Category: Economy

Austerity costs Spanish Socialists power

I hope that Democrats learn from what just happened in Spain. Spain’s ruling Socialist Party – which I presume didn’t rule for eight years because of their conservative policies – was just voted out of power after presiding over cruel austerity measures enacted to appease bond vigilantes and ensure that bankers who lost bets not actually lose any money. To put it differently, the liberal party enacted conservative technocratic policies and were punished for it. Unfortunately, as we have now in the US, the alternative offered by the new power-holders is…more austerity!

David Dayen notes that the reason the EU didn’t step in to oust the ruling Socialist government in Spain was because the other side would deliver what they wanted: A-ha, now I see why the EU didn’t step in. The party out of power favored austerity! And since things are so bad in Spain, with nearly 20% unemployment, the party out of power, just by virtue of not being the party in power, was assured of victory, the EU could just sit back and let nature take its course.

When it’s convenient, the EU actually will let democracy run its course!

Austerity doesn’t work. It’s not politically popular. And presiding over brutal cuts that inflict pain on regular people will lead to political punishment by voters. And yet, this is the pathway the power brokers of the Democratic Party are pursuing.

NV AG indicts LPS & the prospects of the rule of law

Earlier this week Nevada Attorney General Catherine Cortez Masto indicted two mid-level employees of Lender Processing Services (LPS) for 606 counts of robosigning, specifically “directing fraudulent notarization and filing of foreclosure documents.” LPS is a major company hired by banks to process foreclosure documents and has been at the center of the robosigning scandal. LPS would allegedly help banks forge documents that were used to foreclose on homeowners in situations where the banks didn’t have any of the required documentation to prove that they had a right to foreclose.

The two employees under indictment are mid-level people, not CEOs and not people who in themselves represent an indictment of the entire industry response to the failure to properly track mortgage documentation during the securitization process. 600 counts likely represents at most a day of work for two robosigners and this is a crisis that has been going on fore years. At Naked Capitalism, Matt Stoller notes that, “These would be the only charges served involving the housing crisis and its link with the structurally corrupt securitization chain so far.” So even if nothing else comes from these indictments and Masto isn’t able to roll them up on their bosses, this is still an important moment for the rule of law as it relates to private property and the housing crisis. Stoller goes on:

At this point, Masto has gone further than any other official in terms of restoring some sort of social contract. And that’s saying something. Leadership can come from anywhere, especially when the corruption seems to be everywhere. And with California AG Kamala Harris putting immense pressure on Fannie/Freddie on foreclosures, it suggests the tide is turning on this issue somewhat.

Our essential economic problem is that our economy allocates resources through a mediating system of banks that are broken and/or corrupt. If you look at a chart of the recession, and then the recovery, you’ll notice that business investment perked up, but residential investment did not. The Fed lowered rates, bought Treasury bonds, and bought mortgage backed securities to lower rates for homeowners. But it’s not really working, because the monetary channel is corrupt. This indictment gets to that problem, it alleges tens of thousands of forged documents (or as a friend told me sarcastically, an afternoon’s worth of work for LPS). These documents represent foreclosures, economic loss, and clouded title. The indictments handed down, and the ones to come, show that corrupting our property laws and the basis of our economy is a crime.

This is incredibly important, since there just hasn’t been the sort of criminal investigation into robosigning and the way it has corroded the entire system of property ownership. With 11 million foreclosures already and quite possibly as many to come in the next few years, the impacts of robosigning are devastating. When a bank can’t prove they have a right to a particular property and hire a company like LPS to forge documents saying they do, and they are allowed to take someone’s home this way without punishment, there can be no functional expectation that any individual’s property is safe from theft. When the improperly foreclosed home is then eventually sold, that new owner will be taking over a property with unquestionably cloudy title.

Plenty of people have been saying robosigning is a criminal act for a long time now. Nevada AG Masto has now validated those people and confirmed that criminal behavior in connection to the housing crisis will not be tolerated, at least not in Nevada. There’s no reason why Attorneys General in every other state cannot do the same, nor is there a reason why the Department of Justice can’t hold people criminally responsible for illegal behavior during the housing crisis and continuing today.

Newt Gingrich earned $1.6m+ from Freddie Mac

Originally posted at AMERICAblog Elections: The Right’s Field

Rut-roh. Bloomberg is reporting that Newt Gingrich “made between $1.6 million and $1.8 million in consulting fees from two contracts with mortgage company Freddie Mac.” Gingrich worked with Freddie Mac from 1999 to 2002, as the housing bubble was beginning to rapidly expand.

What’s remarkable about this is that Gingrich viewed Freddie Mac as a vehicle for the Republican Party to gain support from the Hispanic community.

