this point can't be reinforced enough and (2) I think it's necessary to acknowledge when others also recognize that Wall Street's recent "successes" are both empty and misleading.
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It simply amazes me that those who are cheerleading the seeming return of Wall Street to health overlook the extensive, hydra-headed subsidies they've received and continue to receive. The media has bought and is touting the line, "Hey, they (more accurately some) paid back the TARP, so what's the beef?"
Let us consider the other forms of support:
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The post continues, "Many in the community ... object strenuously to a poker player who has an extra set of aces up his or her sleeve. We also object to a casino capitalist model where the winnings are kept but the losses are forced onto someone else. And that, dear reader, is what Goldman and the rest of the big banks have been doing for the last two years."
In a few words, don't break out the champagne just yet. The same guys who got us into this mess are running the show now, and want to do it all over again.
- Mark
Those of you who follow this blog regularly will recognize the argument from many of my earlier posts. In a few words, I've been saying that the "recovery" on Wall Street (and in our economy) is an illusion because it's based on taxpayer subsidies and favorable legislation. I'm posting this argument from nakedcapitalism.com because (1) this point can't be reinforced enough and (2) I think it's necessary to acknowledge when others also recognize that Wall Street's recent "successes" are both empty and misleading.
************************************
It simply amazes me that those who are cheerleading the seeming return of Wall Street to health overlook the extensive, hydra-headed subsidies they've received and continue to receive. The media has bought and is touting the line, "Hey, they (more accurately some) paid back the TARP, so what's the beef?"
Let us consider the other forms of support:
Bailout of AIG, in which collateral payments went directly to counterparties, particularly Goldman, which was most heavily exposed. The new urban legend about the firm is that it has good risk controls. Getting in that deeply to one counterparty is clear evidence of deficient risk controls. Recall the firm also got a costly lifeline from Warren Buffet on the eve of the TARP infusion. The firm most assuredly on the ropes last year and would not be around ex extraordinary assistance.
FDIC guaranteed bond issues. Has anyone paid those back?
ZIRP-level interest rates
A list too long to keep track of of Fed "goose the market" special facilities
We've inveighed along these lines elsewhere. The industry has gone from a supposed bastion of capitalism to the poster child of Mussolini-style corpocracy.
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The post continues, "Many in the community ... object strenuously to a poker player who has an extra set of aces up his or her sleeve. We also object to a casino capitalist model where the winnings are kept but the losses are forced onto someone else. And that, dear reader, is what Goldman and the rest of the big banks have been doing for the last two years."
In a few words, don't break out the champagne just yet. The same guys who got us into this mess are running the show now, and want to do it all over again.
- Mark
G.O.P. CLASS OF '94 HAS LOTS OF 'SPLAININ' TO DO ... BUT THEY WON'T
The NY Times' Frank Rich has an extremely well written editorial in today's paper profiling the GOP's "Contract With America" Class of 1994. He uses the Sonia Sotomayor hearings as a backdrop. In a few words, it's a profile in hypocrisy and failure. Check it out here.
- Mark
- Mark
Saturday, July 18, 2009
EXTREME DO OVER, II
In this NY Times' piece written by Joe Nocera, the author speculates as to why Congress is making such a fuss over the developments that led to the Bank of America-Merrill Lynch merger. According to Nocera, two concerns lie at the heart of the matter.
Members of Congress are concerned that they were bullied and cowed by Wall Street and the Bush administration into giving trillions for an industry that is now reporting billions in taxpayer escorted profits. Making matters worse is that foreclosures and unemployment are on the rise, while the financial sector wants to continue playing by the old rules. Middle America is not happy.
Called to testify include Federal Reserve Chair Paul Bernanke, Bank of America CEO Ken Lewis, and former Goldman Sachs CEO and immediate past Treasury Secretary Hank Paulson.
What we have is one group that is embarrassed and upset that they were gamed, while the other see themselves as maligned and misunderstood saviors. As you can imagine, the perceptions of both groups are no recipe for shedding light on the bailout events under scrutiny. Still, as Nocera suggests, Congress sees a chance to grandstand over the Lords of the Bailout. I agree.
What makes the show constituent-worthy for Congress is that several members believe Bank of America's Ken Lewis either gamed the panic conditions of the times (in December) to get more money for merging BofA with a crippled Merrill Lynch. Others believe they see something else: Lewis extorted money from the government by threatening to pull out of the Merrill Lynch deal, which would have made the panic conditions of the times worse.
