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.

Government shut down

Government Shutdown Looms as Congress Fails to Reach Budget Compromise
With the federal government on the verge of shutting down at midnight on Friday, budget negotiations intensified between President Obama, House Speaker John Boehner (R-OH), and Senate Majority Leader Harry Reid (D-NV) in the hopes of reaching an agreement on a substantial reduction in spending for the remainder of the 2011 fiscal year. The three leaders have held a series of meetings this week in the Oval Office with increasing urgency as the deadline draws ever nearer.

House Republicans, lead by their tea party contingent, seek $61 billion in cuts to the FY11 budget, a figure that is substantial in its own right but whose impact would be significantly magnified because the 2011 fiscal year is half over (effectively doubling the impact). The White House and Senate Democrats have reportedly countered with an offer of $33 billion in cuts. Already, Congress and the White House have cut $10 billion in FY11 as part of the series of temporary funding extensions known as continuing resolutions (CR) that kept the government operating while work continued on a final budget plan. Among those earlier reductions that have gone into effect are $891 million in cuts to education programs that completely eliminated funding for Striving Readers ($250 million), Even Start ($66 million), and the National Board for Professional Teaching Standards ($10 million) among other programs.

Indeed, House Republicans passed another one-week CR late this week in the event negotiations fail. But the price for the one-week extension is $12 billion in additional cuts to federal spending, including $391 million from education programs such as Education Technology State Grants ($100 million) and Teaching American History ($119 million). Such a CR has little chance of being approved by the Senate or president.

Complicating a final deal is the insistence of House Republicans that several policy changes be included in any funding compromise, notably eliminating funding for Planned Parenthood and language prohibiting the EPA from enforcing certain Clean Air and Clean Water Act rules.

Federal agencies and Washington, D.C., began bracing for the possibility of a shutdown. Beginning Saturday, national parks, the Smithsonian museums, and National Zoo would close. Tax returns and refunds would slow to a halt. On the other hand, mail and social security checks would continue to be delivered. Essential personnel would remain on the job, such as those working in law enforcement, defense, air traffic control, and homeland security, but the vast majority of the 800,000 federal workers would be furloughed and prohibited from working—even on a voluntary basis—during the shutdown.

What the Republican budget cuts propose

Top 10 Worst Things about the Republicans' Immoral Budget

At the national level the Republican budget would:

1. Destroy 700,000 jobs, according to an independent economic analysis.

2. Zero out federal funding for National Public Radio and public television.

3. Cut $1.3 billion from community health centers—which will deprive more than 3 million low-income people of health care over the next few months.

4. Cut nearly a billion dollars in food and health care assistance to pregnant women, new moms, and children.

5. Kick more than 200,000 children out of pre-school by cutting funds for Head Start.

6. Force states to fire 65,000 teachers and aides, dramatically increasing class sizes, thanks to education cuts.

7. Cut some or all financial aid for 9.4 million low- and middle-income college students.

8. Slash $1.6 billion from the National Institutes of Health, a cut that experts say would "send shockwaves" through cancer research, likely result in cuts to Alzheimer's and Parkinson's research, and cause job losses.

9. End the only federal family planning program, including cutting all federal funding that goes to Planned Parenthood to support cancer screenings and other women's health care.

10. Send 10,000 low-income veterans into homelessness by cutting in half the number of veterans who get housing vouchers this year.

We've got to get the word out about this awful budget—right away. Please, share this with your friends on Facebook and Twitter, or by forwarding this email, today.

Sources:

1. "GOP spending plan would cost 700,000 jobs, new report says," The Washington Post, February 28, 2011 
http://www.moveon.org/r?r=206357&id=26412-2956400-6Ty4_mx&t=6

2. "GOP budget would cut funding for public broadcasting," The Washington Independent, February 14, 2011 
http://www.moveon.org/r?r=206513&id=26412-2956400-6Ty4_mx&t=7

3. "NACHC Statement in Response to the Budget from the House Appropriations Committee," National Association of Community Health Centers website, accessed March 4, 2011 
http://www.moveon.org/r?r=206514&id=26412-2956400-6Ty4_mx&t=8

4."Bye Bye, Big Bird. Hello, E. Coli.," The New Republic, February 12, 2011 
http://www.moveon.org/r?r=206104&id=26412-2956400-6Ty4_mx&t=9

House Republican Spending Cuts Target Programs For Children And Pregnant Women 
http://www.moveon.org/r?r=206566&id=26412-2956400-6Ty4_mx&t=10

