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Greenspan Says, 'Who Could Have Known?'
That's right, the former Maestro told Congress last week, when asked about the meltdown of the housing bubble and the resulting financial crisis, "we're not smart enough as people. We just cannot see events that far in advance."
Unfortunately, this sentence is even worse in context. Greenspan told the committee about the brilliant economists on staff at the Federal Reserve Board. His point was that if this group could not see the housing bubble, and the risks it posed to the economy, then it was not humanly possible to see it.
The reality is that it was possible -- in fact, easy -- to recognize the housing bubble as early as the summer of 2002. House prices nationwide had substantially outpaced inflation in the years since 1996 (coinciding with the stock bubble) after just tracking the rate of inflation for the prior hundred years. There was nothing in the fundamentals of supply or demand that could explain this run-up.
Furthermore, there was no corresponding increase in rents. Since people always have the choice to buy or rent, house sale prices and rents should rise and fall together over time, although not necessarily at the exact same pace. In the years since 1996, rents had only modestly outpaced inflation. And they had begun dropping in real terms by 2002. This was not consistent with house prices being driven by fundamentals.
It was also easy to see that the collapse of the housing bubble would cause enormous damage to the economy. Housing itself accounted for more than 6 percent of GDP at the peak of the boom in 2006. Today, it accounts for just over 3 percent.
More importantly, housing wealth provided the base for the consumption boom of this period. Research from the Federal Reserve Board and elsewhere shows that annual consumption is increased by 5 to 7 cents for each dollar of housing wealth. This means that the collapse of a bubble that eventually grew to $8 trillion would lead to a reduction in annual consumption on the order of $400 billion to $560 billion (2.6 percent to 3.7 percent of GDP).
In addition, housing is a highly leveraged asset. In normal times, buyers typically borrow 80 to 90 percent of the purchase price. Of course, housing became much more highly leveraged during the bubble with many borrowers putting zero down.
The heavy leverage in the housing market meant that it was inconceivable that a collapse of the housing bubble would not lead to serious consequences for the banking industry. I first warned that the collapse of the bubble would imperil the survival of Fannie Mae and Freddie Mac in September of 2002.
Greenspan would have been correct if he said that we are not smart enough as human beings to know when the bubble would finally burst. I did not expect the bubble to last as long as it did.
Of course, I did not bet on there being such a vast reservoir of foolish investors, not only in the United States but also in Asia and Europe, willing to buy garbage mortgages buried in complex derivative instruments. I also didn't imagine the Fed and other regulatory agencies would ever be so completely out-to-lunch in policing mortgage issuance and the practices of the investment banks.
But the basic story, that there was a housing bubble that would burst, and that it would cause enormous damage to the economy, was completely knowable to any competent economist long ago. The failure of the economists at the Fed, as well as the vast majority of the economists elsewhere, to see the housing bubble and to recognize the damage that would be caused by its collapse, is a testament to the failure of the profession.
Greenspan's claim that the crisis was not foreseeable is a cover-up for a profession that has badly failed the public. If factory workers or custodians had failed so miserably in their jobs, they would quickly find themselves unemployed.
Remarkably, in economics, the people responsible for this easily preventable disaster are suffering no negative consequences and, in fact, are still the ones designing the nation's economic policies. Economists believe that if workers are not held accountable for their performance, then they will not do good work. If economists are not held accountable for their performance, then we should not expect good economic policy.
Contrary to what Greenspan told Congress, "we" are smart enough as people to see asset bubbles like the housing bubble. If his "we" are not smart enough, as he claims, then the current group of economic policymakers must be replaced with people qualified to do the job.
- Posted in
62 Comments so far
Show AllOn CD nearly a year ago I wrote that we were in a recession (when all those who stick with traditional outdated definition of recession cried otherwise), and said we were heading for a depression.
I know very little about national/international finance, but it appears I know more than Greenspan.
Hmm, maybe Andrea Mitchell of NBC/GE, wife of this genius, can enlighten us.
Howzabout it, Andrea?
(And how does THAT work anyway: Major Washington hack/"reporter", takes her paycheck from NBC, that belongs to GE (Warmonger Toys, Inc.) and is married to the Chairman of the Printing Press, Inc.