According to Nocera, it was at this time that Secretary Paulson and Chairman Bernanke decided to play hard ball with Lewis.
According to one account, Paulson and Bernanke probably reminded Lewis of the easy times his industry had enjoyed from the regulators, essentially telling him, ‘You haven’t had very good capital ratios, and we’ve looked the other way ... Now it is payback time. We’ve let you do deal after deal after deal. Now it’s time to take one on the chin.’ ” According to Nocera, Bernanke and Paulson probably also reminded Lewis that as regulators they could simply fire him.
Still, in spite of their tough guy bravado, to soften the blow of taking on more taxpayer bailout money, Bernanke and Paulson agreed to cough up an additional $20 billion (to be paid back at 8% interest) to placate Lewis.
According to Nocera, by accepting the extra money BofA has now accepted as much overall TARP money as Citigroup, which is the very symbol of a crippled bank. The end result is that the BofA-Merrill Show will do little more than allow members of Congress to say to their constituents, "See, look at me beat up on ___________."
Most troubling for me, though, is that the underlying problems still exist: A bailout culture that breeds incompetence, the same regulatory infrastructure that encouraged stupidity and greed, favorable legislation for a crippled industry, etc. I have no problems with Congress settling scores. But they also need to fix what got us into this mess. Niether the BofA-Merrill Show, nor the recently announced Financial Crisis Inquiry Commission, move us in this direction.
As I suggested in March, we may be setting ourselves up for an Extreme Do Over. Stay tuned.
- Mark
Members of Congress are concerned that they were bullied and cowed by Wall Street and the Bush administration into giving trillions for an industry that is now reporting billions in taxpayer escorted profits. Making matters worse is that foreclosures and unemployment are on the rise, while the financial sector wants to continue playing by the old rules. Middle America is not happy.
Called to testify include Federal Reserve Chair Paul Bernanke, Bank of America CEO Ken Lewis, and former Goldman Sachs CEO and immediate past Treasury Secretary Hank Paulson.
What we have is one group that is embarrassed and upset that they were gamed, while the other see themselves as maligned and misunderstood saviors. As you can imagine, the perceptions of both groups are no recipe for shedding light on the bailout events under scrutiny. Still, as Nocera suggests, Congress sees a chance to grandstand over the Lords of the Bailout. I agree.
What makes the show constituent-worthy for Congress is that several members believe Bank of America's Ken Lewis either gamed the panic conditions of the times (in December) to get more money for merging BofA with a crippled Merrill Lynch. Others believe they see something else: Lewis extorted money from the government by threatening to pull out of the Merrill Lynch deal, which would have made the panic conditions of the times worse.
According to Nocera, it was at this time that Secretary Paulson and Chairman Bernanke decided to play hard ball with Lewis.
According to one account, Paulson and Bernanke probably reminded Lewis of the easy times his industry had enjoyed from the regulators, essentially telling him, ‘You haven’t had very good capital ratios, and we’ve looked the other way ... Now it is payback time. We’ve let you do deal after deal after deal. Now it’s time to take one on the chin.’ ” According to Nocera, Bernanke and Paulson probably also reminded Lewis that as regulators they could simply fire him.
Still, in spite of their tough guy bravado, to soften the blow of taking on more taxpayer bailout money, Bernanke and Paulson agreed to cough up an additional $20 billion (to be paid back at 8% interest) to placate Lewis.
According to Nocera, by accepting the extra money BofA has now accepted as much overall TARP money as Citigroup, which is the very symbol of a crippled bank. The end result is that the BofA-Merrill Show will do little more than allow members of Congress to say to their constituents, "See, look at me beat up on ___________."
Most troubling for me, though, is that the underlying problems still exist: A bailout culture that breeds incompetence, the same regulatory infrastructure that encouraged stupidity and greed, favorable legislation for a crippled industry, etc. I have no problems with Congress settling scores. But they also need to fix what got us into this mess. Niether the BofA-Merrill Show, nor the recently announced Financial Crisis Inquiry Commission, move us in this direction.
As I suggested in March, we may be setting ourselves up for an Extreme Do Over. Stay tuned.
