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Weekly Audit: A Tale of Two Economies
The U.S. economy is has diverged: Wall Street is living high on the hog, while everyone else is struggling. The Dow Jones Industrial Average eclipsed 10,000 for the first time since last October this week, even as unemployment continues to spiral out of control. And while President Barack Obama has taken some very real steps to help ordinary people, his administration’s efforts to save Wall Street have far outstripped their support of workers.
Matthew Rothschild details these disparities for The Progressive. Regulatory reforms are moving through Congress at a snail’s pace and the wreckage from the mortgage bubble is increasing. Wage cuts are more widespread today than in any era since the Great Depression, even as bankers capitalize on taxpayer bailouts to score epic profits and outsized bonuses.
“One economy is for the rich and the upper middle class,” Rothschild writes. “The other economy is for everybody else.”
So how can a few big banks make so much money while the rest of the economy suffers? As Kevin Drum explains for Mother Jones, the kind of banking that helps the economy is a pretty simple business of taking deposits and making loans. But a lot of what we now call “banking” really just consists of making bets on just about anything you can dream up.
“Banks aren’t using all this cheap money to increase lending. They’re using it to fund bigger and bigger bets in the fixed-income sector — the same sector that brought us junk bonds, credit default swaps, subprime loan securitization, interest rate carries, collateralized debt obligations, and all the rest of Warren Buffett’s ‘financial weapons of mass destruction.’”
The banks, in other words, are gambling with taxpayer money. A host of big finance companies have reported earnings in the past week, and the numbers are ugly: JPMorgan Chase reaped $3.59 billion in third-quarter profits and Goldman Sachs is planning to payout $23 billion in bonuses from speculative trading, while Bank of America and Citigroup are hemorraging money on mortgages and credit cards. The Wall Street casino is alive and well, but anything that is actually tied to the real economy is a disaster.
According to a new report from the U.S. Treasury, lending among the largest recipients of the Troubled Asset Relief Program fell by 17% from July to August. Small businesses can’t cope with the cutoff in financing. A lot of businesses stay profitable over the long-term by borrowing money to meet short-term expenses. A baker can borrow money to buy flour and pay the bank back when she sells her bread. With bank lending on ice and consumers cutting back on spending, many small businesses are failing. Thousands more will be at risk in the next couple of years while unemployment remains elevated.
Writing for Salon, former Clinton Secretary of Labor Robert Reich notes that these economic struggles are not reflected in major stock indices. Stock are soaring as big corporations who don’t need bank loans score short-term profits from cost-cutting, i.e., mass layoffs. Obviously, this strategy can’t work for very long. When millions of Americans are out of work, they can’t afford to buy the things companies make.
There’s an important lesson in our current economic state-of-affairs, as Katrina vanden Heuvel emphasizes for The Nation. The bailout has not done what Henry Paulson told us it would do. To be sure, it saved the banks– even the strongest banks would have failed last fall without extraordinary government support. But it has not increased lending and kept the economy from disaster. The Obama administration, which has extended the Bush administration’s support for bank balance sheets and bonus checks, is facing a political nightmare if it doesn’t show produce some stronger economic results for ordinary citizens.
“Heading into 2010, the Obama administration must put itself back on the side of working people,” vanden Heuvel writes.
The administration must address two critical problems in order to restore the nation’s economic credibility. Putting the unemployed back to work is at the top of the list. Anything that saves jobs will help, including aid to states to keep teachers and cops on government payrolls and tax credits for companies that hire new full-time workers.
Something must also be done about the foreclosure epidemic. Nothing underscores our economic disparity like continuing housing mess, which has been in full-blown crisis mode since 2006. Despite a multi-trillion-dollar bank bailout, foreclosures are surging to all-time highs. Writing for The American Prospect, Tim Fernholz details the prolonged problems with the Obama administration’s current foreclosure relief program.
While millions of troubled borrowers are eligible for the plan, which reduces monthly mortgage payments to affordable levels, foreclosures are still outpacing loan relief efforts by more than two-to-one.
Banks are dragging their feet and the administration has imposed no penalties on lenders who don’t live up to the program’s standards. Instead, the Treasury Department is offering banks cash incentives to keep people in their homes. Bank of America, which has received $45 billion in direct government bailout funds, plus hundreds of billions in government guarantees and other perks, has modified merely 11% of the mortgages it controls that are eligible for the plan.
