Financial crisis- Republicans protect the bankers

Springtime for Bankers

By PAUL KRUGMAN

Last year the G.O.P. pulled off two spectacular examples of bait-and-switch campaigning. Medicare, where the same people who screamed about death panels are now trying to dismantle the whole program, was the most obvious. But the same thing
happened with regard to financial reform.

As you may recall, Republicans ran hard against bank bailouts. Among other things, they managed to convince a plurality of voters that the deeply unpopular bailout legislation proposed and passed by the Bush administration was enacted on President Obama’s watch.

And now they’re doing everything they can to ensure that there will be even bigger bailouts in years to come.

What does it take to limit future bailouts? Declaring that we’ll never do it again is no answer: when financial turmoil strikes, standing aside while banks fall like dominoes isn’t an option. After all, that’s what policy makers did in 1931, and the resulting banking crisis turned a mere recession into the Great Depression.

And let’s not forget that markets went into free fall when the Bush administration let Lehman Brothers go into liquidation. Only quick action — including passage of the much-hated bailout — prevented a full replay of 1931.

So what’s the solution? The answer is regulation that limits the frequency and size of financial crises, combined with rules that let the government strike a good deal when bailouts become necessary.

Remember, from the 1930s until the 1980s the United States managed to avoid large bailouts of financial institutions. The modern era of bailouts only began in the Reagan years, when politicians started dismantling 1930s-vintage regulation.

Moreover, regulation wasn’t updated as the financial system evolved. The institutions that were rescued in 2008-9 weren’t old-fashioned banks; they were complex financial empires, many of whose activities were effectively unregulated — and it was these unregulated activities that brought the U.S. economy to its knees.

Worse yet, officials lacked clear authority to seize these failing empires the way the F.D.I.C. can seize a conventional bank when it goes bust. That’s one reason the bailout looked so much like a giveaway: officials felt they lacked the legal tools to save the financial system without letting the people who created the crisis off the hook.

Last year Congressional Democrats enacted a financial reform bill that sought to close these gaps. The bill extended regulation in a number of ways: consumer protection, higher capital standards for major institutions, greater transparency for complex financial instruments. And it created new powers — “resolution authority” — to help officials drive a harder bargain in future crises.

There are many criticisms one can make of this legislation, which is arguably much too weak. And the Obama administration has frustrated many people with its too-lenient attitude toward Wall Street — exemplified by last week’s decision to exempt foreign-exchange swaps, a major source of dislocation in 2008, from regulation.

But Republicans are trying to undermine the whole thing.

Back in February G.O.P. legislators admitted frankly that they were trying to cripple financial reform by cutting off funding. And the recent House budget proposal, which calls for privatizing and voucherizing Medicare, also calls for eliminating resolution authority, in effect setting things up so that the bankers will get as good a deal in the next crisis as they got in 2008.

Of course, that’s not how Republicans put it. They claim that their goal is to “end the cycle of future bailouts,” under the general rubric of “ending corporate welfare.”

But as we’ve already seen, future bailouts will happen whatever today’s politicians say — and they’ll be bigger, more frequent and more expensive without effective regulation.

California Budget Crisis- Sources of revenue

It is clear that the California budget is in crisis and we can not simply cut our way out of the crisis.  Budget cuts and lay offs make the recession worse.

School funding reveals the nature of crisis.  In the last two years the k-12 budget “solutions” have cut 4.6 billion dollars from the schools. We have larger classes and fewer teachers.  School reform has stopped- except for the politicians hot air.  School funding makes up a total of 30% of the state budget.  Any crisis in the state budget and any cuts in the state budget will make school budgets worse.

California will need to raise taxes to fund the schools and to repair the social safety net.  Anti tax radicals and Republicans  oppose any tax increases.   The state ‘solutions’ of the last three years depended upon receiving federal stimulus money.  The stimulus monies are almost finished and with the Republican winning control  of Congress there will probably not be more funds.

The world wide economic crisis was created by  U.S. finance capital and banking, mostly on Wall Street ,ie. Chase Banks, Bank of America, AIG, and others.   Finance capital produced a $ 2 trillion bailout of the financial industry, the doubling of U.S. unemployment rate and the loss of 2 million manufacturing jobs.  More than 15   million people are out of work.  At the national level almost all of the projected deficit through 2020 will be the result of three factors: the Great recession, the tax cuts of the early 2000s under George W. Bush, and the hundreds of billions of dollars of war spending.