You've just gotta love it.
Greenspan believed that the elimination of government regulation would allow the economy to regulate itself – and this has happened. Economies regulate themselves by means of melting down.
free market systems regulate themselves by driving up their internal value and demolishing their competitors. the ultimate moral for any capitalist or free market system is to maximize gains, period. that consumers would be overcharged and competitors knocked out should be a given.
in fact, this whole "bailout" process is helping the latter: ensuring the survival of those who are "too big to fail" while letting the others fall by the way side.
and what really disturbs me is how there is a prevailing idea even among the left that markets are still good. at best, regulations cage the beast (ie capitalism), but what i dont understand is why we want a beast in the first place.
"but what i dont understand is why we want a beast in the first place."
Because when it is regulated and not unfettered, capitalism works quite well. Unfettered capitalism does not. In fact unfettered capitalism works pretty much like communism, all the goodies end up at the top.
Have you suggested a replacement? And is there a model of it?
No, Thomas, You are not correct here. 'Regulated capitalism' doesn't work either, not unless it has some countries other than its own to loot besides its own. Your 'regulated capitalist' countries in reality are also imperialist ones, too, or at least junior partners with the US. These 'regulated' capitalist economies are always interconnected with the non-regulated ones and you could see this easily if you would just do a little bit of examination of these interconnections instead of merely proposing a supposedly better form of capitalism smugly.
Well, I didn't intend any smugness. I simply say that regulated capitalism worked quite well in America and America is all I'm concerned with. Looting is one way you could speak of trade I guess, at the moment we are being looted by trade.
Are there going to be some losers or a country that doesn't do as well when trading? Usually.
I've been in Communist, Socialist and hybrid system countries and haven't seen anything that comes close to what our economy provides. Before the excess of the last 30 years would be what I'd be shooting for.
I don't think I'm wrong because I saw it work. And I saw what other systems provided. Even our poor now aere better off than most.
What are you suggesting as an alternative?
There is a replacement, and it is extremely well developed. It's called participatory economics (parecon).
--
Eric Patton
http://www.myspace.com/412205319
In a debate like that between Thomas More and ebpatton, the meaning of words matters. What is "capitalism"? A bare-bones definition of capitalism could be "an economic system in which (a) the prices of goods and services float, and (b) profit is accumulated, pooled, and spent on enterprises deemed likely to yield further profit". There is nothing inherently wrong with such an economic system—it can be regulated so as to increase both the public good and the good of the individual participants. The economic system which is commonly called capitalism incorporates the following additional characteristics, which cause it to be ruinous to the public and (eventually) many of its participants:
- treatment of nature and of the social order as free inputs, requiring no purchase or maintenance cost
- reduction of land and labour to things that can be bought and easily alienated from the people which use and depend on them
- lending of money at interest
- treatment of contracts as actual objects that can be bought and sold
- concentration of ownership
I probably omitted some; these are the ones that came to my mind. Some were inspired by a documentary series on Karl Polanyi's The Great Transformation (written in the early 1940s and still very relevant and thought-provoking). What they have in common is that the economy, or the market, has broken out of traditional limits and has been allowed to impose its way of thinking onto all parts and functions of society.
As for alternatives, there is quite a variety of them, but most of them are practised only on a small scale and only by desperate people.
Angry Kraut writes:
"In a debate like that between Thomas More and ebpatton, the meaning of words matters. What is 'capitalism'?"
Um, no. Capitalism is (1) private ownership of the means of production, (2) corporate workplace organization, and (3) allocation by markets.
Parecon is (1) collective (or no) ownership of the means of production, (2) pareconish workplace structure (including balanced job complexes), and (3) allocation by participatory planning.
There's no debate on terminology.
--
Eric Patton
http://www.myspace.com/412205319
Baker's technical points about how the Fed could have known, and why they should have known, are certainly correct.
However, a stronger argument for Greenspan's willful ignorance lies in the historical fact that lots of people evidently DID know. A quick Web search on the phrase "housing bubble" turns up:
3 items posted in 2000
36 items from 2001
636 items from 2002
1270 items from 2003
4030 items from 2004
29,300 items from 2005
142,000 items from 2006
152,000 items from 2007
Unless somebody wants to take the stance that all these folks were writing, with increasing fervor, about the ABSENCE of a housing bubble, then the real-world answer to Greenspan's rhetorical question is "EVERY MAN AND HIS DOG!"