Fernholz offers several potential improvements to Obama’s foreclosure relief plan, including more aggressive government policing of the current plan and allowing foreclosed homeowners to continue to live in their homes as renters. With up to 12 million foreclosures projected by the end of 2012, just about anything the administration does will help.
The economy is a measure of social well-being, not a stock market index or a corporate earnings statement. Policymakers need to prove they can respond to the very real needs of all their citizens, not just those with financial clout.
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13 Comments so far
Show AllOver the past six months, the price of crude oil has doubled from @ $40/barrel to @ $80 per barrel. Expect a steady rise in prices for the foreseeable future.
Those who can barely afford their mortgage will struggle to keep their homes warm.
It's difficult to search for a job when you cannot afford the fuel to make it to interviews.
Food prices will increase as inputs become more expensive and transportation become prohibitive.
Retailers will have to increase prices due to higher costs of production and transportation.
Most importantly, small businesses will have to cut back as the cost of goods increase, as utility costs rise, as the cost of transport and delivery increase and as the consumer has far less disposible income.
And who can afford a new car now that cash for cluckers has disappeared?
Well any economy that relies on the private automobile/suburban infrastructure model is one at the end of it's natural life anyway.
The New York Times
October 20, 2009
Op-Ed Columnist
Safety Nets for the Rich
By BOB HERBERT
The headlines that ran side by side on the front page of Saturday’s New York Times summed up, inadvertently, the terrible fix that we’ve allowed our country to fall into.
The lead headline, in the upper right-hand corner, said: “U.S. Deficit Rises to $1.4 Trillion; Biggest Since ’45.”
The headline next to it said: “Bailout Helps Revive Banks, And Bonuses.”
We’ve spent the last few decades shoveling money at the rich like there was no tomorrow. We abandoned the poor, put an economic stranglehold on the middle class and all but bankrupted the federal government — while giving the banks and megacorporations and the rest of the swells at the top of the economic pyramid just about everything they’ve wanted.
And we still don’t seem to have learned the proper lessons. We’ve allowed so many people to fall into the terrible abyss of unemployment that no one — not the Obama administration, not the labor unions and most certainly no one in the Republican Party — has a clue about how to put them back to work.
Meanwhile, Wall Street is living it up. I’m amazed at how passive the population has remained in the face of this sustained outrage.
Even as tens of millions of working Americans are struggling to hang onto their jobs and keep a roof over their families’ heads, the wise guys of Wall Street are licking their fat-cat chops over yet another round of obscene multibillion-dollar bonuses — this time thanks to the bailout billions that were sent their way by Uncle Sam, with very little in the way of strings attached.
Nevermind that the economy remains deeply troubled. As The Times pointed out on Saturday, much of Wall Street “is minting money.”
Call it déjà voodoo. I wrote a column that ran three days before Christmas in 2007 that focused on the deeply disturbing disconnect between Wall Streeters harvesting a record crop of bonuses — billions on top of billions — while working families were having a very hard time making ends meet.
We would later learn that December 2007 was the very month that the Great Recession began. I wrote in that column: “Even as the Wall Streeters are high-fiving and ordering up record shipments of Champagne and caviar, the American dream is on life support.”
So we had an orgy of bonuses just as the recession was taking hold and now another orgy (with taxpayers as the enablers) that is nothing short of an arrogantly pointed finger in the eye of everyone who suffered, and continues to suffer, in this downturn.
Whether P.T. Barnum actually said it or not, there is a sucker born every minute. American taxpayers might want to take a look in the mirror. If the epithet fits...
We need to make some fundamental changes in the way we do things in this country. The gamblers and con artists of the financial sector, the very same clowns who did so much to bring the economy down in the first place, are howling self-righteously over the prospect of regulations aimed at curbing the worst aspects of their excessively risky behavior and preventing them from causing yet another economic meltdown.
We should be going even further. We’ve institutionalized the idea that there are firms that are too big to fail and, therefore, “we, the people” are obliged to see that they don’t — even if that means bankrupting the national treasury and undermining the living standards of ordinary people. What sense does that make?
If some company is too big to fail, then it’s too big to exist. Break it up.
