News from the Progressive Review, providing alternative news and comment for over four decades.

December 29, 2008


Mark Winston Griffith, DMI Blog - In all my years of running non-profits and a financial institution, I was expected to account for every penny my organization received. Whether it was for a general operating grant or a cash flow loan, detailed reporting - including financial statements, budget narratives, and a description of what the money was used for - was demanded in return. And that was for private money. If my organization received government funds, the financial reporting requirements were nothing short of punishing.

So it seems nothing less than scandalous that the banks receiving public Troubled Assets Relief Program funds should be allowed to casually "decline" requests to account for that money. 21 of these banks were contacted by the Associated Press and were asked to report on how much TARP money was spent and on what. None provided specific answers. Some shrugged their shoulders and said they didn't know. You would think they were sitting in their living room and someone asked where they put the TV remote.

In fact, their responses amounted to a giant middle finger to the American taxpayer. "We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JP Morgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to.". . .

Some simple accounting on how the money was used should have been the first condition placed on banks, even if it had to be the only condition. As a friend of mine commented, there should have been a GPS tracking device, blue dye, a little red blinking light - something - attached to this money before it was just given away.

Mike Whitney,Information Clearinghouse - Consider this: the US economy is 72 percent consumer spending. That means the Gross Domestic Product cannot grow if salaries don't keep up with the price of living. Low Income Families--that is, any couple making less than $80,000--represent 50 percent of all consumer spending. These LOF's spend everything they earn just to maintain their present standard of living. So, how can these families help to grow the economy if they're already spending every last farthing they earn?

They can't. Which is why wages have to go up. The cost to short-term profits is miniscule compared to the turmoil of a deep recession which is what the world is facing right now. The present crisis could have been avoided if there was a better balance between management and labor. But the unions are weak, so salaries have languished while Wall Street has grown more powerful, stretching its tentacles into the government and spreading its anti-labor dogma wherever it goes.

The investor class has rejiggered the system to meet their particular needs. Financial wizardry has replaced factories, capital formation and hard assets while real wealth has been replaced by chopped up bits of mortgage paper, stitched together by Ivy League MBAs, and sold to investors as priceless gemstones. This is the system that Bernanke is trying to resuscitate with his multi-trillion dollar injections; a system that shifts a larger and larger amount of the nation's wealth to a smaller and smaller group of elites. . .

The bottom line is that this whole mess could have been avoided if demand was predicated on wage increases instead of asset inflation. Of course, that precludes the Fed's traditional remedies for economic malaise--easy money and massive leveraging. . .

From Bernanke and Greenspan's perspective, any small gain by workers is tantamount to communism. They will continue to do everything in their power to preserve the current labor-debasing system which keeps workers just one paycheck away from the homeless shelter. This type of hostility is neither good for the economy nor the country. It just intensifies class animosities by accentuating the chasm between rich and poor. The only way to overcome these differences is by narrowing the wealth gap and rewarding hard work with fair pay. . .

The Fed wants to stimulate demand by slashing the price of money to 0% while pumping trillions of dollars into the financial system (quantitative easing). But the millions of foreclosures, credit card and student loan defaults, indicate that the underlying economy is rapidly contracting and cannot support such an oversized system. Something's gotta' give. Homeowners and consumers are poorer than they were a year ago. They're focused on paying down their debts not creating new ones. Attitudes towards spending have changed; people are hunkering down. That's why Bernanke's radical liquidity experiment is doomed. There's no way to reflate a bubble if consumers refuse to spend.

If the Fed is serious about fulfilling its mandate, it should abandon its serial bubblemaking altogether and return to basics; productivity, good wages and sound money. The country's future rests on its workers. They don't need a bailout, just a raise.

Joshua Holland, AlterNet - There is something approaching a consensus that the Paulson Plan -- also known as the Troubled Asset Relief Program, or TARP -- was a boondoggle of an intervention that's flailed from one approach to the next, with little oversight and less effect on the financial meltdown. But perhaps even more troubling than the ad hoc nature of its implementation is the suspicion that has recently emerged that TARP -- hundreds of billions of dollars worth so far -- was sold to Congress and the public based on a big lie. . .

For the most part, the press has continued to echo Bush's central assertion that there's a "credit crunch" preventing even qualified borrowers -- that's the key point -- from getting loans, and it's now part of the conventional wisdom.

But a number of economists are questioning the factual basis of the credit crunch narrative. Columnist David Sirota recently looked at those claims and concluded that Americans "had been punk'd" -- that "the major claims about a credit crisis that justified Congress cutting a trillion-dollar blank check to Wall Street were demonstrably false," and the threat of a systemic banking crash was used by the Bush administration to overcome popular resistance to the "bailout.". . .

Of course, no one disputes the fact that as the economy has tanked, the number of new loans being issued to American families and businesses has plummeted. But is because credit has dried up for qualified borrowers?

Economist Dean Baker doesn't think so. He explains the situation in simple terms: The media, he argues, "are blaming the economic collapse on a 'credit crunch' instead of the more obvious problem that consumers just lost $6 trillion of housing wealth and another $8 trillion of stock wealth." . . .

Whether good borrowers can't get credit from banks because the latter are hoarding cash or lending has stopped because of a drop-off in demand for new loans is not some wonky academic debate; it's of crucial significance. Because if lending to qualified parties has truly frozen, then even if the specific implementation of the Paulson Plan was deeply flawed, its broad approach -- "recapitalizing" banks in various ways, buying up some of their crappy paper and guaranteeing some of their transactions -- is fundamentally sound.