The economic stalemate in California has produced school funding cuts far beyond reasonable levels.  At present,  the state ranks 47^th among all states in its per-pupil spending, spending $2,856 less per pupil than the national average.

  In California we need to spend more state money to improve schools, to develop roads and infrastructure, and to create jobs.  Those who are well educated are more employed and paying taxes while those with less education, those who leave school, are in a prolonged economic crisis.  It is well documented that our schools and our universities are in a finance crisis.  We need to be preparing young people for new jobs and to create new industries.  The success of students in higher education will significantly determine California’s future competitiveness and prosperity.   Improving education, including both k-12 and higher education, makes California more likely to attract investment and the creation of new jobs and new industries.

California government must protect and empower our citizens. To foster prosperity  it must prepare the young for civic participation. (BTW. This has been recognized since the first California Constitution of 1849).  Protection includes health care, social security, safe food, environmental protection, safe streets, job protection, etc.

Our economy needs roads, bridges, telephone lines, communications systems, energy and quality education.  These services make freedom and prosperity possible. Conservative opposition to these services ignore the economies need for infrastructure.

Specific revenue sources :

            Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon)  over the internet.  Gain. 1.2 billion $.

            Pass an oil extraction tax.  Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us.  Gain.10 Billions.  Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year.  This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs. Pay for the Jobs package with a new oil severance tax.    Imposition of an oil severance tax. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil.  Alaska and Louisiana both charge 12.5%.     

            Establish a  public state bank such as the Bank of North Dakota. Initially move 25% of all state revenue, receipts and reserves into this bank and 25% of all PERS and STRS funds. Manage the bank as a public service. Over time, finance state borrowing from our own bank.   Gain.  6% of the budget.

            Continue efforts to eliminate waste, fraud and abusive where it exists.  There may be legitimate savings here.  For example not paying $13.2 billion for a Bay Bridge that originally was to cost under $6 billion.  There are some abuses in pensions revealed for high ranking police, fire and public safety officials and for some U.C. administrators. 

            Repeal the 2009 and 2008 tax cuts for corporations passed to gain the extra Republican votes for the budget.  Savings $1 billion.

            As a consequence of the just passed federal tax reductions, including the reduction of taxes to the wealthiest taxpayers,  Washington-based Citizens for Tax Justice estimate that  California’s richest taxpayers will be saving about $14 billion annually on their federal taxes. The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion.  State taxes should be increased on these two groups to secure this available 20.6 Billion dollars to fund the necessary jobs creation projects.  

            Sell state bonds to gain funds for investment. At present we pay bond holders a market rate.  Rates are so low at present we should borrow and invest.  To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.   Once started ( stimulated) debt financed building will stimulate more building bringing private  debt financing into productive investments.

            Many more sources of revenue need to be developed.  We have been thinking too small and looking in the wrong directions.  Please make suggestions.

            Unfortunately we would be unable to tap  a major source of potential revenue because it is tied to the national economy.  There should be a significant tax on the sale of stocks, bonds, and financial instruments.  The sources of this tax are in New York and can be easily moved around the globe.  Some planning is necessary to develop this source.  Potential Gain.  $30 billion per year.

            Since the state can not go into debt it will need to use tax policy to raise the funds necessary for public investments.  The state has also been targeting particular industries, notably the film industry with tax subsidies and local governments have been providing tax subsidies in the form of enterprise zones.  Along with needed  tax reform, these forms of subsidies (debt) should be reformed to focus on economic growth.   

 A state can not print money, but it can sell bonds to fund development. California currently sells bonds.  We could develop bonds for more  growth oriented public investment.  At present we pay bond holders a market rate. To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.  These are among the largest investment funds in the nation. Their investment strategies should be re designed to promote in state economic growth.  After all, the money in PERS and STRS is California money.  And, the best way to keep these funds financially solvent is to improve the California economy.  So, directing investment in a manner to promote growth would provide significant capital for public projects.  We could sell bonds to PERS and STRS at a better rate than they are presently getting.  Further, by working with PERS and STRS we could develop a system where they serve as a marketing director to sell state bonds to their members.  There are many people interested in investing in public bonds.

 After a 2-4 year transition period, a similar pool of available funds would develop in the new California Public Bank.

Alternative;

We can follow the process of Ireland and Greece and dramatically cut services and raise taxes and impoverish the economy.  Then, since the nation is poorer and has less income you will need to raise more taxes and cut more services all in an effort to protect the excessive profits of bankers and bond holders.