5. "Obama and the GOP's Spending Cuts: Where's the Outrage?" Mother Jones, February 18, 2011 
http://www.moveon.org/r?r=206569&id=26412-2956400-6Ty4_mx&t=11

6. Ibid.

7. "Deficit Reduction on the Backs of the Most Vulnerable," Center for American Progress, March 2011 
http://www.moveon.org/r?r=206518&id=26412-2956400-6Ty4_mx&t=12 (PDF)

8. "The GOP Budget and Cancer—Why New Research Is at Risk," Politics Daily, February 27, 2011 
http://www.moveon.org/r?r=206515&id=26412-2956400-6Ty4_mx&t=13

"Republican Budget Cuts at Heart of Medical Research: Albert Hunt," Bloomberg, February 20, 2011 
http://www.moveon.org/r?r=206516&id=26412-2956400-6Ty4_mx&t=14

"Durbin: Cuts to NIH put research jobs at risk," Business Week, February 28, 2011 
http://www.businessweek.com/ap/financialnews/D9LLSCB00.htm

9. "GOP Spending Plan: X-ing Out Title X Family Planning Funds," Wall Street Journal, February 9, 2011 
http://www.moveon.org/r?r=206105&id=26412-2956400-6Ty4_mx&t=15

10. "House GOP Spending Cuts Would Prevent 10,000 Low-Income Veterans From Receiving Housing Assistance," Think Progress, March 1, 2011 
http://www.moveon.org/r?r=206517&id=26412-2956400-6Ty4_mx&t=16

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The Real Republican Strategy - Robert Reich

The Republican strategy is to split the vast middle and working class – pitting unionized workers against non-unionized, public-sector workers against non-public, older workers within sight of Medicare and Social Security against younger workers who don’t believe these programs will be there for them, and the poor against the working middle class.

By splitting working America along these lines, Republicans want Americans to believe that we can no longer afford to do what we need to do as a nation. They hope to deflect attention from the increasing share of total income and wealth going to the richest 1 percent while the jobs and wages of everyone else languish.

Republicans would rather no one notice their campaign to shrink the pie even further with additional tax cuts for the rich – making the Bush tax cuts permanent, further reducing the estate tax, and allowing the wealthy to shift ever more of their income into capital gains taxed at 15 percent.

The strategy has three parts.

 The battle over the federal budget.

The first is being played out in the budget battle in Washington. As they raise the alarm over deficit spending and simultaneously squeeze popular middle-class programs, Republicans want the majority of the American public to view it all as a giant zero-sum game among average Americans that some will have to lose.

The President has already fallen into the trap by calling for budget cuts in programs the poor and working class depend on – assistance with home heating, community services, college loans, and the like.

In the coming showdown over Medicare and Social Security, House budget chair Paul Ryan will push a voucher system for Medicare and a partly-privatized plan for Social Security – both designed to attract younger middle-class voters.

 The assault on public employees

The second part of the Republican strategy is being played out on the state level where public employees are being blamed for state budget crises. Unions didn’t cause these budget crises — state revenues dropped because of the Great Recession — but Republicans view them as opportunities to gut public employee unions, starting with teachers.

Wisconsin’s Republican governor Scott Walker and his GOP legislature are seeking to end almost all union rights for teachers. Ohio’s Republican governor John Kasich is pushing a similar plan in Ohio through a Republican-dominated legislature. New Jersey’s Republican governor Chris Christie is attempting the same, telling a conservative conference Wednesday, “I’m attacking the leadership of the union because they’re greedy, and they’re selfish and they’re self-interested.”

The demonizing of public employees is not only based on the lie that they’ve caused these budget crises, but it’s also premised on a second lie: that public employees earn more than private-sector workers. They don’t, when you take account of their education. In fact over the last fifteen years the pay of public-sector workers, including teachers, has dropped relative to private-sector employees with the same level of education – even including health and retirement benefits. Moreover, most public employees don’t have generous pensions. After a career with annual pay averaging less than $45,000, the typical newly-retired public employee receives a pension of $19,000 a year.

Bargaining rights for public employees haven’t caused state deficits to explode. Some states that deny their employees bargaining rights, such as Nevada, North Carolina, and Arizona, are running big deficits of over 30 percent of spending. Many states that give employees bargaining rights — Massachusetts, New Mexico, and Montana — have small deficits of less than 10 percent.