If, on the other hand, the primary problem is that people are broke and maxed out on debt, and firms aren't looking for money to expand, then the kind of massive stimulus package being considered by the Obama transition team and congressional Dems -- largely designed to stimulate demand from the bottom up, with public works projects, tax cuts for working families, aid to tapped-out state and municipal governments and new money for unemployment and food stamps -- is obviously the best approach to take.

NY Times - Faced with worsening forecasts for the economy, President-elect Barack Obama is expanding his economic recovery plan and will seek to create or save 3 million jobs in the next two years, up from a goal of 2.5 million jobs set just last month, several advisers to Mr. Obama said. Even Mr. Obama's more ambitious goal would not fully offset as many as 4 million jobs that some economists are projecting might be lost in the coming year, according to the information he received from advisers in the past week. That job loss would be double the total this year and could push the nation's unemployment rate past 9 percent if nothing is done.

WCBS, NY - There were more than 9,700 families in New York City shelters on Christmas morning, up 40 percent from last year and the most ever since data began being recorded. . . Hundreds of coats were distributed at the New York City Rescue Mission on Thursday morning. Sandra Clark couldn't believe the gorgeous coat she was getting. . . The line extended outside the New York City Rescue Mission because this year the need is greater than ever before: Because of the economic downtown and the harsh weather, New York Cares is running about 8,000 coats short this year and that's why they've extended the time you can make a donation.

NY Times - In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.

China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.

"This was a blinking red light," said Kenneth S. Rogoff, a professor of economics at Harvard and a former chief economist at the International Monetary Fund. "We should have reacted to it."

In hindsight, many economists say, the United States should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness is becoming more widely recognized, however, the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy.

NY Times editorial - This year, the hunger struggle has worsened. The number of citizens turning to food stamps - a clear measure of fast-rising poverty - reached a record 31.6 million in September, up more than four million in a year. It's no surprise, then, that a politically acclaimed reform of the 1990s - 'the end to welfare as we know it' in favor of 'workfare' - is fast fraying at the edges. States are reporting a surge in applicants for the limited short-term cash aid allowed under the workfare rules. And the program's emphasis on shunting the poor toward low-paying, start-up jobs is becoming increasingly pointless as the job market ossifies'

Stanley Aronowitz, Portside - The bare truth is that what has been taken as economic expansion since the early 1970s was a symptom that the United States(and the UK and other European countries) have survived a genuine period of economic decline by means of a dramatic increase in the creation of huge amounts of fictitious capital. Fictitious capital is money that has no material basis, but is a speculation on future economic performance.

Fictitious capital is an ordinary function of the credit system. Manufacturers borrow and lend money from each other and from banks to finance purchases of raw materials and labor on the promise of a near-term repayment when the value of their respective products were realized through sales, either within the production sector or through wholesale and retail purchases. But when these loans are exchanged by banks to businesses and non- commercial consumers on a long- term basis at exorbitant interest rates, and these loans become the basis of at least 2/3 of economic activity; when consumers or business owners, some of which are banks themselves, default on a large scale on payments, and the bubble bursts the whole system reverberates collapse. . .

Another hidden fact: for thirty five years, the private sector has not produced a net increase in jobs. The growth of jobs in computer-mediated services and software production was counterbalanced by losses in manufacturing; mergers and acquisitions in the retail industry were barely matched by growth in fast food employment. In the past decade as the private sector failed to create new jobs but relied increasingly on contingent and temporary labor to meet their short-term labor requirements, the public sector- especially education and health care, became the main source of new, decent paying jobs. And as the Federal government abdicated responsibility for a variety of services, state and local bureaucracies added jobs.

Of course, besotted by the conventional neo-liberal ideology that only the private sector is a job creator, economists and politicians conveniently ignored this fact and continued to insist that whatever the service, the private sector can do it better, and more efficiently. What net increases in private sector employment occurred were largely, if not exclusively, the result of contracts awarded by federal, state and local governments who adopted both the mantra and practice of privatizing public goods. . .

In mid-December, after a virtual unconditional giveaway to banks and insurance companies of $350 billion by the Bush administration, half of the $700 billion bail-out package remained to be disbursed. On December 19, President Bush announced a $17 billion bridge loan to the major auto corporations. The remaining $333 billion could be spent on assisting homeowners suffering foreclosure or its imminent threat and putting a substantial down payment on the job creation part of the stimulus program. But there is little hope that this scenario will come about unless organized labor and social movements insist on such emphasis. For this to happen, some of Obama's most fervent supporters on the left would have to cut the assumed six months honeymoon short. They would be required to actively intervene on a number of fronts:

1. a set of proposals for a labor-intensive jobs program to accompany infrastructure development;

2. Demand the governments be the direct employer, and only absolutely necessary private contracts be let for specialized services;

3. Demand that the new jobs pay a living wage at least equal to the national average;.

4. Demand creation of labor-intensive jobs in public services and the arts;

5. Demand enactment of the Conyers Bill HR 676 providing medicare for all. Universalizing health care would create hundreds of thousands of new jobs;

6. Implement the Green Jobs program by re-opening and retooling abandoned auto and parts plants as well as building new plants to produce solar panels, windmills, geo-thermal machinery, water treatment technology and waste disposal products. These should be owned and operated by workers' cooperatives as well as letting contracts to existing manufacturers of these goods;

7. Demand rigorous oversight of employment programs to insure employment opportunities for blacks, Latinos women and the disabled.. .


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