The Equanimist

Profligate Banks Use "Emergency" Loans to Dodge Accountability

Posted in Economics, Economy, Political Economy, Public Policy by equanimist on November 11, 2008

By August, 2007, it had become clear to some (namely, me, and I wrote about it here) that (among developing crises) US middle-class profit shares might be insufficient to continue to drive the US economy – that US middle-class profit shares were too small to continue to effect general prosperity.

The so-called “credit crisis” unfolded throughout 2008. Rates of default rose. Home prices plummeted. Banks failed. Credit froze. Markets tanked. One million jobs were lost. And so on.

Ad hoc bailouts came and went but no comprehensive plan of action was proposed until September, 2008, when it appeared that the economy might be on the verge of total collapse and Bush lackey, Henry “Hank” Paulson, swept in with “the Paulson Plan”.

A bloated modified version of the Paulson Plan (a.k.a. “Emergency Economic Stabilization Act of 2008” including the “Troubled Asset Relief Program” or TARP) was approved after “sweeteners” were added to bribe individual members of Congress.

In short order, Hank found a way to use money allocated by the TARP to purchase troubled assets in a manner at once consistent with the broad purview granted him by Congress and inconsistent with explicit intentions to buy mortgage backed securities in reverse auctions.

As of this writing, no TARP money has gone to buy mortgage backed securities or keep homeowners in their homes. And, no further stimulus has gone to the US middle class. But, Bloomberg reports that the Federal Reserve has loaned nearly $2,000,000,000,000US (that’s two trillion US dollars) to unnamed institutions for unspecified collateral (about $6,500 for every legal US citizen). Earlier bailouts coming to about $3,000 per person, that brings the running total cost of bailouts to about $9,500 per person.

If home prices continue to fall and jobs continue to disappear and middle-class wages continue to shrink and credit remains tight, where will these troubled institutions get money to make payments? And what will their collateral be worth?

These loan recipients are beneath contempt and the Fed is acting foolishly. US equity affords the possibility of public oversight and control over pay packages (including salaries, bonuses, perks and etcetera). Federal Reserve loans, on the other hand, shield these so-called “fat cats” – these prodigal bums who bled the US dry – from public scrutiny and sanction. When even bailout recipients continue to engage in profligate excesses despite mounting pressure to reform, it must be inferred that loan recipients intend to continue bad business practices behind doors marked “Private”.

These so-called “emergency” loans must stop. Consolidation of power in the hands of too few has gone on for too long and US democracy is imperiled. The federal government must appropriate money as needed; reinstitute a truly progressive tax code; effect upward middle-class wage pressure and, further, issue progressive “tax credits” to recapitalize the middle class and dilute the outsized profit shares that a tiny sliver of a slice has accorded itself. Until such time credit will remain tight, jobs will continue to vanish and the US middle class and all of its dependents will suffer by every measure.



Posted in Economics, Economy, Public Policy by equanimist on November 3, 2008

Imagine that! Giving money to people/municipalities/states who/that need it (the same who/that are most likely to spend it) and funding projects to improve our failing infrastructure may have the added benefit of increased liquidity. Indeed, as Mr. Nicolaci da Costa of Reuters has it, All stimulus plans are not created equal. Moreover, the affects of making the Bush tax cuts permanent and further corporate tax cuts (many corporations don’t pay taxes, by the way) will be minimal or regressive according to the EPI. So much for Voodoo economics.

OECD report on income inequality is released

Posted in Economics, Political Economy, Socioeconomy by equanimist on October 21, 2008

A newly released report from the Organisation for Economic Co-Operation and Development ranks the US third worst on a measure of income inequality ahead of Mexico and Turkey. Further, income inequality correlates with decreased social mobility, and it is projected that the failure of social programs to address the affects of the widening gap will have substantial negative socioeconomic affects for some time to come.

The full report is big bucks and rather long, but the press release can be accessed at the OECD here. A pdf version of the Trade Union Advisory Committee to the OECD summary has been posted courtesy of UNI here.

If you’ve got time, please, read it and pass it on.

Free Marketeering Is Contraindicated

Posted in Economics, Political Economy by equanimist on October 18, 2008

(Response to ‘Don’t Blame the “free market”’ by the Frugal Libertarian and Steven Horwitz’s Open Letter to My Friends on the Left)

A civil society (i.e., a socioeconomy in which authority is consolidated in stewardship, some portion of which legislate to effect order and minimize volatility – really a civil socioeconomy) is predicated on order. More civilized societies don’t necessarily have more laws, but more civilized societies are more highly ordered. Lawlessness is thus antithetical to civil society, so I shall not belabor the point.

Every civil economy presupposes a market within which reasonable people are willing to trade, an ordered market. To establish ordered markets within which reasonable people are willing to trade, trading partners must be convinced to trust that they will not be swindled (loosely defined, sold goods or services at some price above their worth).

If I am to take seriously advocates for a Free Market then I must assume that same define a Free Market as some minimally regulated market. US Capitalism may be (or those who regulate it may aspire to) just such a Free Market.

Federal, State and Local governments certainly have instituted myriad laws intended to establish the basic trust and even force fair dealing. These clearly proved inadequate. Still, that no law or laws prevented widespread abuse and malfeasance does not indicate utter deregulation (anarchy).

I have no confidence that either Sen. Obama or Sen. McCain will be able to effect policies that reestablish that trust. Neither do I expect that Congress people, whose job it is to craft legislation, will do so in the near term. The few qualified Senators and Representatives are simply outnumbered by idle bureaucrats, partisan hacks, ignoramuses and criminals. Howsoever, we must reestablish the basic trust. Should we fail every US citizen will bear responsibility for the failure.

So, I do not throw my hands up in frustration or rail against the man or any other counter-productive thing. Instead, I ask you, how can we re-inspire the basic trust?

Response to suggested capital injections to grease seized credit markets (Update 3)

Posted in Economics, Public Policy by equanimist on October 10, 2008

At rock bottom, the current crises are not the result of bad loans and predatory lending but irrational expectations.

Ambitious people wondered how they might get a little more of so-called “disposable income.” But, there wasn’t any left. To continue to realize growth beyond reasonable expectations [supported by greater real disposable income (higher real middle-class wages) and population growth] credit could be employed. Goods and services were sold on credit: cars, homes, flat screen televisions, mp3-players… People borrowed money to pay for those goods and services because they didn’t have enough money to buy them. They defaulted.

The current crisis began on teevees and in showrooms and open houses all around the world. Banks don’t need direct capital injections. To give banks direct capital injections (a last ditch effort to stave off the ugly prospect of distributing real power) is to attempt to eliminate the middle-class from participation in the economy. I submit to you, all such attempts to “fix” this mess will ultimately fail. The socioeconomy is a product of the whole no portion of which can be circumvented

The solution is simple: People need money to pay the banks. Give them actual cash that will last long enough to effect upward wage pressure. That’s the only way we’ll jump-start this economy. Sorry Mr. Buffet. Sorry Mr. Gates. You will be worth less or worthless. Pick.

In unrelated news, check out these articles at The Palins’ un-American activities and Meet Sarah Palin’s radical right-wing pals. I’m not entirely sure if they’re true, because I haven’t had time to research them, but, i’m finding confirmation elsewhere. Frightful confirmation of my worst fears.

Posted in Economics, Economy, Political Philosophy, Public Policy, Socioeconomy by equanimist on December 21, 2007