Financial elite have no shame February 7, 2009Posted by rogerhollander in Canada, Economic Crisis.
Tags: $700 billion bailout, bailout, canada economic crisis, canada politics, deregulation, Economic Crisis, financial degregulation, financial elite, Goldman Sachs, government spending, harper government, Henry Paulson, linda mcquaig, predatory lending, reagan, roger hollander, Stephen Harper, stimulus package, subprime mortgages, unions, Wall Street
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Let’s imagine, for a moment, how different the public debate would be today if it had been unions that had caused the current economic turmoil.
In other words, try to imagine a scenario in which union leaders – not financial managers – were the ones whose reckless behaviour had driven a number of Wall Street firms into bankruptcy and in the process triggered a worldwide recession.
Needless to say, it’s hard to imagine a labour leader being appointed to oversee a bailout of unions the way former Goldman Sachs CEO Henry Paulson was put in charge of supervising the $700 billion bailout of his former Wall Street colleagues.
My point is simply to note how odd it is that the financial community has emerged so unscathed, despite its central role in the collapse that has brought havoc to the world economy.
Of course, not all members of the financial community were involved in Wall Street’s wildly irresponsible practices of bundling mortgages into securities and trading credit default swaps. But the financial community as a whole, on both sides of the border, certainly pushed hard to put in place an agenda of small government, in which financial markets largely regulated themselves and citizens (particularly high-income investors) would be spared the burden of paying much tax.
The agenda advanced much further in the U.S., but had an impact in Canada, particularly on the tax front.
One would think that those who pushed this agenda so enthusiastically would, at the very least, be a tad embarrassed today.
But so influential are those in the financial elite – and their hangers-on in think-tanks and economics departments – that they continue to appear on our TV screens, confidently providing us with economic advice, as if they’d played no role whatsoever in shaping our economic system for the past quarter century.
Of course, we’re told there’s been a major change in their thinking, in that many of them are now willing to accept large deficits in today’s federal budget, in the name of stimulating the economy.
While this does seem like a sharp departure from the deficit hysteria of the 1990s, a closer look reveals the change may not be that significant.
In fact, financial types have always accepted deficits – when they liked the cause. Hence their lack of protest over George W. Bush’s enormous deficits, which were caused by his large tax cuts for the rich and his extravagant foreign wars.
What they don’t like is governments going into deficit to help ordinary citizens – either by creating jobs or providing much unemployment relief.
So the Canadian financial community has been urging that the stimulus package consist mostly of income tax cuts – even though direct government spending would provide much more stimulus and do more to help the neediest.
If the Harper government follows the financial community’s advice, we will simply move further along with the small government revolution launched by Ronald Reagan in the early 1980s.
Of course, tax cuts are not the same as financial deregulation. But they are twin prongs of a bundled package aimed at reducing the power of government to operate in the public interest.
Surely it’s time to rethink this resistance to government acting as an agent of the common good.
And maybe it’s time for a little humility on the part of a financial elite that long has enjoyed such deference while turning out to be so spectacularly inept.
Linda McQuaig’s column appears every other week. email@example.com
Workers Laid Off, Executives Paid Off, Bernard Madoff December 16, 2008Posted by rogerhollander in Economic Crisis, Labor.
Tags: $700 billion bailout, amy goodman, bank of america, Barack Obama, denis moynihan, enron, executive bonuses, George Bush, Goldman Sachs, jobless, labor, labour, Lehman Brothers, madoff, Merrill Lynch, nasdaq, paulson, pelosi, ponzi, pyramid, roger hollander, sec, severnce pay, tarp, taxpayers, treasury, unemployment, Wall Street, workers
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Posted on Dec 16, 2008, www.truthdig.com
By Amy Goodman
The global financial crisis deepens, with more than 10 million in the U.S. out of work, according to the Department of Labor. Unemployment hit 6.7 percent in November. Add the 7.3 million “involuntary part-time workers,” who want to work full time but can’t find such a job. Jobless claims have reached a 26-year high, while 30 states reportedly face potential shortfalls in their unemployment-insurance pools. The stunning failure of regulators like the Securities and Exchange Commission was again highlighted, as former NASDAQ head Bernard Madoff (you got it, pronounced “made off”) was arrested for allegedly running the world’s largest criminal pyramid scheme, with losses expected to be $50 billion, dwarfing those from the Enron scandal. The picture is grim—unless, that is, you are a corporate executive.
The $700-billion financial bailout package, TARP (Troubled Assets Relief Program), was supposed to mandate the elimination of exorbitant executive compensation and “golden parachutes.” As U.S. taxpayers pony up their hard-earned dollars, highflying executives and corporate boards are now considering whether to give themselves multimillion-dollar bonuses.