- Mark
Friday, July 17, 2009
ON "RESENTFUL" WHITE MEN ...
If you've watched Republican Senators make fools of themselves during the Sonia Sotomayor confirmation hearings, or seen Pat Buchanan rail against her because she's an "affirmative action" nominee, you'll understand the following from a "resentful old white guy." It's from Dailykos ...
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I am a white man, an old white man, a rich old white man, by any reasonable measure; and Pat Buchanan is right. I am full of resentment. Let me tell you what I resent.
I resent a jackass like Pat Buchanan busting a vein about how white working men suffer when an 'undeserving' poor woman like Sonia Sotomayor gets ahead in the world by virtue of her own ability and her own skills.
I resent Buchanan saying she didn't deserve her admission, her grades, her awards, her editorship, her success as a lawyer, as a judge. If I could reach through the Internet tubes I would smack him silly.
I resent watching my father work three jobs to feed our family, watching my mother sew mens suits for 30 years, and then watching rich-kid punks like George W. Bush have life handed to them because of their daddy's name and their granddaddy's money.
I resent the Henry Ford VIII's of the world getting their first paying job as an executive vice-president when mine was cleaning toilets and my father's was landing poor white soldiers and marines on a fire-stormed beach at Okinawa.
I resent that black men and women were firehosed, beaten, killed by men like Jefferson Beauregard Sessions III because they dared demand the most basic human rights and justice.
I resent rich white men complaining because the merest handful of the poor; white, black, red, yellow or brown; are given a chance to show what they can do after decades of being spit on by the Pat Buchanans of the world ...
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You can read the rest here.
- Mark
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I am a white man, an old white man, a rich old white man, by any reasonable measure; and Pat Buchanan is right. I am full of resentment. Let me tell you what I resent.
I resent a jackass like Pat Buchanan busting a vein about how white working men suffer when an 'undeserving' poor woman like Sonia Sotomayor gets ahead in the world by virtue of her own ability and her own skills.
I resent Buchanan saying she didn't deserve her admission, her grades, her awards, her editorship, her success as a lawyer, as a judge. If I could reach through the Internet tubes I would smack him silly.
I resent watching my father work three jobs to feed our family, watching my mother sew mens suits for 30 years, and then watching rich-kid punks like George W. Bush have life handed to them because of their daddy's name and their granddaddy's money.
I resent the Henry Ford VIII's of the world getting their first paying job as an executive vice-president when mine was cleaning toilets and my father's was landing poor white soldiers and marines on a fire-stormed beach at Okinawa.
I resent that black men and women were firehosed, beaten, killed by men like Jefferson Beauregard Sessions III because they dared demand the most basic human rights and justice.
I resent rich white men complaining because the merest handful of the poor; white, black, red, yellow or brown; are given a chance to show what they can do after decades of being spit on by the Pat Buchanans of the world ...
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You can read the rest here.
- Mark
A TAIL OF TWO BAILOUTS
Check out this op-ed from capitalism's bible, the Wall Street Journal. The following quote tells us what the article is about:
Could it be that the WSJ is finally starting to see the light? I doubt it. But if capitalism's bible is going to produce more articles like this one in the future we might be able to turn the corner.
- Mark
... So for the moment, Goldman Sachs -- or should we say Goldie Mac? -- enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong.Incredibly, at the end of the article the WSJ calls for more regulation and even an "FDIC-style bailout tax." More taxes for the "too big to fail" group and more regulation? I like it.
We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business.
Could it be that the WSJ is finally starting to see the light? I doubt it. But if capitalism's bible is going to produce more articles like this one in the future we might be able to turn the corner.
- Mark
Thursday, July 16, 2009
THE DEAL PROFESSOR
If you ever wanted to get into some of the ugly details surrounding corporate governance and their ethical (or lack thereof) practices The Deal Professor is the site for you. Managed by two lawyers who deal in corporate law and research, the site looks at developments that the headlines tend to miss.
In this review, "Are Banks Getting Cheeky?", Steven M. Davidoff tells us that banks are beginning to ratchet up the same attitude and scams that got us into this mess. So, yes, they're getting cheeky.
Some of you may find some of the language a bit tedious - finance speak is tough to learn for many - but the site is a great source for those looking to understand the forces behind the financial currents. If you've read my book - and like it - you will love this site. Have fun.