Undermine the dominant misunderstanding!
It seems the phrase, "I made a mistake," cannoy be uttered by any policymaker.
Like most of the rest, Greenspan is a liar and will steal as much as he can with his pen.
Send him to Gitmo, only a tear-wrist bent on bringing down Amerika could have crafted such a devious plan!
All I need to know about free market economics is contained in a children's book I remember, a cautionary tale titled Georgie the Pig. Georgie was a fat, pink, happy little pig with an unmoderated passion for donuts. His mother and father loved him very much. His father worried that his appetite for donuts would be a very dangerous thing if left unregulated. But his mother, who wore glasses and looked a little like Alan Greenspan, believed that even in the worst case Georgie would be intelligent enough not to actually harm himself, and would therefore stop eating when he was full. So naturally (I forget how) the story provides Georgie with an unlimited platter of donuts at a time when mom and dad are elsewhere, and he begins to eat. Gobble gobble. He grows bigger and bigger, like a shiny pink balloon, until, of course, he explodes into a million pink pieces. The end.
Power, that dubious gift the absolute quantum of which is said to corrupt absolutely, is the tool by which we remove the constraints to the expression of our true nature (above), as for example when we obtain enough lethal weaponry to slay enemies both real and imagined, when we can simply pick up the phone and cause a captive somewhere in the Caribbean to be deprived of oxygen, when we find that we possess such irresistible physical attractiveness that we can spend most of our waking life in rut, or when we have garnered enough wealth to bribe our regulators into silence. This is why so many people in the news tend to have closets full of dirty secrets, and why, when life grants us the freedom of Howard Hughes, we are prone to rent the penthouse of some Hilton and pass our days growing six inch fingernails and hoarding our urine in mason jars.
Apparently there is a much different outcome in "My Pet Goat".
Among the many plagues brought to America by the elites, we have the American Idol Syndrome, where elites put their favorite chimps (e.g. Greenspun, O'Bama) on media pedestals to have the people worship them while the elites pick the people's pockets. Will the people finally bury their faith in the cult of elites? Will the people finally switch their loyalty to ORDINARY people just like THEM? Will the people vote their REAL interests for a change? Maybe not, so please Mr. Greenspun, move that wrecking ball closer, ok now try another swing.
Economists blinded by "objectivism" cannot see that their entire set of assumptions on how the world works is upside down.
The uber-rich are not the engine of the economy, they are pathological parasites.
Greenspan knew it was coming but since he was and still is filthy rich, he isn't going to get punished for lying.
"Who'da thunk it?" Come on, Greenspan! As you stand on top of a very large pile of your own personal shekels your crocodile tears are hard to see.
Good article.
I remembered a few years ago Greenspan was happy that wages were down, it was good for the economy. I am sure he and his friends wages were not down.
This horrible creature is either dishonest or delusional or maybe both. For certain, he is an opportunist working for the people in power to benefit his lot. Today the winds are turning and he is trying to turn with it.
This sociopath should be tried and sent to prison to meditate on how wrong and selfish he is.
Greenspan is a pathological liar, who uses his stature to mask the evil that he does. Greenspan was on the commission that recommended the horribly regressive payroll taxes to "save" Social Security in the mid-80's. Then, 15 years later, had the gall to say that the cascade of taxes creating a budget surplus from this regressive tax endangered the Republic. So, what does Greenspan do? He supports Bush's $1.3 trillion dollar heist that took the money from working Americans and redistribute it via tax cuts to the top 2% of earners in the US.
Prison is too good for this economic criminal.
The continuing increase in housing values was the primary engine feeding growth, which thanks to decades of restructuring was going primarily to the financial elite (can you say campaign donations). This happened both under Republican and Democratic administrations and congresses.
As the housing bubble started to slow down, these creative pin heads came up with the no-down, low interest, interest-only, "get in the game" loans - to keep the bubble going.