California can continue the current process of cuts and reductions.  The fiscal crises of the states – all the states- has caused major cut backs and retrenchment and made the economic crisis approach a depression.  The state cut backs are greater than the federal stimulus producing a prolonging of the crisis for working people.  Continuing on the present direction produces obscene profits for billionaires along with growing poverty and hardships for the majority.

Sources

Gar Alperovitz, America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy.  (2005) John Wiley and Sons

Dean Baker,  Plunder and Blunder: The Rise and Fall of the Bubble Economy, (2009)

Campbell, Duane.  Choosing Democracy: a practical guide to multicultural education. (2010)

Justin Fox,  The Myth of the Rational Market: a History of Risk, Reward, and Delusion on Wall Street. (2009)

Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future- and What It Will Take to Win It Back. ( 2006)

William Grieder,  The Soul of Capitalism: Opening Paths to a Moral Economy. (2003).

David Harvey, The Enigma of Capital and the Crisis of Capitalism.  (2010)

Paul Krugman,  The Return of Depression Economics and the Crisis of 2008.  (2009)

Robert Kuttner,  A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle To Control Our Economic Future. (2010)

Nomi Prins.  It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to  Wall Street. (2009)

Joe Schwartz,  The Future of Democratic Equality; Rebuilding Social Solidarity in a Fragmented United States. (2008)

Joseph E. Stiglitz.  Free Fall, America, Free markets, and the Shrinking World Economy.  (2010

Finance Reform bill passes - finally

Democrats successes so far.

2009
January 29: Lilly Ledbetter Fair Pay Act


February 4: Children’s Health Insurance Reauthorization Act


February 11: DTV Delay Act


February 17: American Recovery and Reinvestment Act;

         Allocation of some $8 billion to California schools allowing districts

         to preserve some 16,000 teacher jobs and 15,000 jobs in higher ed.


March 30: Omnibus Public Lands Management Act of 2009


April 21: Edward M. Kennedy Serve America Act


2010. Plus. 3 allocations of addition funds for Supplemental Unemployment insurance to the states.  Currently Unemployment Insurance can extend up to 99 weeks.  Appropriations to extend the supplemental unemployment are currently blocked by a Republican filibuster in the Senate.

July 17,2010.  Financial regulation bill passed. ( Wall Street Reform).

This is as important as the Health Care reform bill. 

2009.

May 20: Fraud Enforcement and Recovery Act


May 20: Helping Families Save Their Homes Act of 2009

May 22: Credit Card Accountability, Responsibility, and Disclosure Act of 2009


June 22: Family Smoking Prevention and Tobacco Control Act

August 6: Cash For Clunkers Extension Act

October 22: Veterans Health Care Budget Reform and Transparency Act


October 28: Matthew Shepard and James Byrd Jr. Hate Crimes Prevention Act


October 30: Ryan White HIV/AIDS Treatment Extension Act


November 6: Worker, Homeownership, and Business Assistance Act of 2009



2010
March 4: Travel Promotion Act


March 18: Hiring Incentives to Restore Employment Act (HIRE Act)
March 23: Patient Protection and Affordable Care Act


March 30: Health Care and Education Reconciliation Act of 2010


May 5: Caregivers and Veterans Omnibus Health Services Act of 2010

Plus. 3 allocations of addition funds for Supplemental Unemployment insurance to the states.  Currently Unemployment Insurance can extend up to 99 weeks.  Appropriations to extend the supplemental unemployment are currently blocked by a Republican filibuster in the Senate.

July 17,2010.  Financial regulation bill passed. ( Wall Street Ref

Bankers, hustlers and con men doing well in this economy

Outside the Casino

By BOB HERBERT

The hustlers and high rollers at Wall Street’s gaming tables are starting to feel lucky again.

Hiring is beginning to pick up in the very sector that led the country to the edge of a depression. An article on the front page of The Times on Sunday noted that this turnaround “underscores the remarkable recovery of the biggest banks and brokerage firms since Washington rescued them in the fall of 2008, and follows the huge rebound in profits for members of the New York Stock Exchange, which totaled $61.4 billion in 2009, the most ever.”

The hustlers and high rollers are always there to skim the cream, no matter what’s happening in the real world of ordinary American families.

In a column that was published a few days before Christmas 2007, the very month that the great recession began, I wrote about the record-breaking seasonal bonuses being handed out on Wall Street: an obscene $38 billion, the highest total ever. The subprime mortgage debacle was already upon us and the economy was sinking like a stone, but the casino crowd was celebrating as never before. “Even as the Wall Streeters are high-fiving and ordering up record shipments of Champagne and caviar,” I noted, “the American dream is on life support.”