Republicans would rather go after teachers and other public employees than have us look at the pay of Wall Street traders, private-equity managers, and heads of hedge funds – many of whom wouldn’t have their jobs today were it not for the giant taxpayer-supported bailout, and most of whose lending and investing practices were the proximate cause of the Great Depression to begin with.

Last year, America’s top thirteen hedge-fund managers earned an average of $1 billion each. One of them took home $5 billion. Much of their income is taxed as capital gains – at 15 percent – due to a tax loophole that Republican members of Congress have steadfastly guarded.

If the earnings of those thirteen hedge-fund managers were taxed as ordinary income, the revenues generated would pay the salaries and benefits of 300,000 teachers. Who is more valuable to our society – thirteen hedge-fund managers or 300,000 teachers? Let’s make the question even simpler. Who is more valuable: One hedge fund manager or one teacher?

The Distortion of the Constitution

The third part of the Republican strategy is being played out in the Supreme Court. It has politicized the Court more than at any time in recent memory.

Last year a majority of the justices determined that corporations have a right under the First Amendment to provide unlimited amounts of money to political candidates. Citizens United vs. the Federal Election Commission is among the most patently political and legally grotesque decisions of our highest court – ranking right up there with Bush vs. Gore and Dred Scott.

Among those who voted in the affirmative were Clarence Thomas and Antonin Scalia. Both have become active strategists in the Republican party.

A month ago, for example, Antonin Scalia met in a closed-door session with Michele Bachman’s Tea Party caucus – something no justice concerned about maintaining the appearance of impartiality would ever have done.

Both Thomas and Scalia have participated in political retreats organized and hosted by multi-billionaire financier Charles Koch, a major contributor to the Tea Party and other conservative organizations, and a crusader for ending all limits on money in politics. (Not incidentally, Thomas’s wife is the founder of Liberty Central, a Tea Party organization that has been receiving unlimited corporate contributions due to theCitizens United decision. On his obligatory financial disclosure filings, Thomas has repeatedly failed to list her sources of income over the last twenty years, nor even to include his own four-day retreats courtesy of Charles Koch.)

Some time this year or next, the Supreme Court will be asked to consider whether the nation’s new healthcare law is constitutional. Watch your wallets.

The strategy as a whole

These three aspects of the Republican strategy – a federal budget battle to shrink government, focused on programs the vast middle class depends on; state efforts to undermine public employees, whom the middle class depends on; and a Supreme Court dedicated to bending the Constitution to enlarge and entrench the political power of the wealthy – fit perfectly together.

They pit average working Americans against one another, distract attention from the almost unprecedented concentration of wealth and power at the top, and conceal Republican plans to further enlarge and entrench that wealth and power.

What is the Democratic strategy to counter this and reclaim America for the rest of us?

Defending Big Bird

I remember the first time I introduced my 3-year-old son Jack to Sesame Street. Big Bird, Burt, Ernie and songs about ABC's and 123's quickly became one of his favorite shows. We still watch together, and he always learns something new.
But now, right-wing Republicans in Congress want to take Big Bird and his friends away from my son with slash-and-burn budget cuts, just to pay for more tax cuts for millionaires.
Thing is? PBS makes up less than .0001% of the federal budget. ENOUGH ALREADY.
Click here to tell Congress: Hands off Big Bird and PBS!
My son, like a lot of kids, doesn’t pay as much attention as he should in school. That’s why parents like me need Sesame Street, NOVA and other programs.
And I’m lucky that my son goes to a wonderful pre-school. But not all kids in our country are so lucky. That’s why public TV programs like Sesame Street and Curious George are so important to introduce concepts like math and science in fun ways that benefit ALL kids.
Darrell Issa, David Dreier, Kevin McCarthy and the entire CA Republican congressional delegation have lined up to cut programs like Sesame Street out of our lives. PBS is a public resource and one that enriches our community and our children’s education.
Will you join me and Jack and tell Issa and the rest of the CA Republican delegation to keep their hands off of our children’s education?
I’m not going to stand for eliminating good education for my kid while Republicans wants to dole out tax cuts to millionaires. I've watched PBS for over 40 years and I'm not going to let it go now.
Without PBS, there's no more NOVA to spark Jack's interest in science. There's no more Sesame Street to introduce Jack to a world that shares, cares and learns. And there's no more NewsHour with Jim Lehrer, or Frontline: unbiased journalism that isn't bought and paid for by big corporations.
I love California and our country and I love my son.  I want Jack to grow up in an America that cares about its kids, not about tax cuts for millionaires.
Join me to demand that the California Republican congressional delegation says yes to PBS and no to budget cuts that hurt our children.
Thanks for protecting our children… and Big Bird, too.
Sarah Callahan

Oppose the Republican Message Machine

For this week, in response to the State of the Union,  and the Republican message machine, we urge Progressive Alliance members to write letters, post responses, and talk to their neighbors about the need to create jobs to get out of this economic crisis.   Here is a sample message.

