Michael Hudson, interviewed by Paul Jay for the Real News, argues that the Fed’s QE3 is shoveling money to the banks not meant to create jobs, but a way to give banks even more speculative capital and prepare them for another meltdown:
In Part 1 of his 3-part ‘Real News’ interview, Jeff Thompson, Assistant Research Professor in Economics at the University of Massachusetts at Amherst, explains that his study shows that while states need revenue, most tax wealthy at lower rates:
from the transcript:
Since the beginning of what some people are calling the Great Recession in 2008, revenues to states have sharply plummeted. Most of the response has been cuts—cuts in public spending and the social safety net, education, and other such areas. Very little of this has been made up by increasing revenues, especially in terms of taxes on the affluent. So why? And what would be effect of this? Some people argue that taxing the wealthy drives down investment or makes them leave the state, so you really can’t do this as a public policy option.Well, what’s the research on this? Well, there’s a new paper out now by Jeffrey Thompson. He’s a assistant professor at the PERI institute in Amherst, Massachusetts, and he now joins us. Thanks for joining us, Jeffrey.
In Part 2, Jeff Thompson details how his study shows that while states need revenue, most tax wealthy at lower rates:
from the transcript:
We’re now discussing Jeffrey Thompson’s research paper looking at the actual evidence of what happens when you raise taxes on the wealthy. States across the country have massive decreases in their revenue because of the recession, and mostly they’re making it up through cuts. Well, Jeffrey’s paper argues that you could raise revenues on the wealthy and in fact increase growth and jobs, not decrease it as some people are arguing.
And in Part 3, Jeff Thompson details how his study shows that if states raise taxes the rich will not relocate:
from the transcript:
We’re continuing our series of interviews with Jeffrey Thompson, who’s recently written a paper looking at ways states can raise revenue and what would happen if they raise taxes on the upper tier, on the 1 percent. Will they stop working? Will they stop investing? Well, as you’ll see if you watch the earlier episodes of the interview, Jeffrey Thompson concludes the rich will not go on strike. But will they just leave? If one state raises its taxes, will wealthy people just move out of the state or do something else to avoid taxes, for example, spend most of their time hiring tax lawyers to figure out ways not to pay the taxes?
Read the rest of this entry »
Banking on GreedJuly 13, 2012
Just when you think the reputation of banks couldn’t get any worse, comes word that we’ve seen nothing yet. As many as 20 banking institutions, including Barclays Bank, Deutsche Bank, Citigroup, JPMorgan Chase, UBS and HSBC, are reportedly under investigation for illegal and unethical practices toward protecting their profits at all costs and letting others pay for their mistakes. In this episode, financial expert Sheila Bair talks with Bill about the lawlessness of our banking system and the prognosis for meaningful reform. Bair was appointed in 2006 by President George W. Bush to chair the FDIC. During the 2008 meltdown, she argued that in some cases banks were NOT too big to fail — that instead of bailouts, they should be sold off to healthier competitors. Now a senior adviser to the Pew Charitable Trusts, Bair has organized a private group of financial experts including former Fed chairman Paul Volcker, former Senators Bill Bradley and Alan Simpson, and John Reed, once the chairman of Citicorp, to explore ways to prevent the banking industry from scuttling reforms created by the Dodd-Frank Act.
Also on the show, Bill talks to scientist and philosopher Vandana Shiva, who’s become a rock star in the global battle over genetically modified seeds. These seeds — considered “intellectual property” by the big companies who own the patents — are globally marketed to monopolize food production and profits. Opponents challenge the safety of genetically modified seeds, claiming they also harm the environment, are more costly, and leave local farmers deep in debt as well as dependent on suppliers. Shiva, who founded a movement in India to promote native seeds, links genetic tinkering to problems in our ecology, economy, and humanity, and sees this as the latest battleground in the war on Planet Earth.
Footage from Bitter Seeds courtesy of Teddy Bear Films
There’s no evidence that a low capital gains tax rate boosts the stock market, investment, or the economy [New]
There is no sound evidence that cutting capital gains taxes to levels far below ordinary income tax rates contributes to economic growth at all — let alone enough to outweigh the significant economic cost of doing so.
- - Federal Reserve economists concluded in 2005 that the 2003 capital gains and dividend tax cut had little effect on the stock market: European and U.S. stocks performed similarly both after the announcement of the tax cut and after the tax cut itself, as this chart shows. As the Wall Street Journal stated, the study “concludes that the tax cut … was a dud when it came to boosting the stock market.”
- - “[T]here is no evidence that links aggregate economic performance to capital gains tax rates,” according to University of Michigan tax economist Joel Slemrod.
