August 11, 2007
Aid For Me, But Not For Thee
By Deborah Newell Tornello
from Tim Burton's The Nightmare Before Christmas.
It would seem that America's billionaires don't wear bootstraps. Or something:
Should the Federal Reserve help bail out billionaire hedge fund managers and millionaire traders — the very people who bought the risky mortgages that led to the current market panic?
That, in essence, is the question swirling around Ben S. Bernanke as he confronts the first crisis of his 18 months as Fed chairman.
There are no shortages of opinions, and some are being shouted. Jim Cramer, known for his histrionics on the CNBC financial news channel, angrily called for Mr. Bernanke to lower interest rates, something the Fed has resisted doing.
A week ago, Mr. Cramer charged that the Fed was “asleep” and that the chairman “has no idea how bad it is out there” in the markets. A video clip of his remarks has been viewed more than one million times on YouTube.
Lower interest rates would help operators of hedge funds and other money managers because the housing market presumably would strengthen as mortgage rates fell. A revived mortgage market would give the hedge fund operators and other holders of the risky securities a chance to sell them, which they are having trouble doing now in the current nervous market.
But others see a bigger danger for the economy in acting on the pleas of Mr. Cramer and others on Wall Street. Cutting interest rates to help the hedge funds would tend to encourage a resurgence of the very risky mortgage lending that has caused the current turmoil, rekindling the crisis.
The issue is often referred to as “moral hazard,” meaning that the risk-takers who brought on this panic would feel bailed out and would be more likely do it again — just as a young adult whose parents paid off a large credit card bill might feel free to run up a debt again.
“The argument is people did risky things,” said Jan Hatzius, the chief domestic economist at Goldman Sachs. “They are getting punished now, and if you ease interest rates, you reduce the punishment.”
Would that I could muster a mild amount of shock, or even surprise, that our "conservative" friends continue to serve up such laughably obvious hypocrisy, but no. I can't summarize it any better than does my friend Lisa in Baltimore, who writes:
Oh, I love this. The same people who are always yammering about "the market" and so-called "free-market capitalism" and the nasty "welfare state," and "pull yourself up by your bootstraps" and "no hand-outs" and "get the government out of my life" and "government is evil" blah blah blah--the very ones who brought us this disaster in the White House--now they want the federal government to bail them out. What a bunch of f***ing hypocrites. But of course the evil government WILL bail them out, just like we bailed out Chrysler, just like we bailed out the airlines, just like we bailed out Halliburton, just like we bail out billion-dollar corporations all the time, in so many ways. But conservatives don't like that pointed out to them.
Tsk tsk. An inconvenient truth indeed.
UPDATE: Economics and finance professor Dark Wraith analyzes the present situation; his disdain for the Bushian scourge of fiscal irresponsibility never disappoints:
Forget for a moment that what the Fed is doing is trying to inflate away a market crash. For the time being, we should hope only that the central bank and its friends around the world are ready to blow $40 billion every trading day to keep the welfare train on track for the Wall Street boys. It's a win-win situation: the fatcats keep their money, the suckers take the losses, the Bush Administration keeps its hero status for the rich, and the Fed maintains its reputation as both the enabler and the drug dealer for all the liquidity addicts and their conjoined Republican incompetents.
February 26, 2007
Dispatches From The Conehead Economy
According to a new analysis of the 2005 Census Data, the number of severely poor Americans shot up by 26 percent between 2000 and 2005, growing 56 percent faster than the overall poverty population did during the same period. That's worrisome: we're not just seeing an increase in poverty, we're seeing an increase in severe poverty, to the highest rate since 1975. And this is all coming at the tail end of a fairly robust -- at least if you believe the macroeconomic numbers -- expansionary period.
Indeed, this has been the first expansion in which poverty has increased in every successive year (I haven't seen the data for 2006 yet). That's a fairly remarkable trend, and a real break with how our economy traditionally worked. Periods of growth used to aid every element of society, but we've become so unequal that even multiyear expansions will peter out before they reach the bottom segments of society. Meanwhile, the Luxembourg Income Study found that America has the highest child poverty rate of any of the 31 developed nations studied. As the wise Ms. Goodrich says, "that is one international competition the U.S. probably doesn't want to win." If only we weren't so damn competitive.