The fattest of the fat cats live in a perpetual heads-I-win, tails-you-lose environment. But if you step outside the Wall Street casino, you’ll notice that things aren’t going too well in the rest of the country. More than 14 million Americans are out of work, and nearly half of them have been jobless for six months or longer. The unemployment rate for black Americans is 15.4 percent.

School districts across the country are taking drastic steps to cope with collapsing budgets: firing personnel, increasing class sizes, cutting kindergarten and summer-school programs and, in some cases, moving to a four-day school week. The Associated Press, in a demoralizing report, recently noted: “As the school budget crisis deepens, administrators across the nation have started to view school libraries as luxuries that can be axed rather than places where kids learn to love reading and do research.”

What a country. We’ll do whatever it takes to make sure the bankers keep living the high life and swilling that Champagne while at the same time we’re taking books out of the hands of schoolchildren trying to get an education.

I’m no friend of the deficit hawks, but the staggering amounts of money we’ve been spending for the past several years have not benefited the people most in need of help and have not laid the foundation for a more secure economy going forward. We’ve handed over unconscionable tax breaks to the very rich (you can see the Prada paraders high-stepping along Fifth Avenue in their million-dollar flip-flops) and countless billions to the private contractors brazenly feeding off the agony of the endless wars in Afghanistan and Iraq.

(Sunday’s paper also had an article about six more American G.I.’s killed in Afghanistan.)

What’s needed is the same sense of urgency about helping struggling families and putting people back to work as the Bush and Obama crowds showed when the banks were about to go bust. That sense of urgency is always missing when it’s ordinary people who are in trouble.

Millions of Americans are stuck in an economic depression. Several million have either lost their homes to foreclosure during the recession or are in imminent danger of losing them. The long-term unemployed are facing painful daily choices on such basic matters as whether to buy food or refill needed prescription medication or pay electric bills to keep the lights on.

Back in February, The Times’s Peter Goodman wrote about the new poor, “people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.”

There can be no real national recovery with so many millions of people in such deep economic distress. We can pretend that we’re locked in some kind of crisis of confidence, that if only people felt better about themselves and the economy then they’d start spending again. This is a variation on the “mental recession” lunacy spouted by Phil Gramm, John McCain’s top economic adviser during the presidential campaign.

People who are out of work and deeply in debt don’t have any money to spend. The only way to get real money back into their wallets and bank accounts (and thus back into the economy) is to get them back to work.

With our help, the banks and Wall Street have done fine. Better than they had any right to expect. It’s the ordinary folks outside the casino, in the real world, who are still in desperate need of help. But in a society of, by and for the rich, that help will be a long time coming.

From the New York Times.

Battling the Banksters

William Greider | June 30, 2010. the Nation.com

Hold the applause. The president would like us to celebrate his "Wall Street reform," but the legislation is misnamed. Barack Obama did not set out as president to reform Wall Street in fundamental ways but to restore it. Judging by the largest banks' booming stock prices and executive bonuses, he appears to have succeeded. The leading bankers expressed relief when they saw the reform package Congress cobbled together on June 25. Wall Street, loathed by citizens everywhere, dodged the bullet in Washington.
Congress followed Obama's path and rejected the sterner measures that promised to actually change things. As with healthcare reform, the White House, joined by the Treasury and the Federal Reserve, spent much of its energy opposing more aggressive ideas or bargaining small-bore compromises. The president kept a low profile, saving himself for the victory celebration.
Despite the defeat of real reform, progressives should not despair—the future looks much brighter than the headlines suggest. Yes, Congress choked on the hard questions. But assuming the Dems pull together last-minute wavering votes, it will be a stronger bill than either the White House or the bankers had intended, thanks to public anger, popular mobilization and nimble pressure from reformers.
This is not the end of reform; it's the beginning of a promising struggle to cut the financial sector down to tolerable dimensions and reduced power. The forces of reform demonstrated that they have the strength and especially the ideas to win this fight—just not this year.