- - There is no statistically significant correlation between the top capital gains rate and economic growth (see chart).
- - As Len Burman, Syracuse University tax professor and former director of the Urban-Brookings Tax Policy Center (TPC), has explained of this chart, “Many other things have changed at the same time as [capital] gains rates and many other factors affect economic growth. But the graph should dispel the silver bullet theory of capital gains taxes. Cutting capital gains taxes will not turbocharge the economy and raising them would not usher in a depression.”
- - There is also no statistically significant correlation between the capital gains rate and the amount of real business investment.
Check out the other 9 things you need to know too.
Krugman wipes the floor with the two pro-austerity guests:
And the segment where Krugman detailed his view of the current situation to the BBC host:
UPDATE: There was another segment with Paul Krugman and an ex finance minister of Greece. It’s at the 6 minute mark:
And here’s the entire BBC program:
No further comment needed.
There is a transcript at the link
In 2010, as the nation slowly ground its way from Great Recession to recovery, 93 percent of national income gains went to the richest 1 percent of Americans. As Reuters’s David Cay Johnston pointed out today, this makes the 2010 recovery quite different from the recovery that followed the Great Depression, as then, income gains were widely shared by the population, not concentrated at the very top:
The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent.
In 2010, we saw the opposite as the vast majority lost ground.
National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent.
Just 15,600 super-rich households pocketed an astonishing 37 percent of the entire national gain.
During the recovery, corporate profits have also roared back, already hitting their pre-recession heights. Wages, however, have not done the same.
Not only was the recovery of the bottom 90% nowhere near the recovery of the top 0.1%, but the bottom 90% went backward.
A study from the Political Economy Research Institute (independent unit of the University of Massachusetts, Amherst) found that “$1 billion spent on each of the domestic spending priorities will create substantially more jobs within the U.S. economy than would the same $1 billion spent on the military.” The study shows that ” investments in clean energy, health care and education create a much larger number of jobs across all pay ranges, including mid-range jobs (paying between $32,000 and $64,000) and high-paying jobs (paying over $64,000). “The Real News Network’s Paul Jay interviewed Robert Pollin, one of the the study’s authors:
The Fannie Mae and Freddie Mac conservator, since the crash of 2008, the Federal Home Finance Administration (FHFA) took action on September 2 and filed a lawsuit against the big banks and named individuals for billions of dollars in alleged securities fraud. This appeals to my sense of justice for the economic meltdown and financial pain spread throughout our land, and it appeals to plenty of people’s sense of justice, or not – some are downright skeptical, as in the #8 thing you should know about this suit from the linked Alternet article. Nevertheless, there is optimism that the FHFA could actually win the suit if it went to court. Still, it is essentially a full employment lawyers act and not really in the best interests of the economy: “Whatever the lawsuit’s merit, it will erode banks’ profits and capital and their capacity to lend.”
On the other hand, there is a modest proposal out there to put U.S. homeowners, the housing industry, and by extension, the American economy back on stable footing. It is a simple, elegant, straightforward plan expressed in a nine-page document, which you can download easily.
The New Bottom Line is a national campaign to persuade the banks to write down, or modify, all underwater mortgages to current market value, that’s principal and interest.
Here are some facts & figures from the plan: By writing down all underwater mortgages to market value, the nation’s banks could:
- Pump $71 billion into the economy every year: in New York state the annual stimulus would equal $1.25 billion; in Ohio, $1.64 billion; in Florida, a staggering $12 billion [where the most foreclosures are]
- Create more than one million jobs annually: In Massachusetts this would create over 35,000 jobs; in Illinois nearly 43,000 jobs; in California, over 300,000 jobs
- Save families an average $543 per month on their mortgage payments;
- Help investors come out ahead compared with the negative financial impact of foreclosures
- Fix the foreclosure crisis once and for all.
If you think the New Bottom Line is overestimating the impact on the economy of fixing the home foreclosure crisis, consider that in 2005, according to The Economist, “over the past four years, [that’s 2001 -2005] consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking.”
The New Bottom Line is a coalition of community organizations, faith-based congregations, labor unions, and individuals from across the country. Coalition members are rallying their people to participate in planned direct actions in cities across the country. Under the Press Room tab on their web site there is a schedule of actions at the bottom of the Media Advisory dated for Sept. 20. Actions that target primarily JPMorgan Chase, Bank of America and Wells Fargo, are planned beginning Sept. 20 in Seattle to Nov. 5 in Honolulu. During this time frame actions are planned in San Francisco, Boston, Los Angeles, Chicago, New York City, Minneapolis, and Denver.