November 05, 2006
Here's one for the Big Government files: Under Clinton, cross-county markers of inequality saw inequality increases driven by tech booms in discrete portions of the economy. Under Bush, the tech effect has largely vanished, only to be replaced by defense contracts, which have vastly enriched various counties in the greater DC area. So we've seen the redistributionist effect that liberals are always promising national investment strategies (say, the Apollo Project) will bring, but it's all been to make missiles, and all gone, quietly and unaccountably, to areas that may or may not have needed it. Someone give me a good reason we shouldn't be doing the same, save in a more transparent and targeted manner, for renewable energy. Someone promise me the right won't complain about such schemes -- as they haven't about the under-the-radar wealth transfer to arms producers -- when we try.
November 24, 2005
Down With Agribusiness! (Happy Thanksgiving)
Leave it to me to attack a sector of the American economy on exactly the day that we engage in massive ritual consumption of its output, but wouldn't it be nice if we could beat up on agribusiness more? The number of bad things those guys do is pretty tremendous -- dumping pesticides all over the place, destroying the soil through bad crop rotation, occasionally cheating immigrant workers out of their wages, raiding the treasury, adding to fossil fuel dependence through petrochemical fertilizer use, and worst of all, impoverishing Third World farmers who can't compete with our government-subsidized agriculture. Different but similarly huge problems are caused by factory farming of animals -- I heartily recommend The Meatrix to anyone who wants to learn about this stuff in a very enjoyable way.
I was talking with West Texas native Amanda Marcotte last week, and she explained that there's still ranchers out there who take care of their land and do things very differently from the big agribusiness corporations. The yuppie/hippie types whom ranchers might regard as their cultural opposites are buying their organic produce and helping them make a living. I'm pretty much the last person to go to on the demographics of rural America, so I don't know if there are enough of these people to constitute a serious voting bloc, but I'm excited at the prospect of going after the family farmer / rancher vote by offering to change the criteria for farm subsidy payments.
If farmers earned their subsidies through environmentally sensitive farming practices, we'd be in a much better situation. Cheaper organic produce and free range meat probably wouldn't wreak havoc on the Third World farm economy, since those products would still be pretty expensive even after subsidies. In addition, we'd get all the obvious benefits of sustainable agriculture instead of paying farmers to grow way more stuff than they need to. (Replace subsidies for good environmental management with animal welfare laws stipulating that chickens shouldn't be in cages too small for them to turn spread their wings or turn around, and you've got a plan to win the votes of free-range chicken farmers. Sadly, the latter plan is far more politically dubious, as there's a lot of work to do before people are willing to think seriously about the cruelty of factory farming. But maybe in a few decades...)
This probably isn't a voting issue for anyone besides small farmers, environmentalists, and maybe the odd liberal economist, but as a matter of general Democratic positioning it's the kind of thing I'd like to see our party doing. Family farmers are a much more endearing constituency than agribusiness, and people who like to think of themselves as ordinary folks would be attracted to a party that defended the family farmer from big corporations.
October 02, 2005
I Don't Wanna Go Down to the Basement ...
By Pepper of the Daily Pepper
I don't want to live in my parents' basement.
It's a nice basement, and it's where they keep the liquor and the stereo. But I still have no plans to live there. And my parents, as cool as they are, certainly don't want me down there.
Due to the dip in consumer confidence, an economic outlook growing bleaker by the day, rising health-care costs, and a government completely unwilling to roll back tax cuts, I have a funny feeling that the world is conspiring to put me in the basement. Most conservatives probably fantasize about all children winding up in their parents' basements maxing out their credit cards. Charge it, baby!
Why? A few notes from an article I read in the San Francisco Chronicle:
To get by, people work more than one job or amass credit card debt, couples work day and night shifts to avoid having to pay for child care, and adult children move back in with their parents, according to interviews with policy experts and workers.
In the Bay Area ... a single adult needs to make $27,901 a year or $13.41 an hour to cover those expenses. A single parent with two children needs $62,969 a year or $30.27 an hour. And a single wage earner in a family where the other parent stays home -- and provides child care -- would have to make $55,740 or $26.80 an hour.
I'm actually okay. I have a job, no kids, and no car. Even savings, which makes me one of the few people I know who can say that. But I realize that I am one bad business cycle or one accident or one illness away from trouble. In fact, I got to thinking about it after Shakespeare's Sister's rough week. (Have you sent her some love yet? You should.)
I can hear someone say, "I have an easy solution for you. Why don't you move out of the Bay Area?" Maybe some people don't want to leave their families. Maybe some people realize that in other parts of the nation they can't find jobs that suit their skills.