- Mark
In this review, "Are Banks Getting Cheeky?", Steven M. Davidoff tells us that banks are beginning to ratchet up the same attitude and scams that got us into this mess. So, yes, they're getting cheeky.
Some of you may find some of the language a bit tedious - finance speak is tough to learn for many - but the site is a great source for those looking to understand the forces behind the financial currents. If you've read my book - and like it - you will love this site. Have fun.- Mark
Wednesday, July 15, 2009
BANNING CREDIT DEFAULT SWAPS?
Money Morning's Martin Hutchinson just posted an article explaining why market players, and the U.S. Congress, needs to support Rep. Maxine Waters' (D-CA) bill banning credit default swaps.
So, just what are credit default swaps? In a few words they're supposed to be insurance contracts for the complex financial instruments that helped bring down the market. Why do they need to be banned? Because no one could pay out on the contracts when the market meltdown occurred. Here's a synopsis of the credit default swap market (which appeared in my book, p. 228), which helps explain why.
Can you imagine buying car insurance and then having your insurer say, "Sorry, we're out of money, we only wanted your premiums ..."? This is essentially what has happened with the CDS market.
The problem with the CDS market is that it gave investors-speculators a false sense of confidence. It helped them believe that their products and portfolios were insured. This encouraged them to write and invent even more complex financial instruments, which only fed the cycle that led to market collapse.
Consdider this: The size of the CDS market grew from a "modest" $1 trillion in 2001 to an astounding $54.6 trillion (some estimates put the amount at $75 trillion) by 2008. This was more than double the size of the U.S. stock market.
If you're wondering where your trillions in bailout money has been going, wonder no more. Much of it is now going to pay off these insurance contracts - which insured bad bets and poorly vetted financial instruments. This explains why some of the financial conglomerates are now reporting "profits" this quarter. They're getting payout (and bonuses) for writing a bad product.
I agree with Rep. Maxine Waters. The practice of issuing CDS contracts in their current form should be banned. Still, I also think there are some merits to insurance markets for certain industries. But insuring market "bets" and other "derivative" contracts should not be part of the equation.
Read Hutchinson's article. It goes a long way in explaining why we will only end up doing our market meltdown all over again if we don't deal with (i.e. regulate) the CDS market now.
- Mark
UPDATE: For more information on credit default swaps click here and here.
So, just what are credit default swaps? In a few words they're supposed to be insurance contracts for the complex financial instruments that helped bring down the market. Why do they need to be banned? Because no one could pay out on the contracts when the market meltdown occurred. Here's a synopsis of the credit default swap market (which appeared in my book, p. 228), which helps explain why.
Credit default swaps (CDS) are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt, and mortgage securities. They are sold by banks, hedge funds, and other market players. Like anyone who purchases car insurance those who purchase CDS contracts make payments on a regular basis. In return they get peace of mind, knowing that losses will be covered if a default happens.
The process is supposed to work similarly to someone taking out car or home insurance to protect against losses from fire and theft. Except that it doesn’t. Banks and insurance companies are regulated; the CDS market is not. This explains why credit default swap contracts were traded — or swapped — from market player to market player without any oversight. Most market players simply wanted the income stream from the “premiums” paid.
Not surprisingly, many buyers did not have the resources to cover losses if the security that they insured failed. This is what happened in 2007 and 2008. Like small insurance companies who hoped they never would have to face claims from a regional earthquake or a Katrina-like event, market players who provided insurance for investment and derivative portfolios weren’t properly capitalized and could not pay out claims when their markets collapsed.
Can you imagine buying car insurance and then having your insurer say, "Sorry, we're out of money, we only wanted your premiums ..."? This is essentially what has happened with the CDS market.
The problem with the CDS market is that it gave investors-speculators a false sense of confidence. It helped them believe that their products and portfolios were insured. This encouraged them to write and invent even more complex financial instruments, which only fed the cycle that led to market collapse.
Consdider this: The size of the CDS market grew from a "modest" $1 trillion in 2001 to an astounding $54.6 trillion (some estimates put the amount at $75 trillion) by 2008. This was more than double the size of the U.S. stock market.
If you're wondering where your trillions in bailout money has been going, wonder no more. Much of it is now going to pay off these insurance contracts - which insured bad bets and poorly vetted financial instruments. This explains why some of the financial conglomerates are now reporting "profits" this quarter. They're getting payout (and bonuses) for writing a bad product.