Why should the general public have to constantly worry that a misstep by the high-wire artists at Goldman Sachs (to take the most obvious example) would put the entire economy in peril? These financial acrobats get the extraordinary benefits of their outlandish risk-taking — multimillion-dollar paychecks, homes the size of castles — but the public has to be there to absorb the worst of the pain when they take a terrible fall.
Enough! Goldman Sachs is thriving while the combined rates of unemployment and underemployment are creeping toward a mind-boggling 20 percent. Two-thirds of all the income gains from the years 2002 to 2007 — two-thirds! — went to the top 1 percent of Americans.
We cannot continue transferring the nation’s wealth to those at the apex of the economic pyramid — which is what we have been doing for the past three decades or so — while hoping that someday, maybe, the benefits of that transfer will trickle down in the form of steady employment and improved living standards for the many millions of families struggling to make it from day to day.
That money is never going to trickle down. It’s a fairy tale. We’re crazy to continue believing it.
The govt caters to these banks because that's the only way to retain the dominance of US currency.
Too big to fail?
Keep watching.
The bigger they are, the harder they fall.
Sioux Rose
Carlos Casteneda authored the book, "A Separate Reality," and while his was related to the practices of shamanism, in point of fact, our wizards of Wall St and their DC enablers have fashioned their own separate reality.
In a ridiculously transparent feedback loop, the taxypayers feed in their lifelong savings and pension plans, while the brokers gamble these away on make-believe pseudo fiscal "products." So long as the game plays, Wall St reports profits, and its landscape of inflated dreams passes for a semblance of the TRUE economy. The true one being the real lives of real persons and what their assets are worth, presuming they can afford them at all.
A similar separate reality is the fashion when it comes to overseas "enterprises." So long as embedded reporters or those in the "designated" (Green, etc) zones report back the limited view of what they are allowed to see, citizens back home may buy the fiction that all is going wonderfully well.
No photos of dead soldiers, or the near-million slaughtered in Iraq, or their unfortunate "cousins" in Afghanistan, and perception (which is not the same thing as reality) is controlled.
A reality check can only be floated so long...
I was wondering how much difference it would make if all of us took our checking accounts and small savings accounts out of Bank of America, etc. and moved it into local, community banks. What say you?
We've come the full, 800-year circle. Feudalism, then mercantilsm, then Capitalism then back to a new kind of class-structred feudalism!
Poor Marx...and poor us. He, and until the 1990's, I, would have never imagined the arc of dialectical materialism would lead us this way! So much for patiently waiting for the worker revolution!
Yet another from the 'laundry-list' genre - ZC offers us a laundry-list of 'the problems,' (which we, the choir, are all but expert at already,) and not a single idea that might qualify as a potential solution.
"...the kind of banking that helps the economy is a pretty simple business of taking deposits and making loans." That's so lovely, isn't it? Except, deposits from whom - us 99%ers w/no money? And loans to whom - maybe a small business here and there? We're down 18 million f@#king jobs! Small business loans ain't gonna make a dent!
Funny - there didn't seem to be small loan problems during that 'Cash for Clunkers' scam, did there? A million who could only afford to keep their 'clunker' puttin away suddenly qualified for $20K+? (No, they didn't - nearly 30% are already in 60 day default.)
Frankly, they own the place - and until We decide we want 'our' place back, and then launch an all-out battle against the present owners, and accept that the our 'winning' means no more dog-eat-dog, winner-take-all, rags-to-riches, greed-is-good system, we should either shut the f@#k up and find a way to enjoy the life of a 99%er, or go native and find a nice cave to live in...
well anyway ur idea is really excellent :0
mixtape cover designer
dj kenny
passa passa
URGENT see matt taibbi 10/14 rolling stone
see frontline yesterday(tues) on "the warning"
on brooksley born
also google control fraud theory and click
on "encyclopedia of white collar crime" 2006
by jurg gerber and eric jensen; googles
preview will tell you all you need to know
the whole us gov is involved in a ponzi scheme
that dwarfs sept 2001, election fraud of 2000
and even the 'madoff scandal'
also
see http://www.youtube.com/watch?v=o3oFKKcowKA
an excellent 7 min summary of how goldman is
fleecing america
also 10/19 democracynow.org :pepe escobar on
pipeline politics in afghanistan
Cicero: "Freedom is participation in power."