Their claims of "we didn't/couldn't know" flies in the face of their supposed advanced degrees - there have been a lot of similar bubbles in the past, all fueled by the ability to get in the game without any real investment.
Any scheme that is mostly speculation will eventually fail and fail badly.
Any economist that claims to be surprised by this is either grossly incompetent or criminally greedy, and this smacks of both.
Ponzi?
Greenspan's testimony included the following claims:
1) the crisis is a once-in-a-century (random) occurrence, implying a deregulated market works 99% of the time
2) forecasting the effects of regulation (or anything else by Federal Reserve staff) is 60% right and 40% wrong
3) the housing bubble was recognized by the Fed in early 2006 but considered self correctable without serious price declines
4) a surge in sub-prime loans was not identified soon enough to qualify the bubble as serious, due to a data lag, implying that had the data been available, something could have been done, but no specifics were provided
5) market corrections have already eliminated the need for regulations going forward, other than requiring mortgage originators to keep some skin in the game
6) the assumption that "private counter-party surveillance" would provide competitive discipline in the absence of transparency was the critical flaw, but Greenspan did not elaborate on how the latter was destroyed with complex, incomprehensible contracts coupled with deregulation supported by him
... therefore
forecasting the effect of regulation is useless since a deregulated market is right 99% of the time, so deregulation is the rule and regulation is the rare exception
the surge in sub-prime loans was posed by Greenspan as clear evidence of the magnitude of the bubble ... after ignoring everything Dean Baker points out ... even this was presumably ignored because of a lag in the data
the absence of transparency reduced the forecast outcome for particular regulations from 60/40 to a zero certainty, to guarantee that the effect of regulation could not be forecast at all ... of course they could not forecast it - the necessary data was not available as designed by Greenspan, hidden away in the shadow financial sector
in typical, circular obscurity, Greenspan admitted to much less complicity than generally perceived, concealing that he systematically undermined the presumed holy grail of free market ideologues - transparency - by claiming in Rumsfeldian speak-ease that what could not be known could not be forecast, what could be forecast was a toss-up and everything that could be known was known (i.e. the lack of sub-prime loan data)...
... concluding that the crisis had a 1-in-a-100 random chance of occurrence under these conditions, implying that when he destroyed transparency through deregulation of the shadow market, he was taking only a 1% chance of failure ... so how could anyone be deemed guilty of actively causing the crisis when advancing deregulation that had a 99% chance of success?
He can't stop lying, can he? He wants to keep his mummified face on the talk show circuit. Narcissistic and obseqious at the same time. Grotesque combination. Where is Daumier when we need him?
Joe
It all sounds soooo familiar...
"Who would have ever thought terrorists would use airplanes as missiles?"
"No one ever imagined the levees would fail."
"Who could have ever predicted that illegally occupying Iraq would require hundred of thousands of troops and trillions of dollars?"
"No one could have ever predicted the Iraqi "insurgency."
Heckava job, Greenie!
Heckuva post, Frankie!
See what you can get out of this............
http://www.worldreports.org/news/178_the_corrupt_octopus_has_been_severely_wounded
Paraphrasing Shakespeare, "I think the ex-chief doth protest too much." Anyone with a half a brain who was awake during history class could have seen this mess coming unless greed and hubris blind their vision. Greed and hubris blinded Greenspan's vision (if you take his congressional testimony at face value), and proved that he is human (barely) after all.
Yes indeed 'Who Could Have Known?'
Fed Funds at 1% - Flip houses at 'teaser' rates AND pass the Bankruptcy Bill
to make darn sure that the middle class and poor home ower never had a chance.
'Who Could Have Known?' I wrote to my Congressman and Senators about this when the scam was going down. This pre-planned disaster worked perfectly. Now the taxpayer is double paying the morgages and when the U.S. can't borrow any more the interest rates will drop so we can do this all over again. Cute! Wake me when the revolution is over.
The bubble was created with deception: mortgage fraud, appraisal fraud, real estate and lending industry advertising hype/spin, toxic loans that were quickly sold and repackaged (and rated!) as safe investments, and our own govt pushing "the dream of homeownership" regardless of whether it was the intelligent thing to do. The FBI said at least as long ago as 2004 that all the mortgage fraud was going to create an economic mess, and at about the same time said 80% of mortgage fraud was being done by the industry itself.