Mainly, the legislation gives government regulators explicit authority to take tougher measures to curb Wall Street's dangerous behavior, but only if the Fed and Treasury decide it's a good idea. Don't hold your breath. These same agencies failed massively to confront the rampant recklessness that led to collapse (many of them claimed not to have seen the trouble coming).
Once again, the risk-taking is assigned to unwitting citizens and the economy. Washington saved big-dog bankers from failure, but it has not saved the rest of us from the bankers. Some reformers want to make the best of mixed results. The Consumer Federation of America says the banks "won a few battles; they lost the war." I would say it is the other way around: reform won some battles but lost the war.
Some valuable improvements, like the Consumer Financial Protection Agency, can lead to tougher rules, but even such worthy accomplishments were diluted in the fine print. The supposedly "independent" consumer agency is to be a "bureau" within the Federal Reserve, where hostile central bankers can find ways to smother the infant in its crib.
The improved controls on dangerous derivatives were likewise weakened in last-minute deal-making that gave bankers much of what they wanted—a free hand to keep the casino open for the gamblers. Bottom line: key elements of financial abuse that contributed to the breakdown have not been eliminated. And taxpayers are still on the hook for bailing out "too big to fail" banks.
Yet despite disappointing results, the losing issues revealed reasons for optimism. Think of this as Round One. We witnessed a surprisingly strong preview of Round Two in the aggressive reforms pushed by some Democratic senators. These proposals could someday—maybe sooner than we imagine—constitute the platform for authentic reordering of the banking system.
In the trenches the legislative battle was Democrats against Democrats (Republican senators were united in opposing everything). These roll calls made visible the deeply conflicted purposes of the party—the awkward straddle Democrats have maintained for three decades. Is it the party of working people or the party of big money? Democrats have for some time wanted to be both, but this year's action exposed the contradiction more starkly and put the two sides into repeated collision.
Senator Byron Dorgan's amendment would have outlawed the exotic "naked" credit default swaps, which let bankers and others bet on assets they do not own (like buying fire insurance on your neighbor's house, then lighting the match). Other Democrats decided to table Dorgan's measure rather than choose between Wall Street and public anger at Wall Street. Dorgan's issue lost big, thirty-eight to fifty-seven, but it won among Dems, thirty-six to eighteen.
Senator Sheldon Whitehouse's amendment on usury would have repealed the federal pre-emption that prevents states from enacting their own limits on consumer interest rates. Whitehouse got thirty-three Democrats for, twenty-one against. Roughly speaking, these roll calls joined old liberals and younger, newer senators against the party's center-right establishment, which is typically closer to financial patrons.
Senator Sherrod Brown's amendment followed the same pattern but on a far more fundamental issue—forcing the largest, most dominant banks to get smaller, breaking up concentrated financial power. Brown won among Democrats—thirty yes, twenty-seven no—though not enough to overcome Republican naysayers. Still, the Ohio senator came away remarkably optimistic about eventually winning.
"We got a majority of Democrats on the floor but almost nobody on the banking committee," Brown said. "It reminded me that this institution was built to protect the status quo—to protect the powerful against the people. In this chamber, we all sing with an upper-class accent, so to speak."
Yet Brown sees the path by which breaking up the banks will be forced back before Congress. "In the long term, we are going to win this issue," he said. "I can't say what the long term is, but the business community is eventually going to be for it." That's because the legislation implicitly awards privileged status to the very largest financial institutions, which means the disadvantages of "too big to fail" will fall upon smaller banks and other corporations. That, Brown thinks, will build the support among them for decisive reform. "The biggest banks get a built-in advantage because capital markets understand, or believe, that these big banks will never be allowed to fail," the senator explained. "Therefore, they get a lower interest rate when raising capital—seventy basis points or so—and therefore businesses naturally want to deal with them. So these big banks will get bigger and bigger."
The logic did not persuade this time around. "The argument against my amendment, implicitly, was, It's a radical thing to break up the banks—we can't go that far," Brown says. "The explicit argument was, We can't do that because it would disarm the country in global finance. That doesn't make any sense. You don't need $50 billion banks to get economies of scale."
Brown's spirit of confident optimism is the model for sustaining reform politics. As he sees it, liberal advocates can win if they do the hard work of explaining and recruiting not just among kindred spirits but among normally conservative business interests and ordinary apolitical citizens who don't call themselves liberal or progressive. Both groups are deeply angered and feeling threatened by the swelling concentration of Wall Street power. "It will not take another financial crisis to get back to breaking up the banks," Brown predicted.
A similar strategy is being taken up by labor and citizen reform groups, especially those outside the Beltway, like National People's Action. They intend to aim direct action at banks and focus on people's concrete grievances. That starts with the foreclosure crisis, which Washington has shamefully neglected.
Instead of congratulating Democrats for enacting timid measures, we should show them what we have in mind for Round Two.