            We need to build the promise of America. ( or of California, New York, Illinois, etc)

  That promise is a good job for all,  the opportunity to have  a rewarding career, and the chance for a life that is more than simply the workplace.  The austerity paradigm underlying the tax and budget cut mania  does not promote good jobs, rewarding   careers. 

            You can post this on blogs, use it as a message in responses, respond to letters in the newspapers, etc.

Why so limited?  Because our goal for this week is to keep jobs on the agenda.  In this we are working alongside the AFL-CIO and others. Here is their work. http://www.aflcio.org/issues/jobseconomy/jobs/americaneedsjobsnow.cfm

Starting next week we will have a more developed campaign.  The entire campaign is described here.  https://sites.google.com/site/sacramentodsa/Home/media-strategy

It was a hold up. Hostages were taken.

It was a hold up.  The rich held us all hostage.  In order to get the votes needed to extend unemployment benefits for the out of work and to keep the current tax rates for 95% of families, the Republican Party and 4 Democrats and Joe Lieberman blocked passage of reasonable bills for unemployment extensions and tax extensions.

The current deficit was caused by three major items, the Bush era tax cuts, the two wars,  and the economic crisis.

Finance capital- that is to say rich people- caused  the crisis, this recession and this unemployment. Now, they continue to insist on profiting from their heist.  They insist on tax breaks for millionaires.

Tea Party activists seeks anti immigrant vote

             Tea Party activists are seeking to qualify an Anti Immigrant initiative in California. The purpose of the effort is to generate fear and bigotry.

Anti Mexican racism works.  Here is how it happened in California in 1994.

 "In the Summer of 1993, a failing economy and governmental retrenchment combined to make Governor Pete Wilson the most unpopular governor in recent history.  By November of 1994 Wilson won re-election with over 56% of the vote.  Two factors combined to deliver victory to Wilson; a mean spirited, divisive, and racist campaign directed against Mexican and Mexican Americans, and an inept campaign by Democratic Candidate Kathleen Brown.

    In 1994 The voters of California voted 62% to 38% in favor of Proposition 187, the Save Our State initiative to restrict illegal immigration.  A number of groups including FAIR, the Republican Party, and the Perot organization worked together to qualify the initiative.

    In 1994 California has a population that is 56.3 % White, 26.3 % Latino, 9.4% Asian, 7.4 % African American, and 0.6% other.  However, according to exit polls, the voters in this election were 80% white, 9% Latino, 7 % African American, and 4 % Asian. Exit polls show that Latinos voted against Prop. 187 by 3 to 1, African Americans split their vote 50 -50, and the Anglo electorate passed the proposition by over 60%.

            If the electorate is primarily older White voters, such as in the November 2020 election, this kind of campaign will work.  If younger people vote- it will fail.

California , like Texas, Arizona, New Mexico, and parts of Colorado, was once part of Mexico. It was taken by force. In the 1850's newly arrived Irish and German immigrants drove Mexican and Chinese miners from the mines with the foreign miners tax. Then the Anglos came and took the land. Anti immigrant campaigns have a long history in the California; 1878 Constitution was anti Chinese, 1911 Anti Japanese, 1930's-1950's, Anti Mexican. 1940's anti Japanese. 1994, Prop.187. It will take hard work, but reasonable people will be able to defeat these fear filled campaigns. Immigrants are not the cause of the economic crisis- it was Wall Street. But, Tea Party folks want to protect Wall Street by focusing fear on immigrants.

Called the "Support Federal Immigration Law Act," the  California proposal was submitted to state authorities in September by Michael Erickson, a Tea Party activist in in the Bay Area city of Belmont and former chair of the Sonoma County Republican Party.

The effort will rely largely on volunteers from California's Tea Party network, which is really just another name for the Republican base. 