Plus, no matter where you are, people will still think it's somehow "your fault" that you're having money trouble. It may be true in some cases, but certainly not all of them. Yet this myth has become convenient for the new-model Republicans currently running the nation.
Lance Mannion was talking about Rich Lowry's knee-jerk reaction to Katrina victims, and Lance addresses the overall perception of poverty in the United States:
The poor are poor because of their own bad character, goes the chorus, of course, but the verse is like this: Liberal government programs encourage, foster, and make virtues out of the vices that keep the poor poor. You know, because not letting their children starve, not leaving them to attend rotten schools, not letting the old and young die of treatable diseases, not forcing them to live in squalid housing, all that just makes them lazy and dependent and (shhhh) shiftless.
The point is that even if you are an angel, you still might end up broke. Our conservative elected officials preach that they don't want anyone dependent on the government. Heaven forbid we be "shiftless."
However, their policies force those who must work for a living - like myself - to be dependent on someone, whether it be the company they work for or their parents. I understand that business is what makes the world go round, but there is no independence without economic independence. If the average American doesn't have the resources to stand on their own two feet, they are beholden to the whims of their employers. They have no real rights. They can't say anything for fear of losing their jobs. And that's where the desperation kicks in.
Conservatives like Rich Lowry gripe about people robbing and stealing and generally not being able to control themselves. Well, they've seen what it gets you to be good - not much more security than being bad. You get the basement if you're lucky.
June 09, 2005
The Incredible Shrinking Deficit
On the subject of government revenues, it looks like this year's deficit won't be as bad as projected, clocking in at $350 billion rather than $427 billion. Good stuff, and the administration will surely tout it as a God-given sign that their agenda is a blessed one, and their fiscal policy wise. But let's not relax yet:
the nation still faces long-term deficit problems. Overall federal spending is increasing, including for war costs. More broadly, spiraling health-care costs for Medicare and Medicaid programs, including a prescription-drug benefit for seniors starting next year and a wave of baby-boomer retirements after 2008, will drive federal deficits to unsustainable sizes.
"These are the good ol' days. These are the best of times," says Congressional Budget Office Director Douglas Holtz-Eakin, a former administration economic adviser. "After this, it gets worse."
The WSJ has a graphical representation of this that's pretty stark:
So, sorry kids, smaller deficit or not, we're still going to have to raise those revenues. And, on an ironic note, much of the narrowed deficit comes from the administration counting Social Security surpluses up until 2017. So you can argue whether or not that program's in bad shape till you turn blue in the face, but what does it say about our fiscal picture that the program remains a rare bright spot our economy?
May 29, 2005
Home, Home Out of Range
The LA Times has a great article on the housing bubble, and its stubborn unwillingness to pop, this morning. In it, they talk to a bunch of economists who've been predicting a crash for years now, only to see their best models and most educated guesses foiled by the market's relentless upward momentum. Best quote comes from Dean Baker, who you all remember from the Social Security wars. He writes:
A year ago, Baker was so sure the collapse was at hand that he sold his Washington condo, which had tripled in value in the seven years he owned it. He moved two blocks away into a rental and wrote another article warning that "the crash of the housing market will not be pretty."
He pointed out that housing prices traditionally didn't rise faster than inflation, but that on the coasts the price jumps were exceeding that level by double digits. He dismissed the argument that prices were increasing because of immigration, or the scarcity of land or the demographics of the baby boomers.
Despite this excellent list of reasons, the crash stubbornly refused to happen.
"It's kind of troubling, like you were a physicist studying the laws of motion and you see an object that ignores gravity," Baker acknowledged.
That seems about right. But the fact is the housing market simply can't sustain itself long-term because most folks can't pay the prices being asked. What you've been seeing is a lot of trading: person A's $350,000 home shoots up to $500,000, so he sells it, borrows/liquidates $100,000, and moves into a new $600,000 place. The owner of that place does the same thing, moving into an $800,000 place. And so it goes, both up and down the food chain.
But the reality remains that wages just aren't growing this fast, they're barely keeping up with inflation (indeed, last quarter, they didn't), while housing prices are racing past them both. So the only real way for people to buy these homes is to cash in on places they already own, liquidate assets, or borrow. That'll sort of horizontal motion will keep the market moving for a bit, but long-term it's not sustainable. Sooner or later, the market will slow to accommodate new buyers rather than seller and traders; the only question is whether, in doing so, it busts or it rusts.