---

Source URL: http://www.thenation.com/article/36905/battling-banksters

Limited reform of the financial industry : Dean Baker

Washington, D.C.- Dean Baker, co-director of the Center for Economic and Policy Research issued the following statement on the approval of the financial reform bill:

"The final compromise bill approved by the conference committee this morning will improve regulation in the financial sector. However, given the severity of the economic crisis caused by past regulatory failures, the public had the right to expect much more extensive reform.

"On the positive side, the creation of a strong independent Consumer Financial Protection Bureau stands out as an important accomplishment. Such an agency would have prevented some of the worst lending practices that contributed to the housing bubble. It will be important that President Obama choose a strong and effective person, such as Elizabeth Warren, as the first head of the Bureau to establish its independence.

"The requirement that most derivatives be either exchange-traded or passed through clearinghouses is also an important improvement in regulation. However, important exceptions remain, which the industry will no doubt exploit to their limit.

"The creation of resolution authority for large non-bank financial institutions is also a positive step, although the fact that no pre-funding mechanism was put in place is a serious problem. Also, the audit of the Federal Reserve's special lending facilities, as well as the ongoing audits of its open market operations and discount window loans, is a big step towards increased Fed openness.

"On the negative side, there is little in this legislation that will fundamentally change the way that Wall Street does business. The rules on derivative trading will still allow the bulk of derivatives to be traded directly out of banks rather than separately capitalized divisions of the holding company. The Volcker rule was substantially weakened by a provision that will still allow banks to risk substantial sums in proprietary trading.

"More importantly, there is probably no economist who believes that this bill will end the risks of  too-big-to-fail financial institutions. The six largest banks will still enjoy the enormous implicit subsidy that results from the expectation that the federal government will bail them out in the event of a crisis.

"Also, the fact that no regulators, most obviously Ben Bernanke at the Fed, were fired for failing to prevent the crisis leaves in place serious doubts about the structure of incentives for regulators. Cracking down on reckless behavior by politically powerful financial institutions will always be difficult for regulators. On the other hand, if regulators know that failing to crack down carries no consequences, even when it leads to disastrous outcomes, we can expect that regulators will have a strong bias toward ignoring reckless behavior.

"It is possible that Congress may take stronger steps toward restructuring the financial sector, most obviously in the context of a financial speculation tax. While this is not likely to pass at the moment, in the context of severe budget pressures, a tax that can raise $150 billion a year in revenue may look more appealing than most alternatives. Such a tax would do far more to restructure the industry than this financial reform bill."

Viewpoint. Duane Campbell

Earlier posts here have argued for the re-establishment of Glass-Steagal.  This was not achieved.

Achieving real change, whether in healthcare, or bank reform,

or energy, or even funding extended unemployment benefits,

 is effectively impossible, given the rules

that govern the Senate and the fierce obstructionism of

the Republican Party.

Bank reform in the balance- call your Congressman

No More Gambling with Taxpayer Money!

Submitted by Mary Bottari on June 9, 2010 - 04:27

Let's Get the Job Done, Help Us Whip the Conferees!

The House-Senate banking conference committee is underway in Washington, D.C. If you are a nut like me, you will want to watch on C-Span. But even if you are not, you can still have boatloads of Bankster fun by helping us whip the conferees! We are making progress, Fed Presidents across the land are supporting Lincoln, along with top economists, the New York Times editorial board and even Paul Volcker, who apparently changed his mind. With your help we can win this!

Background

Reckless swaps and derivatives trading played a critical role in the financial crisis, inflating the domestic housing bubble and turning it into a global economic catastrophe. As the House and Senate conference committee begins final work on the financial services reform bill it is critically important to preserve the strong language cracking down on those “financial weapons of mass destruction” contained in the Senate bill. Nobel prize-winning economist Joseph Stiglitz makes the case for Senate derivatives chapter plainly" “If [Congress] fails to pass strict oversight of dangerous over-the-counter derivatives and swaps the U.S. economy will continue to be vulnerable to significant financial risk.”

Casino Banking

Currently the five largest banks in the United States have an anti-competitive strangle-hold on 90 percent of the U.S. swaps and derivatives market worth some $300 trillion. The five banks are Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup and Bank of America. These five bank-dealers can fund their swaps trading units with FDIC-insured deposits. They have access to the Federal Reserve's discount window, which allows them to borrow money for gambling in swaps at near-zero percent interest rates. But these government supports were created to reassure the public that their deposits are safe, and to protect banks from runs on their deposits –- not to help banks finance their own casinos.