The California proposal would make it a state crime for undocumented persons to seek work while hiding their immigration status, and a state crime for employers to "intentionally or negligently" hire an illegal immigrant.

Republicans block unemployment benefits - again.

The Republicans in the House voted again to block unemployment benefits for those out of work.
Note: Half of the House members are millionaires.

Allowing Federally Supported Unemployment Insurance Benefits To Expire Would Cost Jobs and Could Endanger the Fragile Recovery Hundreds of thousands of jobless Californians who are struggling to find work in the weakest job market in decades face the prospect of struggling to make ends meet without federally supported Unemployment Insurance (UI) benefits, which will expire just before the holidays unless Congress acts soon. A new CBP analysis finds that allowing emergency UI benefits to expire would deliver a sharp blow to the economy and could endanger the fragile recovery. The analysis concludes that Congress should continue federally supported UI benefits until the job market shows strong signs of recovery. California Budget Project.

Wall Street wins again- Surprise!

Wall Street Wins Again

Posted on Nov 8, 2010 By Nomi Prins

The Republicans may have stormed the House, but it was Wall Street and the Fed that won the election. Regardless of party power plays and posturing, there are two constants that remain unaltered after the election. First, Wall Street will continue on with business as usual while shifting its campaign and lobbying dollars to the new winning team. And second, the Fed will keep on pretending to prop up the economy by buying more U.S. debt, thereby keeping interest rates low, the dollar weak and money cheap for the banking system to inhale. This fictional boosting of the financial economy, absent the real boosting of the general economy, will march on sans debate, inspection or restriction.
In the wake of the election, the Fed pulled off a move detected only by downtown Manhattan. It quietly announced a purchase of $600 billion in Treasury securities (read: our debt) while pundits on the left and right were dissecting the role of the tea party in political life as we know it, the Obama dissatisfaction quotient, and the chance of Sarah Palin heading for the White House in 2012.