I agree with Rep. Maxine Waters. The practice of issuing CDS contracts in their current form should be banned. Still, I also think there are some merits to insurance markets for certain industries. But insuring market "bets" and other "derivative" contracts should not be part of the equation.
Read Hutchinson's article. It goes a long way in explaining why we will only end up doing our market meltdown all over again if we don't deal with (i.e. regulate) the CDS market now.
- Mark
UPDATE: For more information on credit default swaps click here and here.
Monday, July 13, 2009
EXPLAINING PALINTOLOGY
Frank Rich has an interesting column in today's NY Times describing the increasingly strong hold that Sarah Palin has on the GOP. Worse, Rich argues, is how the Republican Party - just like Michael Jackson apologists have done - has come to justify and embrace Palin's strange logic and her recent life decisions. Here's how Rich opens his article:
SARAH PALIN and Al Sharpton don’t ordinarily have much in common, but they achieved a rare harmonic convergence at Michael Jackson’s memorial service. When Sharpton told the singer’s children it was their daddy’s adversaries, not their daddy, who were “strange,” he was channeling the pugnacious argument the Alaska governor had made the week before. There was nothing strange about her decision to quit in midterm, Palin told America. What’s strange — or “insane,” in her lingo — are the critics who dare question her erratic behavior on the national stage.So, what makes Palin the star of the party? In a few words, her ability to tap into the Republican's sense of resentment and victimization.
The essence of Palinism is emotional, not ideological. Yes, she is of the religious right, even if she winks literally and figuratively at her own daughter’s flagrant disregard of abstinence and marriage. But family-values politics, now more devalued than the dollar by the philandering of ostentatiously Christian Republican politicians, can only take her so far. The real wave she’s riding is a loud, resonant surge of resentment and victimization that’s larger than issues like abortion and gay civil rights.What makes this development so dangerous, according to Rich, is how reality flies out the door when it comes to evaluating Sarah Palin and what she supposedly represents.
The politics of resentment are impervious to facts. Palinists regard their star as an icon of working-class America even though the Palins’ combined reported income ($211,000) puts them in the top 3.6 percent of American households. They see her as a champion of conservative fiscal principles even though she said yes to the Bridge to Nowhere and presided over a state that ranks No.1 in federal pork.There's more (the article is longer than a standard op-ed) but Rich makes it clear that the key to understanding why the Republicans have come to embrace Sarah Palin is how she puts a pretty face on the very ugly politics of resentment.
- Mark
UPDATE: I just found this from the Wall Street Journal. Peggy Noonan, former special assistant to Ronald Reagan, is horrified at the prospect of Sarah Palin leading the Republican Party. Here's a snippet of what she thinks about Sarah Palin:
In television interviews she was out of her depth in a shallow pool. She was limited in her ability to explain and defend her positions, and sometimes in knowing them. She couldn't say what she read because she didn't read anything. She was utterly unconcerned by all this and seemed in fact rather proud of it: It was evidence of her authenticity. She experienced criticism as both partisan and cruel because she could see no truth in any of it. She wasn't thoughtful enough to know she wasn't thoughtful enough. Her presentation up to the end has been scattered, illogical, manipulative and self-referential to the point of self-reverence. "I'm not wired that way," "I'm not a quitter," "I'm standing up for our values." I'm, I'm, I'm.
Friday, July 10, 2009
RADIO PROGRAM
I apologize for being away for the week. My brother showed up and we ended up spending more time away than expected. Anyways, here's what's happening with the radio program.
Simply put, we need more sponsors. The primary sponsors that we have will continue with their commitments but others have had their circumstances change with the economy. I will look for additional sponsors, and welcome suggestions from those of you who have come to enjoy our program. I will keep you informed as we move along.
While I will begin posting this coming Monday, we will be off the air for the time being.
- Mark
Simply put, we need more sponsors. The primary sponsors that we have will continue with their commitments but others have had their circumstances change with the economy. I will look for additional sponsors, and welcome suggestions from those of you who have come to enjoy our program. I will keep you informed as we move along.
While I will begin posting this coming Monday, we will be off the air for the time being.
- Mark
Thursday, July 2, 2009
OUR JOBS, HEALTH CARE & FINANCE PICTURE
This is just a small glimpse into why things aren't going to be looking up for a while ...