“I spent about three hours with him talking about the substance of the issues and the politics of the issues, and he really got it,” said Delk, adding that the two discussed “what the benefits are to communities, what the benefits could be for Republicans and particularly their relationship with Hispanics.”

This pretty strongly undercuts some of the political arguments waged by pro-bank Republicans who seek to blame the GSEs for inflating the housing bubble. Gingrich was pushing them to do it to help Republicans! It makes Gingrich’s call for Barney Frank to be jailed – instead of banksters – for the financial collapse even more insane.

And while Gingrich has claimed that he advised Freddie Mac that they were creating a housing bubble, Bloomberg reports, “None of the former Freddie Mac officials who spoke on condition of anonymity said Gingrich raised the issue of the housing bubble or was critical of Freddie Mac’s business model.”

Oh Newt, I have a feeling that it’s going to be fun having you near the top of the polls.

Banks still adding new fees to customers

Originally posted at AMERICAblog

There was a lot of rightful celebration when Bank of America and other major banks were forced to drop planned debit card fees following major protests from the Occupy Wall Street movement and other community groups. But, not shockingly, the major banks are still finding ways to squeeze money out of customers. The New York Times has a report at the more subtle ways banks are using to extract more wealth from the 99%. Citing the need to make up billions of dollars in lost overdraft penalties and swipe fees that were eliminated by Congress, banks are trying to make up the difference in other areas.

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

Even the much-maligned debit usage charges have effectively been bundled into higher monthly fees on checking accounts. Bank of America abandoned its $5 a month debit card usage fee in late October amid a firestorm of criticism. Yet, it more quietly raised the cost of its basic MyAccess checking account by more than $3 a month earlier this year. Monthly maintenance fees now run $12 a month, up from $8.95.

The Times’ report notes that Senators Dick Durbin and Jack Reed are pushing the Consumer Financial Protection Bureau to have banks “adopt a more consumer-friendly disclosure form, akin to the nutrition label on food packaging, for all the fees attached to a checking account.” This is a pretty good idea, in that it would make decision making by consumers easier. But the whole problem consumers are facing today is that they already have accounts with banks and the banks are changing the fee structure on them. While the Move Your Money campaign is a great start, it’s also clear that a complete banking shift isn’t the same thing as switching from Frosted Flakes to Cheerios.

Most importantly, what’s clear is that when you fight the big banks, you can win, but no win is final. Stopping the $5 debit card fee was a great victory for the Occupy movement and consumer advocates, but it’s hardly the whole war. Banks will keep trying to extract every penny possible from consumers in the absence of regulation which prevents them from doing it and regulators committed to enforcing the regulations. Consumers need to stay wary and consumer advocates have to keep fighting back against bank greed. As the banks continue to find new and innovative ways to screw their customers, credit unions will keep gaining customers as people stand up and say, “Enough!” To put it differently, the more banks abuse their customers, the more the market will speak and tell them that this is not a behavior consumers are interested in supporting.

Konczal on Obama, spending, & Klein’s apologia for economic failures

Mike Konczal has a good post looking at Ezra Klein’s recent apologia for President Obama’s stewardship of the economy. Konczal goes back to the President’s 2010 State of the Union speech:

It’s clear from the speech: President Obama announced the freeze and veto threat, and didn’t sound alarm bells, because he believed that the potential risks associated with not signaling to the bond market that deficit reduction was coming outweighed the reality of high unemployment and trying to expand the deficit immediately. 20+ million people not finding full-time work with certainty is bad, but just the possibility of the confidence fairy getting angry is far worse.This stands in for policy more generally, and it leads directly to all the failures of Grand Bargains and two-deficits cartwheels when it came to plans for dealing with the unemployment crisis. It splits the party between those who have to argue for bond vigilantes and those who have to argue against. The deficit hawkery negates the most powerful market indicator we have for what the government should do – the interest rate. This approach puts boundaries on the range of acceptable ideas on what can be done for the economy – and places getting stimulus out the door through discretionary spending, outside of Congress, out of bounds. And meanwhile current interest rates have never been lower – they are negative in real terms for 10 years out. This was exactly the wrong call to make in early 2010. [Emphasis added]

I think Konczal is exactly right in his critique of the 2010 State of the Union, and the policy decisions which followed from it.

But it’s not just that the President was wrong as we look back almost two years later. It’s that he was clearly wrong at the time. Plenty of people have been accurately describing the depth of the economic challenges facing us. Hell, Duncan Black has probably posted a couple hundred times over the last three years about the high unemployment, the lack of action, and the groundless fear of the bond vigilantes. The President and many of his advisers simply are not listening.