This year the National Association of Home Builders, lobbying hard for a bailout for their industry, wasn't getting what it wanted from Congress and publicly announced their organization was withdrawing campaign funds from congressmen. Later when they apparently expected to get something they restored 'donations.' During the boom years builders didn't just overbuild, they jacked up prices and set up their own lending companies that got in on toxic loans. Illegal kickbacks to affiliated title companies were a factor too. HUD fined several builders peanuts and they admitted to no wrong doing in exchange for the fine. Beazer's still under investigation for possible mortgage fraud. At least one big builder if not two were fined or rapped on the wrist by the SEC this year, too. All of this is mortgage related deceptiveness and shennanigans that should result in some CEO's going to jail IMO.
Despite this, the industry gets a bailout and says it's a victim.
None of these professionals can claim in earnest that they didn't see it coming. This is baloney. They not only should've seen it coming, they created it, and should be punished for taking out the economy. Many in the industry and govt should be going to prison instead of getting a govt handout at tax payers' expense. If this scam was perpetrated on the U.S. by some unconnected con artist he or she would be on trial for something more along the lines of treason. The fact these co's are getting bailed out instead of indicted for fraud tells me they are very well connected, and that our elected officials don't represent us, they represent corporate America.
History's greatest thieves, like Greenspan, will always hold you up with a pen (now a computer) rather than a gun. Like the eponymous character the late Paul Newman played in "Hud", Greenspan's war cry was "I say let's dip our bread in that gravy while it's still hot." The rest of us won't even get the crumbs; he fed half to his dog and the other half to his wife.
""we're not smart enough as people. We just cannot see events that far in advance."
Science shows that economists have a worse record of correct predictions than bookies, but everyone follows economists like they followed the pied piper.
We're just not smart enough to not follow economists.
ezeflyer says: "Science shows that economists have a worse record of correct predictions than bookies, but everyone follows economists like they followed the pied piper."
You could say that economists as a group have Ardnassac syndrome—they are always wrong, but always believed.
He knew what he was doing. He knew the repercussions and he chose a path anyway. This guy is now hiding behind his old age. But I have no sympathy for him. Throw the bastard in jail and when it comes time, turn him over to the International court to be hung.
God have mercy on his soul.
Great article.
CNN September 2004 FBI warns of mortgage fraud 'epidemic' -seeks to head off 'next S&L crisis'
http://www.cnn.com/2004/LAW/09/17/mortgage.fraud/
As early as 2001 (I believe) advocates were forwarding petitions also to stop the fraudulent appraisers who were lending credence to this --http://appraiserspetition.com/index.htm
Same warning of an economic collapse. I also believe that Richard Roll - the president of American Homeowner Association was then talking about fraudulent appraisals and developers setting their own prices, mortgage fraud etc as well. I live in Central California, a very poor area and medium homes were selling for 400 grand- vs. 100 ten years prior. It started via developer/brokers/lenders and their agents inflating home prices which led to severe mortgage fraud to unload these over priced pinatas. And then a totally money hungry immoral investors that only saw the cha-ching and didn't investigate.
And let us not forget the lame media that fed into this whilst reading building/realty propaganda press releases as opposed to doing any homework. What bubble?
I laughed when I saw an NYSE builder putting up 400,000 dollar homes in the most dangerous and impoverished area of my hometown- aka the hood. Did they even look at our community? That the average income was 32,000. Almost the entire subdivision is sitting there empty, decomposing, mold infested and being used by crack addicts. Along with hundreds of thousands of cheap, fast and out of control newly constructed homes. They now belong to the American Tax Payer!
Let me restate my previous post. The elite are using the 'old man' image by putting Greenspan up front to appeal to our emotions. It is a ploy. And Greenspan is going along with it to keep you idiot peasants from revoluting.
I say idiots because most common intellecutals of other countries would have burned down the house and hung these bastards long ago.
I have my torch and my rope. Where is yours?
Of course Green Span knew there was a bubble and it will eventally burst.
He created and nutured the bubble to transfer wealth to his friends in Wall St
and the super-rich. He works now for a hedge fund!!!