The banks can afford to write down all underwater mortgages. “US banks are currently sitting on a historically high level of case reserves of $1.64 trillion. Under this proposal they would only be forgoing $71 billion in payments annually… In 2010, the nation’s top six banks alone paid out more than twice that figure in bonuses and compensation ($146 billion),” according to the New Bottom Line’s nine-page plan.
The plan is not getting any attention in the mainstream media, of course, but even the blogosphere is somewhat sparse on it. In a google search of “new bottom line” I found it mentioned on only a few occasions back in August on major blogs – on Firedoglake (in two posts), rortybomb, and Daily Kos here, here, and here, and here, respectively. On Daily Kos the plan was included in a more general post by Mike Lux titled The Church of Progress. Another Daily Kos blog linked to the plan as it was mentioned indirectly by Emptywheel in a blog about how the Obama administration is thwarting New York AG Eric Schneiderman’s attempts to hold banks accountable for mortgage fraud. An article on Alternet in late August also mentions the New Bottom Line, and provides a link to the plan, in an article titled: Longer Weekends and Higher Wages? 5 Surprising Ways That Would Help Improve the Economy – mortgage write-downs is one of the five ways we could help the economy and make our lives better. In a May 4 article, Foreclosed Homeowners Vent Anger at Wells Fargo, Alternet documented the launch of the New Bottom Line campaign in San Francisco, but does not provide a link to the New Bottom Line web site or the plan. The nine-page plan is also posted at Showdown in America.org.
If this movement succeeds in organizing enough people and making an impact it could finally put into play a Tarp for Main Street – something our elected officials have been unable and unwilling to do. So there is the question – Why do we need to generate a movement to put the New Bottom Line’s ideas into action? Well, I guess we know the answer to that – a solution that benefits the people doesn’t play in the oligarchy.
Cramdown legislation that would have allowed bankruptcy judges to modify mortgages by reducing principal, lowering interest rates and/or extending loan terms passed the House in early March 2009, but was defeated in the Senate. The legislation was opposed by the financial services industry because it would “destabilize home prices” and “raise mortgage borrowing costs for everyone.” Right…more likely, the legislation threatened their expected profit margins, but they didn’t and won’t say that.
HARP (Home Affordable Refinance Program) is the federal government’s so far not very successful two-year old program at Fannie Mae and Freddie Mac. According to Bloomberg news, the HARP program launched in March 2009 was extended twice and is now set to expire in June 2012. The Obama administration predicted it would help up to five million homeowners. As of June, there are fewer than 840,000 homeowners enrolled in the program. HARP has been limited to borrowers who are underwater in homes worth up to 125 percent of their value, meaning eligibility is limited to homes worth 25 percent less than market value. Homeowners who owe more on their mortgages than their homes are worth are “underwater,” and this is the major reason people default on their mortgages.
I couldn’t find online an average of how many homeowners might be over 25 percent underwater, but as of June nationwide 10.9 million people or “22.7 percent of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011.” In an article August 16, Bloomberg says, “Banks have avoided participating [in HARP] because such loans are more likely to default.” Now they’re worried about lending to homeowners who went “underwater” due to the boom years when investors and the banks weren’t concerned and approved mortgage loans for just about anybody – borrowers with no down payments and questionable sources of income (the subprime lenders and borrowers).
Now we have a lawsuit by Fannie and Freddie because taxpayers, meaning you and me – not the investors and bankers – are footing the bill. According to Bloomberg news June 2010, “Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American
International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts. ‘It is the mother of all bailouts,’ said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance
So, Obama proposed, quite timidly and briefly in his much heralded “jobs speech” on Sept. 8: “We’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent. … That’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”
Keeping in mind that Fannie & Freddie, created by Congress in 1938 and 1970, respectively, are independent companies that use the full faith and credit of the federal government to guarantee mortgages and mortgage backed securities, Bloomberg news had this to say following Obama’s speech: “Some staff members of Fannie Mae and Freddie Mac have expressed concerns about easing rules to make refinancing more accessible because a wave of repayments of the old, high-interest loans would reduce the value of the securities into which they are bundled. Investors would be forced to reinvest the cash that gets returned into lower-yielding securities, according to a person briefed on the discussions within the mortgage firms.
That would harm the big institutional investors who own most of the securities and make up the most important customers of Fannie Mae and Freddie Mac, the person said.”
Well, we wouldn’t want to harm the big institutional investors, would we?
(Click for larger image) – From Matt Wuerker at Daily Kos
As has been reported virtually everywhere, the Bureau of Labor Statistics’s August jobs report is out. It sucks:
Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major industries changed little over the month. Health care continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota.
The number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6.0 million in August and accounted for 42.9 percent of the unemployed.