Bill Daley and post-partisanship

Jonathan Chait has a piece at NYMag.com looking at how White House Chief of Staff is being forced into a diminished role following less than a year on the job. Chait theorizes that this is because Daley pushed a governing framework that is unpopular.

the interesting legacy of Daley’s tenure is not his mechanical performance. It’s that he conducted an experiment based on the Washington elite view of the Obama presidency. That view, shared by business leaders, centrist pundits, and other elites, holds that Obama’s main problem has been excessive partisanship, liberalism in general, and hostility to business in particular. In December, 2009, Bill Daley wrote a Washington Post op-ed endorsing precisely this analysis. After the midterm elections, Obama – pelted by Daley-esque complaints – appointed Daley chief of staff. “His moderate views and Wall Street credentials make him an unexpected choice for a president who has railed against corporate irresponsibility,” reported the Post. Republicans like Mitch McConnell, Karl Rove, and FedEx CEO Fred Smithraved.

Daley, pursuing his theory, heavily courted business leaders. He made long-term deficit reduction a top priority, and spent hours with Republican leaders, meeting them three-quarters of the way in hopes of securing a deal that would demonstrate his centrism and bipartisanship. The effort failed completely.

The effort failed because Daley’s analysis — which is also the analysis of David Brooks and Michael Bloomberg — was fatally incorrect. Americans were not itching for Obama to make peace with corporate America. Americans are in an angry, populist mood — distrustful of government, but even more distrustful of business.

Chait goes on to provide numerical evidence that Americans are not looking for pro-business governance right now, nor are they looking for cooperation with the GOP. As a result, Chait says, Daley is being pushed out, his ideas disproved by the results.

This all may be true. Daley’s arrival in the White House certainly increased the Obama administration’s ties to Wall Street and major corporations. He also seems to have presided over a period of concerted attempts to work hand in hand with the Republican Congress. But it’s not as if the White House wasn’t already heavily partnered with big business and Wall Street. It’s not as if the Obama administration hadn’t already spent the better part of two years trying to pass bipartisan legislation, despite having congressional majorities that did not require this.

Moreover, while a Chief of Staff has serious influence over the course an administration’s political and policy actions, those decisions only move forward if the President is on board for those decisions. Daley’s crime doesn’t seem to be wrong in the eyes of the President about reaching out and doing work alongside business and Republicans. It’s that he actually failed to do it well. Throw in the mix that Daley had genuinely bad relationships with Democrats on the Hill and a penchant to give up too much information to both reporters and Republicans, and it seems clear that he just wasn’t an effective operative.

If Chait is right, we’ll see the President and his re-election campaign push for aggressive, populist, anti-Wall Street messaging. But I think it’s more likely that we see from Obama what we saw in 2008 and what we’ve seen almost without interruption since he assumed office: a desire to be a post-partisan president, to cast a pox on both Republican and Democratic houses for failure to get things done, and a refusal to criticize the Masters of the Universe who wrecked our economy and are still stealing peoples’ homes. In such a scenario it will become clear that Daley’s role wasn’t diminished because his worldview was proven incorrect and therefore ineffective; it will instead be clear that Daley lost stature because he didn’t get things done, period.

Chait is right that “Americans are in an angry, populist mood — distrustful of government, but even more distrustful of business.” But I don’t think that fact is going to dissuade President Obama and his staff that being soft on business, covering up Wall Street crime, and consistently producing Republican solutions to the problems we face is an incorrect course for the administration to be on.

Debt Forgiveness

Yesterday Robert Cruickshank had an excellent post proposing the idea of total forgiveness for all student loan debts. There is now over $1 trillion in student loan debt and it is bogging young workers down, preventing them from starting businesses or spending money that could otherwise help the economy grow. Total forgiveness of student loan debt would amount to a $1t stimulus and some of the people who are most in need of stimulus – young workers – would be the immediate beneficiaries.

Atrios goes a step further and calls for a complete debt jubilee. In fairness, he’s been calling for a helicopter cash drop for regular people for well over three years. He writes:

When the financial crisis first hit, one way or another all the banksters got a free money do over. It wasn’t quite as simple as Ben showering them with bags of cash, but essentially that’s what happened. The rest of us, including certain sovereign sates, just need a free money money do over as well. There’s no reason to continue with the endless crises.

This is one of the core points of the Occupy Wall Street movement – that the top 1% get an economy that works for them and a government that works for them in the event the economy stops working, while the other 99% get neither an economy nor a government that works for us. If it’s good enough for the banks and financial elites, it’s good enough for the other 99%, be it students or homeowners or working stiffs who had to use credit cards to pay health care bills.

We have the power to solve our crises and it’s high time that power is exercised.