Many economists outside of Wall St. and in Academia have warned him repeatedly about the danger of the lack of regulations, hedge funds and the very artificially low interest rates that fueled the buble, but he dismissed them all claiming every thing is under control. Yah right??!!
If I, as an ordinary 71 year woman with an IQ of 146, can figure out that the bottom was going to drop out of the market soon, what the hell is wrong with all those so-called "Experts" who have advanced educations?
Of course they all knew it; this is just more of the Neo-cons plan to shrink the government to the point that there is no money for anything but war and greedy leeches.
Before 2000 I worked for our largest airline manufacture and a large credit card company as an IT consultant. I will tell you the history of what is going on here with the collapse. A long way around but it sheds some light on the subject.
About 2000, the airplane manufacturer (hereafter called AM) wanted to build a new building on their property in Renton, WA. As I understand it, the land had been cleared and then left vacant for one or two decades. It had reverted to a psedo wetland. When AM finally got around to builing, the state stepped in and said "it is a wetland and if you want to develop, you will have to buy another parcel to set aside as wetland for the one you are destroying. This was one of many issues that eventually lead to GM moving to Chicago on account of the abusive use of environmental laws.
I am an ecologist as well as a computer programmer. I have the deepest respect for ecology and wilderness. But this I seen was a way for the state to use environmental law to make money off AM. But I also know we need some very defensive environmental laws because, and this is fact, there are some poeple in business, most people at the top, that don't give a rats ass about the environment. They are blind to money. And here is the main point I want to make, they see envirronmenalism and the environmental laws as a cost. And as any company, MOST companies, got together to reduce cost.
How, by attacking those who legislated for those laws. The middle class.
Bush et al are an elite group who are intent on destorying the middle class in
America because they see us as cost to their bottom line. They see us as an inpediment to buying that second yaught or that seventh home. They have hated our guts since before Carter. And over the last 8 years, they finally took the plunge to first weaken our rights and then make the move to push us into a third world state.... after first protecting their companies my offshoring them to other countries.
Was it about cheap labor. Yes, but only partly. It was also a cover for them when they pulled the plug on America.
Part 2.
During that time ten years ago, some of you will remember the issue with a shortage of high tech workers and congress working to increase "green carded" employess - foreigners who were green carded to work in America. And so airplane manufacuture (AM) as well as most industries started bring Chinese and Middle Eastern and other people acorss the border using the new NAFTA rules.
NAFTA?
Yes. NAFTA.
You see, it was much easier for Chinese and Middle Eastern people to obtain their citizenship in Canada and then 'migrate' over the border as a Canadian to America under the NAFTA rules.
Aside. You wonder how those guys new how to fly our planes on 911. I will tell you. OUR American corporations sponsered their green cards and brought them over the Canadian border. They worked at AM and they learned EVERYTHING about our planes. I know, I was a consultant there and worked with them.
And so now you are starting to see the bigger picture... there has been corruption in corporate america and the government for a long time. Our government now gives precedence to the corporations over the middle class in America. That is what lobbying and such is all about. For corporations to win control over the interests of the common people.
The issue with the monetary system... there is no problem. They are doing exactly what they want. We will soon be a third world nation. It is a no brainer when you put all the pieces together.
Part 3.
When we are a third world nation, there will be no more middle class... and thus no environmental laws. And no humanitarian laws. And THEN they will rule with impunity.
THAT is their goal.
And that is why this 700B did not go where it was suppose too but instead is being used for mergers. There is going to be one bank. One car manufacturer. Etc.
And in the end, there will be one ring leader to rule them all, and in the darkness bind them.
This is so true; I have seen many stories like it in my work as an investigator for the US Dept of Labor. We investigated companies for compliance with minimum wage and overtime laws. When one of our cases was sent to our legal department I often became the government's expert witness. I had many a battle with them because they approached almost every case too conservatively, allowing companies to avoid liabilities through poor and illegal bookkeeping habits. This policy meant if we did go into court our case was ironclad.