That $600 billion figure was about twice what the proverbial “analysts” on Wall Street had predicted. This means that, adding to the current stash, the Fed will have shifted onto its books about $1 trillion of the debt that the Treasury Department has manufactured. That’s in addition to $1.25 trillion more in various assets backed by mortgages that the Fed is keeping in its till (not including AIG and other backing) from the 2008 crisis days. This ongoing bailout of the financial system received not a mention in pre- or postelection talk. No one in Congress or the White House gets a say on the maneuver. Yet, it was the Fed buying more treasuries, and not the fact that the Republicans gained control of the House, that caused the Dow to shoot to a 2010 high and bank stocks to rally 2 percent on average.
Like many other Americans, as the results of the elections were pouring in for insta-analysis I was obsessively flipping cable TV channels. It didn’t matter whether I landed on Fox, CNBC or MSNBC, the same two main items were being debated: (1) the tea party’s rise and (2) the other victorious Republicans (including the ones labeled as tea party candidates—even though they did not actually run as candidates of a separate party, a trick that progressives have never managed to pull off or even try).
All the Republicans sang their refrain from the same song sheet, vowing to work on extending George W. Bush’s tax cuts, killing what they refer to as Obamacare, cutting spending (though none gave specific details as to how) and, of course, getting Americans back to work. The catch—and this was a notion taken up by President Barack Obama and ignored by the Fed the very next day—is that the Republicans wanted to do so the free-market way, by reducing government constraints on businesses so they can stop worrying about obstacles like rules, and thus somehow spontaneously start hiring more. (Note: To underscore this strategy, CNBC paraded a bunch of chief executive officers on screen throughout the election night.)
But, for the most part, the Republicans left the so-called financial reform bill alone as a topic, except to make it clear, as incoming House Majority Whip (aka 2012 contender) Eric Cantor did, that they don’t want onerous regulations (it is much better to wait for the next leg of this crisis and the loss of more jobs and homes, apparently, than to bar Wall Street from financial innovation).
Here’s what wasn’t mentioned during the election or postelection chatter: the cost and logic of bailing out, subsidizing and now propping up Wall Street as it heads decisively (despite Obama’s promises of those days of fill-in-the-blank being over) to another year of record bonuses.
No winning Republican mentioned repealing the financial reform bill, since it doesn’t really actually reform finance, bring back Glass-Steagall, make the big banks smaller or keep them from creating complex assets for big fees. Score one for Wall Street. No winning Democrat thought out loud that maybe since the Republican tea partyers were so anti-bailouts they should suggest a strategy that dials back ongoing support for the banking sector as it continues to foreclose on homes, deny consumer and small business lending restructuring despite their federal windfall, and rake in trading profits. The Democrats couldn’t suggest that, because they were complicit. Score two for Wall Street.
In other words, nothing will change. And that, more than the disillusionment of his supporters who had thought he would actually stand by his campaign rhetoric, is why Obama will lose the White House in 2012.
Then, there’s the Fed. Ben Bernanke, who like Treasury Secretary Timothy Geithner has survived two administrations under different parties to have a hand in bailing out the banking system and fictitiously stabilizing the markets, continues to run the country into the path of massive debt in the name of easing money, so as to avoid the Second Great Depression from which Obama thinks he saved us (along with Geithner and former Treasury Secretary Hank Paulson).
Last Wednesday morning, Obama had the chance to at least attempt to re-engage the voters who believed in his mantra of change. In his contrition speech, he took responsibility (read: apologized) for having made it seem he extended government too much (thereby taking on the language of the Republican opponents), explaining that we were in an emergency situation (not that the banks screwed up and stole the life rafts). He assured businesses he was still on their side (in case the fact that he’s keeping Wall Street lackey Geithner on and his ringing praise for Larry Summers on “The Daily Show” weren’t sufficient signs).
It is likely that, going forward, Democrats will fear losing more seats in 2012 and vote more with the pro-bank center. That would be a mistake for them and bad for the country.
Yet sadly, Obama showed pre-emptive signs of capitulation with two words: free market. Toward the end of the Q&A session after his speech, Obama said that the free market has to be “nurtured and cultivated” and that he has to take responsibility to make clear to the business community and the country that the most important thing we can do is boost and encourage our business sector and make sure that companies are hiring. His facial expression was as hollow as his words. He added that “we” have been talking to CEOs constantly (and don’t we all feel good about that?)—and that on his trip to Asia this week his whole focus will be on opening up markets, so “we can prosper, sell more goods and create more jobs in the United States” (that playbook comes from Bush Treasury Secretary Paulson, but that policy has been shown only to enable CEOs to outsource more, not less). He also pointed out that a whole bunch of corporate executives will join “us.”
And that is the second reason he will not be re-elected: Businesses won’t need to fund his next campaign when they can fund the Republicans now that they are back in vogue. Businesses will meanwhile just extract what they can as long as they can, like better deals abroad in the name of free markets—the kind that the Fed is subsidizing back here at home. Obama and his supporters will see this in 2012 if they don’t now. The president could go all out and ignore the CEOs and focus on the general populace, but signs point to the contrary. If he has learned something from the November elections about loyalty to his voters, he isn’t showing it. So maybe progressives should stop defending him and start yelling at him … or seriously look for another 2012 candidate to run against Sarah Palin.

Republicans make economic crisis worse + Krugman

Things Could Be Worse

By PAUL KRUGMAN

TOKYO. from the N.Y. Times 

“Japan’s problems now are the same as they were in the 1990s, when you were writing about them. It’s depressing.” So declared one economist I spoke to here. “But the Japanese don’t seem all that depressed,” objected another. Both were right — and the conversation crystallized some thoughts I’ve been having about Japan’s situation, and ours.

A decade ago, Japan was a byword for failed economic policies: years after its real estate bubble burst, it was still suffering from chronic deflation and slow growth. Then America had its own bubble, bust and crisis. And these days, Japan’s record doesn’t look that bad to an American eye.

Why not? For all its flaws, Japanese policy limited and contained the damage from a financial bust. And the question in America now is whether we’ll do the same — or whether we will take a hard right turn into economic disaster.

In the 1990s, Japan conducted a dress rehearsal for the crisis that struck much of the world in 2008. Runaway banks fueled a bubble in land prices; when the bubble burst, these banks were severely weakened, as were the balance sheets of everyone who had borrowed in the belief that land prices would stay high. The result was protracted economic weakness.

And the policy response was too little, too late. The Bank of Japan cut interest rates and took other steps to pump up spending, but it was always behind the curve and persistent deflation took hold. The government propped up employment with public works programs, but its efforts were never focused enough to start a self-sustaining recovery. Banks were kept afloat, but were slow to face up to bad debts and resume lending. The result of inadequate policy was an economy that remains depressed to this day.