Play with Your Own Money, Not Ours

Sec. 716 of the Senate bill contains a ban on federal government assistance to any swap entity. In effect, Sec. 716 will require the five largest banks/swaps dealers to spin off their swaps desks into a separately capitalized affiliate – in other words to Wall off the casino from old fashioned banking. The measure is geared entirely towards preventing a situation in which taxpayers would once again be liable for the bad bets of big banks. Sec. 716 would ensure that private sector institutions alone are responsible for these risky trades.

Don't Believe Bank Spin

This fight is winnable! Politico reports that the banks are downright "queasy" as the final reform deal nears. It is also important to note that contrary to big bank spin, the banks would be able to serve their customers as they always have. Their affiliated swaps desks would be able to sell a full range of financial products and they would be able to hedge their own risk. But they would no longer be gambling with taxpayer money.

Proposal Under Threat

While the Senate derivatives chapter is supported by leading economists and reform advocates including Jospeh Stigliz, Nouriel Roubini, Simon Johnson, Robert Johnson, Dean Baker, advocates like Americans for Financial Reform, small American banks and even a large number of international bank analysts, it is not supported by the Obama administration or Congressional leaders. It is also the top target of the 2,500 bank lobbyists swarming Capitol Hill. Since these powerful provisions are already in the bill, thanks to the efforts of Senate Agriculture Committee chair Blanche Lincoln (D-Ark.), they will have to be stripped out with a public vote. Democratic leaders like Senator Chris Dodd (D-Conn.) and Barney Frank (D-Mass.) are in the awkward position of needing to gut the reform package that they are touting as the strongest since the New Deal era. They are hoping to do this gracefully and are working on a bad compromise to buy off critics.

Why does this matter?

What caused this crisis?

 The nation  including California is suffering a severe recession.  Twenty Six million  are unemployed and under employed. This crisis was created by finance capital and banking, mostly on Wall Street ,ie. Chase Banks, Bank of America, AIG, and others.   Finance capital produced a $ 2 trillion bailout of the financial industry, the doubling of America’s unemployment rate and the loss of 2 million manufacturing jobs in 2008.  Fifteen million people are out of work.  You and I, and college students did not create this crisis.  Finance capital stole the future of many young people.

Paul Krugman, The return of depression economics and the crisis of 2008.  (2009)

Dean Baker,  Plunder and Blunder: The Rise and Fall of the Bubble Economy, (2009)

Nomi Prins.  It Takes a Pillage: Behind the bailouts, bonuses and backroom Deals from Washington to  Wall Street. (2009)

Joseph E. Stiglitz.  Free Fall, America, Free Markets, and the Shrinking World Economy.  2010.

William Grieder,  The Soul of Capitalism: Opening Paths to a Moral Economy. (2003).

Justin Fox,  The Myth of the Rational Market: a history of risk, reward, and delusion on Wall Street. (2009)

Jeff Faux, The Global Class War: How America’s Bipartisan Elite lost our Future- and what it will take to win it back. ( 2006)

Web resources.

United for a Fair Economy.  http://www.faireconomy.org

Center for Economy Policy Research

North Dakota has a solution for the bank robbery

http://www.commondreams.org/headline/2010/02/16-3

Why Obama must take on Wall Street : R. Reich

A larger explanation, I am afraid, is the grip Wall Street has over the American political process. The Street is where the money is and money buys campaign commercials on television. Wall Street firms and executives have been uniquely generous to both parties, emerging as one of the largest benefactors of the Democrats. Between November 2008 and November 2009, Wall Street doled out $42m to lawmakers, mostly to members of the House and Senate banking committees and House and Senate leaders. In the first three quarters of 2009, the industry spent $344m on lobbying - making the Street one of the major powerhouses in the nation's capital…

But the widening gulf between Wall Street and Main Street - a big bail-out for the former, unemployment checks for the latter; high profits and giant bonuses for the former, job and wage losses for the latter; buoyant expectations of the former, deep anxiety and cynicism by the latter; ever fancier estates for denizens of the former, mortgage foreclosures for the rest - is dangerous. Americans went ballistic early last summer when AIG executives got big bonuses after taxpayers had bailed them out. They will not be happy when Wall Street hands out billions in bonuses very soon. Angry populism lurks just beneath the surface of two-party politics in America. Just listen to Sarah Palin or her counterparts on American talk radio and yell television. Over the long term, the political stakes in reforming Wall Street are as high as the economic.

http://tpmcafe.talkingpointsmemo.com/2010/01/14/why_obama_must_take_on_wall_street/?ref
And Krugman

Krugman, Paul

Consider what has happened so far: The U.S. economy is still grappling with the consequences of the worst financial crisis since the Great Depression; trillions of dollars of potential income have been lost; the lives of millions have been damaged, in some cases irreparably, by mass unemployment; millions more have seen their savings wiped out; hundreds of thousands, perhaps millions, will lose essential health care because of the combination of job losses and draconian cutbacks by cash-strapped state governments.