All through the pre-trial period, we would urge the violator to "pay the $2", the back wages due to their underpaid employees, rather than go into a lengthy and expensive court process. (The case length didn't matter to us, my lawyers were getting paid anyway.) The law has a 2-year statute of limitations, so if your company was underpaying you for five years we could only attempt to recover two years of underpayments. Despite these factors, I saw company after company spend $25,000 in legal fees to avoid paying $10,000 in wages to their cheated employees. (They almost always wound up paying both.) It is a matter of principle for them to screw labor. The real shame is we never get back anything we lose, legally. If a corporate-loving judge made a bad ruling against us or we lost on appeal, that bad decision became precedent, and our lawyers would never again go back and test those waters. Those gains were lost forever.
I saw uninterrupted lunch periods, the single workweek principal, uniform and cleaning costs, and quite a few others lost to bad judges over the years, and the American worker will never regain those rights. Did you know that it is still legal to pay "tipped employees" (waiters and the like) 1/2 the minimum wage that was in effect when Reagan was president? Without your tips, your waiter earns $1.125 an hour if a state minimum wage does not override the federal one. You pay their salary, not the restauranteur. Yet corporations are bitching about labor costs, as if that's where the waste is in their bloated, overcompensated-upper management boondoggle. They cry that they need more tax breaks to create the jobs Reagan promised us would trickle down from his tax giveaway to the wealthy. We're still waiting for those jobs.
Excellent. Thanks for that. It's so refreshing to read an opinion based on solid experience and facts. I've worked as a union rep and obviously, companies fight unions and workers' rights to save money, but I also encountered plenty of 'irrational' behavior that stems from their anti-worker ideological position.
(BTW, I worked as a waiter in high-end restaurants in the 80s and at that point, the hourly rate was $1.10 an hour, and since we paid taxes (on 10% of the gross sales), I never saw a penny of that 'wage'. Literally, tips amounted to every penny I took home. So if I got stiffed, I ran after customers!)
About your wait job - exactly my point. When Reagan Republicans came into office they were bent on nailing tax cheats who were not paying what they owed to the government. Did they start with multi-million dollar corporations who were paying no taxes or the investor class who were being taxed at a fraction of the rate a working mother was? No, thanks to robber barons like W R Grace and their lackeys in the administration like Phil Gramm they decided to impose new rules on tipped employees - TIPPED FRIGGIN' EMPLOYEES - already the lowest paid people in the country by law! But of course, their unreported tips were causing a staggering loss to the federal treasury, not Reagan's trillion-dollar military buildup or his deregulation of Wall Street or his tax cuts for the wealthy which began this latest run of theft from the taxpayer to reward the Republican base.
They implemented the regulation you refer to (which is in effect to this day) which says the government would make the business owner tax their tipped employees on a certain percentage of the corporate ADV regardless of the tips the worker actually received. When these rules went into effect so many employers and employees alike were so confused that we got a spate of complaints from 'ees reporting that they had worked for a week and the owner told them they owed him money! I often wonder how many of those poor cheated workers didn't know enough to come to us, or just took the loss and quit. That's your Compassionate Conservatism at work. That's why we have to extirpate the Republican machine now, when we have the chance.
snydly
Who could have known???
Seven years ago, everyone I play poker with. Comments were: they'll have us in a war in 6 months; f@@king greed heads will take us to the cleaners. And these guys aren't even that smart...
Exactly! No rules in the financial school yard is exactly the same as no rules in the real school yard--bullies rule, and the weak pay the price, and some kind of bedlam eventually develops. You don't need university degrees to figure that out...and lots of people knew, just like lots of people knew that free trade would mean our good jobs would go to where it cost a lot less. DUH!!!!!
"Who could have known?"
Ummm. Ron Paul?
Possibly, but Paul is no saviour. The only reason he looks good on this is because he's a warmed-over libertarian - he doesn't think the governerment has a right to virtually ANY of his money. He is against the war because basically it costs him money. If you read about his policies and beliefs I'll think you'll find quite a few that don't come close to the progressive ideal.
Paul Krugman has been howling for years about the housing bubble, it's causes, and what should be done about it....right in the frigging pages of the New York Times. Among others. It wasn't exactly a secret.
Ron Paul is no better a guide than Ayn Rand, Allan Greespan, Margaret Thatcher, Ronald Reagan, Milton Friedman, or f*****g Mussolini for that matter.