First up, new unemployment figures are out. And they're not good. Today 9.5% of America is officially unemployed. But that's only the beginning. The number of unemployed Americans who are no longer looking for work is up as well. Why is this bad? Because if you're so discouraged that you're no longer looking for work (almost 800,000 Americans) you're not counted as unemployed. This means that our unemployment rate is well above 10% (the job's picture is actually worse). Check out this interactive graph from the NY Times on the matter.
Up next, in another NY Times article we find an old bogeyman that's looming over our economy: insured people going bankrupt because their health insurance doesn't cover their bills. In fact, as I point out in my book, over half of all bankruptcies in America (well over a million this year) aren't caused by irresponsibile debtors. They are caused by catastrophic illness that happens to people who already have health insurance. The article takes us through one of those stories. How do we fix this? According to the article, here's one way:
Finally, we have banks and mortgage lenders gearing up to kill President Obama’s proposed new consumer protection agency that's designed to regulate home loans, credit card fees, payday loans and other forms of consumer finance. That's right. The same institutions that created the economic mess, and that are still heavily dependent on taxpayer-supported loans and loan guarantees (worth about $9 trillion) for their survival, are working to make sure that they are free to do it all over again.
So, in a few words, we have regular Americans fighting to keep their jobs in a weakened economy backed by double-talk and predatory practices from their health insurers and creditors. And industry heavyweights want to keep the status quo. Nice.
- Mark
First up, new unemployment figures are out. And they're not good. Today 9.5% of America is officially unemployed. But that's only the beginning. The number of unemployed Americans who are no longer looking for work is up as well. Why is this bad? Because if you're so discouraged that you're no longer looking for work (almost 800,000 Americans) you're not counted as unemployed. This means that our unemployment rate is well above 10% (the job's picture is actually worse). Check out this interactive graph from the NY Times on the matter.
Up next, in another NY Times article we find an old bogeyman that's looming over our economy: insured people going bankrupt because their health insurance doesn't cover their bills. In fact, as I point out in my book, over half of all bankruptcies in America (well over a million this year) aren't caused by irresponsibile debtors. They are caused by catastrophic illness that happens to people who already have health insurance. The article takes us through one of those stories. How do we fix this? According to the article, here's one way:
If everyone in the country were required to have insurance, the industry says — a mandate that Congress is contemplating — the costs and risks of insurance would be spread over a large enough pool of people to let insurers provide full, affordable coverage even to people with pre-existing medical conditions.I can hear the republicans now, "How much is this going to cost?" I can tell you one thing. Government "vouchers" (the proposed Obama plan) and competition from government hospitals (discussed in last week's program) would go a long way in making us more competitive while putting a bite in the 15.3% of GDP that we are currently spending on health care in America (which not even the "socialist" countries are spending). Put another way, we need national health care.
Finally, we have banks and mortgage lenders gearing up to kill President Obama’s proposed new consumer protection agency that's designed to regulate home loans, credit card fees, payday loans and other forms of consumer finance. That's right. The same institutions that created the economic mess, and that are still heavily dependent on taxpayer-supported loans and loan guarantees (worth about $9 trillion) for their survival, are working to make sure that they are free to do it all over again.
So, in a few words, we have regular Americans fighting to keep their jobs in a weakened economy backed by double-talk and predatory practices from their health insurers and creditors. And industry heavyweights want to keep the status quo. Nice.
- Mark
Wednesday, July 1, 2009
THE REAL IMPACT OF THE MELTDOWN
University of economics professer - and monthly guest on our program - Mark Thoma has an excellent post which discusses how the United States has mishandled both markets and democracy since the economic meltdown began. The impact this is having around the world, as was the case in the 1930s, is not good. Professor Thoma quotes Nobel laureate, Joseph Stiglitz:
You can read the entire post, with links to the Stigliz piece, here.
- Mark
The economic crisis, created largely by America’s behavior, has done more damage to these fundamental values [democracy & capitalistm] than any totalitarian regime ever could have. ...For those of you who have read my book, or taken my International Relations (PS 304) or International Political Economy (PS 404) classes, the argument will not surprise you: Hypocrisy in the face of failure does much to undermine your ideals.
You can read the entire post, with links to the Stigliz piece, here.
- Mark