And this disaster was entirely self-inflicted. This isn’t like the stagflation of the 1970s, which had a lot to do with soaring oil prices, which were, in turn, the result of political instability in the Middle East. This time we’re in trouble entirely thanks to the dysfunctional nature of our own financial system. Everyone understands this — everyone, it seems, except the financiers themselves.

How the bankers stole our prosperity

How the bankers did it.

The best way to rob a bank is to own one.

These two authors are among the few who can write about economics in a clear way. Here they describe how the bankers robbed the economy and caused the current recession.

Good Billions After Bad

By Donald L. Barlett and James B. Steele

Vanity Fair

October 2009

http://www.vanityfair.com/politics/features/2009/10/bailout200910?printable=true

Just inside the entrance to the U.S. Treasury, on the

other side of a forbidding array of guard stations and

scanners that control access to the Greek Revival

building, lies one of the most beautiful interior

spaces in all of Washington. Ornate bronze doors open

inward to a two-story-high chamber. Chandeliers line

the coffered ceiling, casting a soft glow on the marble

walls and richly inlaid marble floor. In this room,

starting in 1869 and for many decades thereafter, the

U.S. government conducted many of its financial

transactions. Bags of gold, silver, and paper currency

arrived here by horse-drawn vans and were carted

upstairs to the vaults. On the busy trading floor,

Treasury clerks supplied commercial banks with coins

and currency, exchanged old bills for new, cashed

checks, redeemed savings bonds, and took in government

receipts. In those days, anyone could observe all this

activity firsthand-could actually witness the

government and the nation's bankers doing business. The

public space where this occurred became known as the

Cash Room.

Today the Cash Room is used for press conferences,

ceremonial functions, and departmental parties. And

that's too bad. If Treasury still used the room as it

once did, then perhaps we'd have more of a clue about

what happened to the billions of dollars that flew out

of Treasury to selected American banks in the waning

days of the Bush administration.

Last October, Congress passed the Emergency Economic

Stabilization Act of 2008, putting $700 billion into

the hands of the Treasury Department to bail out the

nation's banks at a moment of vanishing credit and peak

financial panic. Over the next three months, Treasury

poured nearly $239 billion into 296 of the nation's

8,000 banks. The money went to big banks. It went to

small banks. It went to banks that desperately wanted

the money. It went to banks that didn't want the money

at all but had been ordered by Treasury to take it

anyway. It went to banks that were quite happy to

accept the windfall, and used the money simply to buy

other banks. Some banks received as much as $45

billion, others as little as $1.5 million. Sixty-seven

percent went to eight institutions; 33 percent went to

the rest. And that was just the money that went to

banks. Tens of billions more went to other companies,

all before Barack Obama took office. It was the largest

single financial intervention by Treasury into the

banking system in U.S. history.

But once the money left the building, the government

lost all track of it. The Treasury Department knew

where it had sent the money, but nothing about what was

done with it. Did the money aid the recovery? Was it

spent for the purposes Congress intended? Did it save

banks from collapse? Paulson's Treasury Department had

no idea, and didn't seem to care. It never required the

banks to explain what they did with this unprecedented

infusion of capital.

…Rather than targeting the weak for relief-or allowing

them to fail, as the government allowed millions of

ordinary Americans to fail-Paulson and Treasury pumped

hundreds of billions of dollars into the financial

system without prior design and without prospective

accountability. What was this all about? A case of

panic by Treasury and the Federal Reserve? A financial

over-reaction of cosmic proportions? A smoke screen to

take care of a small number of Wall Street institutions

that received 100 cents on the dollar for some of the

worst investments they ever made?

More than five months after the bulk of the bailout

money had been distributed into bank coffers, Elizabeth

Warren plaintively raised the central and as yet

unanswered question: "What is the strategy that

Treasury is pursuing?" And she basically threw up her

hands. As far as she could see, Warren went on,

Treasury's strategy was essentially "Take the money and

do what you want with it."

Donald L. Barlett and James B. Steele are Vanity Fair

contributing editors.