Yet the picture is grayish rather than pitch black. Japan’s economy may be depressed, but it’s not in a depression. The employment picture has been troubled, with a growing number of “freeters” living from temporary job to temporary job. But thanks to those government job-creation plans, the country isn’t suffering mass unemployment. Debt has risen, but despite constant warnings of imminent crisis — and even downgrades from rating agencies back in 2002 — the government is still able to borrow, long term, at an interest rate of only 1.1 percent.

In short, Japan’s performance has been disappointing but not disastrous. And given the policy agenda of America’s right, that’s a performance we may wish we’d managed to match.

Like their Japanese counterparts, American policy makers initially responded to a burst bubble and a financial crisis with half-measures. I’ve lamented that fact, but at this point it’s water under the bridge. The question is: What happens now?

Republican obstruction means that the best we can hope for in the near future are palliative measures — modest additional spending like the infrastructure program President Obama proposed this week, aid to state and local governments to help them avoid severe further cutbacks, aid to the unemployed to reduce hardship and maintain spending power.

Even with such measures, we’ll be lucky to do as well as Japan did at limiting the human and economic cost of the economy’s financial woes. But it’s by no means certain that we’ll do even that much. If the Republicans go beyond obstruction to actually setting policy — which they might if they win big in November — we’ll be on our way to economic performance that makes Japan look like the promised land.

It’s hard to overstate how destructive the economic ideas offered earlier this week by John Boehner, the House minority leader, would be if put into practice. Basically, he proposes two things: large tax cuts for the wealthy that would increase the budget deficit while doing little to support the economy, and sharp spending cuts that would depress the economy while doing little to improve budget prospects. Fewer jobs and bigger deficits — the perfect combination.

More broadly, if Republicans regain power, they will surely do what they did during the Bush years: they won’t seriously try to address the economy’s troubles; they’ll just use those troubles as an excuse to push the usual agenda, including Social Security privatization. They’ll also surely try to repeal health reform, which would be another twofer, reducing economic security even as it increases long-term deficits.

So I find myself almost envying the Japanese. Yes, their performance has been disappointing. But things could have been worse. And the case Democrats now need to make — the case the president finally began to make in Cleveland this week — is that if Republicans regain power, things will indeed be worse. Americans, understandably, are disappointed over, frustrated with and angry about the state of the economy; but disappointment is better than disaster.

Republicans, deficit hawks, make the economy worse

Christopher Hayes. The Nation.

First, the facts. Nearly the entire deficit for this year and those projected into the near and medium terms are the result of three things: the ongoing wars in Afghanistan and Iraq, the Bush tax cuts and the recession. The solution to our fiscal situation is: end the wars, allow the tax cuts to expire and restore robust growth. Our long-term structural deficits will require us to control healthcare inflation the way countries with single-payer systems do.

But right now we face a joblessness crisis that threatens to pitch us into a long, ugly period of low growth, the kind of lost decade that will cause tremendous misery, degrade the nation's human capital, undermine an entire cohort of young workers for years and blow a hole in the government's bank sheet. The best chance we have to stave off this scenario is more government spending to nurse the economy back to health. The economy may be alive, but that doesn't mean it's healthy. There's a reason you keep taking antibiotics even after you start to feel better.

And yet: the drumbeat of deficit hysterics thumping in self-righteous panic grows louder by the day. Judging by its schedule and online video, this year's Aspen Ideas Festival was an open-air orgy of anti-deficit moaning. The festival is a good window into elite preoccupations, and that its opening forum featured ominous warnings of future bankruptcy from Niall Ferguson, Mort Zuckerman and David Gergen does not bode well. Nor does the fact that there was a panel called "America's Looming Fiscal Emergency: How to Balance the Books." This attitude isn't confined to pundits. The heads of Obama's fiscal commission have called projected deficits a "cancer."

The hysteria has reached such a pitch that Republican senators (joined by Nebraska Democrat Ben Nelson) have filibustered an extension of unemployment benefits because it was not offset by spending cuts. Keep in mind, the cost of the extension for people unlucky enough to be caught in the jaws of the worst recession in thirty years is $35 billion. The bill would increase the debt by less than 0.3 percent.

This all seems eerily familiar. The conversation—if it can be called that—about deficits recalls the national conversation about war in the run-up to the invasion of Iraq. From one day to the next, what was once accepted by the establishment as tolerable—Saddam Hussein—became intolerable, a crisis of such pressing urgency that "serious people" were required to present their ideas about how to deal with it. Once the burden of proof shifted from those who favored war to those who opposed it, the argument was lost.