Soon Obama will sprout fangs to go with his new "populist rhetoric" regarding the banks while his evil familiar, Rahm "the Gotham Golem" Emmanuel rubs his hands and chuckles at the latest Goldman Sachs pig Team Obama just appointed to "reform" the SEC.
For all the bashing Michael Moore takes on this site his ideas about actually using all the idle manufacturing capacity of this country to produce green mass transportation, green energy products, electric cars, etc., is more of a plan for the real economy than ANY of the blather I've heard from the MSM from the Nation to Charlie Rose to the News Hour with Jim Lehrer. What a parcel of fools our economic experts are--almost as stupid as the corporate press. The Wall Street Urinal has been so consistently wrong for over 14 years now its reputation should be little better than used hamster cage liner but the business class still laps that swill right up.
Do any of you ever get the idea that our CEO, banking and political classes are so deeply corrupt and stoned & strung out on their own bad dope that if they were all rounded up and exiled to the Maldives with tins of Spam and water filters the U.S. would be entirely better off just by their replacement with younger, "less knowledgeable," inexperienced entrepreneurs, banking reformists and grassroots pols stripped of all the old corporate money ties? Maybe what has happened since the gutting of Glass-Steagal and the deregulation of derivatives in 1999 should be treated like a corporate coup and all the big players tried for treason and either forced to serve a minimum of 20 years or be exiled to some 3rd World low-tech hell hole with no access to the internet or offshore banks.
aye and amen
Cicero: "Freedom is participation in power."
NEW AND IMPROVED VERSION OF THIS COMMENT:
Soon Obama will sprout fangs to go with his new "populist rhetoric" regarding the banks while his evil familiar, Rahm "the Gotham Golem" Emmanuel rubs his hands and chuckles at their latest Goldman Sachs triumph: The 29 year-old gleamy-eyed piglet whom Team Obama just appointed to "reform" the SEC.
For all the bashing Michael Moore takes on this site, his ideas about actually using all the idle manufacturing capacity of this country to produce green mass transportation vehicles, green energy products, electric cars, etc., is more of a plan for the real economy than ANY of the blather I've heard on the MSM from the Nation to Charlie Rose to the News Hour with Jim Lehrer. What a parcel of fools and cowards our economic experts are--almost as stupid as the business press. The Wall Street Urinal has been so consistently wrong for over 14 years ("free trade," deregulation, gutting Glass-Steagall, bundled derivatives, Enron, rolling blackouts, artificially low interest rates, ARMs, bank "bailouts, etc.) its reputation should be little better than used hamster cage liner but the business class still laps those pellets right up.
They and their press are utterly devoid of ANY vision of a better future. Their mindset differs little from the description of permanent oppression offered up by George Orwell in 1984 --only instead of a totalitarian boot forever crushing the face of the lumpen proletariat into the dirt it's a totalitarian banker and a lobbyist both in Gucci loafers (standing on the face and neck of the L.P.) with mercenaries standing by with their LRAD sound cannon to bust some eardrums & deliver some brain damage just in case--or for kicks in any case. The national anthem of Amurka should be a 3 minute long sheep's bleat: BAA-AA-AA-AA-AAA-AA-AA-A-AA-A-A-AAA-A-AA-AA-A-A-AAA-A-A-A!--played on a sound cannon at 150 decibel bursts at every NFL game. The fans are too moronic to need to hear the play-by-play anyway and most of them are already brain damaged for life by decades of the sickest propaganda still prevailing on their dying planet.
Do any of you ever get the idea that our CEO, banking and political classes are so deeply corrupt and stoned & strung out on their own bad dope that if they were all rounded up and exiled to the Maldives with tins of Spam and water filters the U.S. would be entirely better off just by their replacement with younger, "less knowledgeable," inexperienced entrepreneurs, banking reformists and grassroots pols stripped of all the old corporate money ties? Maybe what has happened since the gutting of Glass-Steagall and the deregulation of derivatives in 1999 should be treated like what it was: A corporate coup. And all the big players from Robert Rubin to Allen Greenspan to Phil Gramm to Goldman Sachs senior execs and right on down the line should be tried for treason and either sentenced to a minimum of 30 years or be exiled to some 3rd World low-tech hell hole with no access to the internet or offshore banks. The current generation of business press should be exiled with them and implanted with satellite monitoring chips to monitor their compliance with zero internet or offshore banking access.