Even more fun:
In August, average hourly earnings for all employees on private nonfarm payrolls decreased by 3 cents, or 0.1 percent, to $23.09. This decline followed an 11-cent gain in July. Over the past 12 months, average hourly earnings have increased by 1.9 percent. In August, average hourly earnings of private-sector production and nonsupervisory employees decreased by 2 cents, or 0.1 percent, to $19.47.
This in a time when, via the Center for Economic and Policy Research, “the the U.S. economy is currently short about 10 million jobs (14 million using a less conservative estimate).”
The relevant post on the White House blog by Katharine Abraham led with, “Today’s employment report shows that private sector payrolls increased by 17,000 and overall payroll employment was flat in August.”
See that? They picked the figure that increased, put it first, and rendered it numerically. For the real number, they described it in terms of an abstract metaphor.
The White House blog post finishes:
The monthly employment and unemployment numbers are volatile and employment estimates are subject to substantial revision. Therefore, as the Administration always stresses, it is important not to read too much into any one monthly report.
Yeah, those figures do tend to get revised. Downward.
This isn’t a big deal or anything, but I take it as symptomatic of a larger underlying condition. You remember how the Obama campaign used to be the group that spoke the truth? How Obama himself was able to say in public that in times of hardship, when people got bitter, they “cling to guns or religion”?
No more of that. He and his advisors have certainly acclimated to their new environment. “To our most valiant brother,” says Shakespeare’s Claudius, “So much for him.” Insert your own Obama-Hamlet comparison at your leisure.
The employed work multiple jobs to stay afloat (slightly less in 2010 than 2009, but I do not know what the figures are/will be for 2011), and businesses try to only hire the employed or recently unemployed. The result is to create a class of long-term unemployed with few prospects.
The Downward Spiral blog summarizes the current state of the Lesser Depression succinctly:
Now it is finally conformed: the recession that began in 2008 never ended. Trillions of dollars were borrowed and spent by the federal government that merely bought us a couple of years of stabilization before the crash resumed. Don’t give me any guff about how it’s not “officially” a recession unless we experience two consecutive quarters of negative GDP. First of all, as I’ve written before, without the insane levels of federal deficit spending, GDP levels would still be deeply in the red. Secondly, all of that nonsense about a “jobless recovery,” was just that–nonsense. Without jobs, people don’t earn money, hence they cannot go to the mall and spend, hence our consumer based economy cannot grow. It’s as simple as that.
No telling what next month’s figures will be, of course. But given that reports of consumer spending’s health in July were somewhat exaggerated, and worldwide industry is taking a sharp turn for the down, my general belief is that, perhaps, the market cannot continue to go up indefinitely.
Here we go again?
In policy circles, there seems to be an absurd faith that demand in the economy will arise out of nowhere if we are just virtuous enough in reducing the deficit. That is not the way the economy works. Demand must come from some discrete source, and it is very difficult to see where that might be if the country continues on a path of deficit reduction.
To see why this is the case, first note that nearly 70 percent of demand in our economy is from consumption, but consumption has been growing slowly for two reasons. The first is that the economy has been creating few jobs. Furthermore, in a weak labor market workers do not have the bargaining power to push up their wages. The slow growth in jobs and stagnant wages mean that most families, who get nearly all their income from working, are seeing little growth in income. Slow growth in income means slow growth in consumption.
The second factor depressing consumption has been the continuing deflation of the housing bubble. To date, the decline in house prices has destroyed nearly $7 trillion in housing equity. And prices are still falling. Homeowners are likely to see another $1 trillion in equity disappear over the next year. The loss of this wealth will lead homeowners to cut back their consumption further in order to rebuild their savings.
Beyond the decline in consumption, the overbuilding in both residential and non-residential real estate during the bubble years ensures that construction will also remain weak at least through 2012. Firms could invest more in equipment and software, but this component of the economy is already surprisingly strong. This type of investment is close to its pre-recession level, in spite of the fact that most industries have large amounts of excess capacity.
Trade could also provide a boost, but this would require either extraordinarily rapid growth in demand from our trading partners or a sharp decline in the dollar that would make our goods more competitive. With most of our major trading partners also mired in stagnation, a rescue by fast-growing trading partners can be ruled out. Similarly, a lower-valued dollar is providing some benefits, but not of the magnitude needed to restore the economy to anything close to full employment.
With these other sectors accounted for, this leaves the government as the only remaining candidate for boosting the economy. But additional stimulus is not even on the agenda in Washington. Instead, we are seeing cutbacks at all levels of government. These cutbacks led to a loss of 29,000 jobs in May. The pace of job loss is only likely to increase when states impose another round of cuts on July 1, the beginning of a new fiscal year for most of them.