The Nation

Republicans block Extended Unemployment insurance

The expiration of the special unemployment compensation provisions enacted earlier in the recession has brought the problems of long-term unemployment and the role of unemployment compensation to the fore.

The June unemployment rate was 9.5%, and 45.5% of the unemployed have been seeking work for more than six months. Roughly a quarter of the unemployed have been jobless for more than a year. In this context, more than 2 million unemployed workers have already lost their unemployment insurance benefits because of the failure to renew the program that provides extended benefits to the long-term unemployed. This is unfortunate because providing unemployment benefits during a recession fulfills two important national needs: assisting those most hurt by the recession and generating jobs in the midst of a deep downturn.

First, unemployment benefits help cushion the blow of unemployment for millions of unemployed workers. This recession has caused the most job loss by far of any recession in the last seven decades. 

During the first half of 2010, unemployment averaged nearly 15 million workers, and that will likely remain the case for the rest of the year. However, the number of people experiencing unemployment will be far greater since some unemployed will gain employment and some of those employed now will become unemployed. For instance, in 2008 (the year for which we have the latest data) there were 8.9 million people unemployed on average.

However, over the course of the year, 21.2 million people experienced unemployment, a number 2.38 times the level of unemployment in the average month.1 This means that in 2010 we might have 35.0 million people experience unemployment at some point during the year. Given that there have been at least five unemployed workers for every job opening in recent months, many of those who are unemployed have and will continue to need assistance to weather this economic calamity. For the week ending May 29, 10.2 million people were receiving unemployment insurance benefits, over 50% of who had exhausted regular state benefits and were receiving benefits under provisions that were included in the Recovery Act. This is a crucial lifeline to those families most hurt by the downturn.

Lawrence Mishel and Heidi Shierhoiz.  Economic Policy Institute

Republicans extend the Great Recession

It is clear from recent legislative actions that the Republicans in Congress want to ensure large electoral gains in November by undermining any possible economic recovery. This cynical ploy needs to be called out by Democrats, so that the American people will see how Republicans will do anything to gain political power.

Republicans know that the surest way of sustaining the recession is to refuse to consider another stimulus. Using the fear of a growing deficit as their main political strategy, the Republicans have successfully blocked the extension of unemployment benefits, while they have convinced the Democrats to move off of their earlier desire to bail out the states that are facing huge deficits. The Republican strategists believe that if unemployment stays high through November, they stand a good chance of taking back both the Senate and the House of Representatives.

The Great Employment Meltdown

Many states with record deficits have been waiting for the federal government to come up with funds for increased Medicaid costs, and now that the Republicans have blocked this funding source, we will begin to see massive cuts to state programs, which in turn, will cause an increase in unemployment. Not only will state workers and teachers lose their jobs, but retail businesses will lose customers at a time when they are already facing large financial difficulties. Also, the viral spread of unemployment will help to push thousands, if not millions, of people into foreclosure, and we will see a further deterioration of construction and real estate jobs.

Without a new stimulus infusion of funding for states, the next round of job cuts may make the first fiscal meltdown seem like a cakewalk. Last year, states were able to put off the misery by relying on billions of dollars from the federal stimulus, but now that this money is going away, there is no safety net left.

Trillions for Banks, Cuts for Workers

It is interesting that while trillions of dollars were used to prop up the financial sector to prevent a global meltdown, no one seems to want to use federal funds to prevent massive unemployment. Due to the fear of increasing the deficit, a new fiscal stimulus appears to be off the table. However, if unemployment soars and foreclosures increase, we will see a massive erosion of our tax base and fiscal health.

The financial problems facing the United States are being echoed throughout the world, and the recent G 20 meeting provided a glimpse into the new consensus. Even supposedly progressive leaders are arguing that it was okay to spend trillions of dollars of public money on bailing out the banks, but now we have to impose strict austerity measures to reduce deficits and scale back social programs and pension plans. The fear of deficits is ruling the world, and we are seeing a global extension of the Reagan-Thatcher agenda. Part of this strategy is to first run up huge deficits through tax breaks to the wealthy and increased defense budgets, and then claim that due to deficits, social programs have to be cut.

Progressives need to stand up against this new consensus, and in America, we have to force Democrats to confront the Republican's cynical strategy. President Obama has to counter both the new international consensus as he promotes a job bill at home that would help to bail out the states.

Bob Samuels on The Huffington Post.

 

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