Moving to policy on this, the government is going to have some culpability for the ensuing pain. Read Ben Wallace-Wells' excellent piece on Alan Greenspan's attempts to sustain the recovery by exposing home buyers to risk and ruin. Important stuff.
May 28, 2005
The People's Debt
I thought I might chase The Ethical Werewolf's notes on The People's Money with a snapshot of The People's Debt. I've been following this story for several months, and I've noticed that it doesn't get much air time. The essence is simple. Assume the Republican Party makes all of its recent regressive tax changes permanent (but does not go farther down that path) and then only increases discretionary spending with GDP (by among other things, not debt-financing colonial adventurism). By 2040, almost every penny that the Federal Government takes in goes just to pay the interest on the national debt. For those who are curious about what that looks like, there's a chart below the fold.
That's not my opinion. That's the opinion of the General Accounting Office, based on a middle-of-the-road set of assumptions. And yet, the Republican Party talking points are that Social Security is bankrupt because in 2042, the Social Security Trust Fund will be depleted, and the amount of money then coming in earmarked for Social Security will only be enough to pay between 70% and 80% of the then-scheduled payments (again, based on a middle-of-the-road set of assumptions).
If the Republicans can't tell the difference between these two situations (and apparently, they can't, or they'd be far more worried about the General Fund than Social Security), they really shouldn't be trusted with the The People's Money to run the government. Frankly, The People should probably think twice about whether the Republicans can even be trusted with The People's Ten-spot to buy The People a six-pack at Circle K.
May 11, 2005
Our Government in a Nutshell
John Cole's got more on United's liquidation of its pensions. The story, amazingly, gets worse. While the Bankruptcy Bill was steamrolling through Congress, Dick Durbin offered an amendment that would've "protect[ed] employees and retirees from the common corporate practice of discharging liability for retirement plans, retained earnings and matching funds when businesses file Chapter 11." This is really, if you think about it, quite amazing. The Bankruptcy Bill made it harder for individuals to declare and survive bankruptcy. Durbin offered an amendment that would've forced corporations, when they were declaring bankruptcy, to fulfill their stated financial obligations to their employees. These financial obligations are retirement plans, matching funds, and so forth. They are, in other words, the exact same long-term assets that are supposed to keep hard-working Americans out of bankruptcy court!
If you want to know who our government is working for, you need look no further than this. Republicans rammed through a bill that made declaring bankruptcy harder on individuals while rejecting amendments that would've helped ensure Americans employed by struggling firms don't lose their financial base and thus have to declare bankruptcy. So the bill made it harder for individuals to declare bankruptcy, but easier for corporations to drive them to that point. Brilliant.
April 23, 2005
Showing Deficits Some Love
The latest Democracy Corps poll found:
Requiring Congress to forego a pay raise in any year the government runs a deficit or raids the Social Security trust fund, and requiring that any future benefit cuts to Social Security should apply to congressional pensions as well.
Matt doesn't like the idea because civil servant salaries are tied to congressional salaries, and this'd hurt them too. But if we can reformulate how salaries are calculated so this'd only hurt congresscritters, Matt says we should give the people the "wacky populism" that they want.
I disagree. It's all well and good to nail Bush for his huge and irresponsible deficits now, but Democrats really shouldn't be in the business of making moderate deficit spending impossible, or at least really, really unlikely. Fact is, we're the social program folks, and once this weird administration with its big-budget conservatism heads back to Crawford, and once our fiscal house is put in a bit better order, there are going to be times when we need to bust the bank in order to fulfill social ends. There are times, after all, when a bit of deficit spending isn't a bad thing.
Now, a deficit that's almost 6% of GDP is a Very Bad Thing indeed, and a proposal like the one above that withheld pay raises when the deficit exceeded, say, 4% of GDP, might be a decent idea. But we really don't want to make a bit of deficit spending against the interests of Congress. Sometimes you need counter-cyclical spending. Sometimes you need a bit of borrowing to make sure entitlements and programs helping those hit by an economic downturn aren't sliced up. Because when the economy goes into recession, government takes in less money. In order to fulfill its entitlement and spending obligations, it runs a deficit. If Congress is dead set against doing so, it's the poor who're going to feel the bite, as health spending and unemployment benefits and other social programs take the hit to make up for the lost revenues. And that's something no Democrat should support.
P.S -- Dan and Battle Panda are rocking the house, huh?
P.P.S -- Happy -- or at least poignant -- Passover!