According to The Washington Post, the specific language in the TARP law that forbade such payouts was changed at the last minute, with a small but significant one-sentence edit made by the Bush administration. The Post reported, “The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction.”
Read the fine print. Of the TARP bailout funds to be disbursed, only those that were technically spent “in an auction” would carry limits on executive pay. But Treasury Secretary Henry Paulson and his former Goldman Sachs colleague Neel Kashkari (yes, pronounced “cash carry”), who is running the program, aren’t inclined to spend the funds in auctions. They prefer their Capital Purchase Program, handing over cash directly. Recall Paulson’s curriculum vitae: He began as a special assistant to John Ehrlichman in the Nixon White House and then went on to work for a quarter-century at Goldman Sachs, one of the largest recipients of bailout funds and chief competitor to Lehman Brothers, the firm that Paulson let fail.
The Government Accountability Office issued a report on TARP Dec. 10, expressing concerns about the lack of oversight of the companies receiving bailout funds. The report states that “without a strong oversight and monitoring function, Treasury’s ability to ensure an appropriate level of accountability and transparency will be limited.” The nonprofit news organization ProPublica has been tracking the bailout program, reporting details that remain shrouded by the Treasury Department. As of Tuesday, 202 institutions had obtained bailout funds totaling close to $250 billion.
House Speaker Nancy Pelosi said recently, “The Treasury Department’s implementation of the TARP is insufficiently transparent and is not accountable to American taxpayers.” Barney Frank, D-Mass., chair of the House Financial Services Committee, said earlier, “Use of these funds … for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. … is a violation of the terms of the act.”
Republican Sen. Charles Grassley of Iowa said of the loophole, “The flimsy executive-compensation restrictions in the original bill are now all but gone.” Put aside for the moment that these three all voted for the legislation. The law clearly needs to be corrected before additional funds are granted.
The sums these titans of Wall Street are walking away with are staggering. In their annual “Executive Excess” report, the groups United for a Fair Economy and the Institute for Policy Studies reported 2007 compensation for Lloyd Blankfein, CEO of Goldman Sachs (Paulson’s replacement), at $54 million and that of John Thain, CEO of Merrill Lynch, at a whopping $83 million. Merrill has since been sold to Bank of America, after losing more than $11 billion this year—yet Thain still wants a $10-million bonus.
Paulson, Kashkari and their boss, President George W. Bush, might not be the best people to spend the next $350-billion tranche of U.S. taxpayer money, with just weeks to go before the new Congress convenes Jan. 6 and Barack Obama assumes the presidency Jan. 20. As Watergate leaker Deep Throat was said to have told Bob Woodward, back when Paulson was just starting out, “Follow the money.” The U.S. populace, its representatives in Congress and the new Obama administration need to follow the money, close the executive-pay loophole and demand accountability from the banks that the public has bailed out.
Denis Moynihan contributed research to this column.
Amy Goodman is the host of “Democracy Now!,” a daily international TV/radio news hour airing on more than 700 stations in North America.
© 2008 Amy Goodman
Distributed by King Features Syndicate
Lawmakers Critique Treasury Department’s Handling of Bailout November 14, 2008Posted by rogerhollander in Economic Crisis.
Tags: $700 billion bailout, $700 million Wall Street bailout, bailout and taxpayers, Congress and Bailout, Dennis Kucinich, Fannie Mae, Freddie Mac, Henry Paulson, home foreclosures, roger hollander, treasury department
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Friday 14 November 2008, www.truthout.org
by: Phil Mattingly, CQ Politics
US Rep. Dennis Kucinich charged that Treasury Secretary Henry M. Paulson Jr. “rendered obsolete entire sections” of the law when he formally announced this week that the department was sidelining a plan to purchase mortgage-backed securities and other troubled assets in favor of other measures. (Photo: The Washington Times)
Lawmakers continued to lash the Treasury Department on Friday for abandoning a centerpiece of the bailout plan it pitched to Congress and for failing to rein in lavish executive pay at AIG and other corporate beneficiaries of federal aid.
Republicans and Democrats on a House Government Oversight and Reform panel criticized Treasury’s handling of the crisis at a hearing on the $700 billion rescue program (PL 110-343) Congress approved last month.
Treasury Secretary Henry M. Paulson Jr. “rendered obsolete entire sections” of the law when he formally announced this week that the department was sidelining a plan to purchase mortgage-backed securities and other troubled assets in favor of other measures, domestic policy subcommittee Chairman Dennis J. Kucinich, D-Ohio, charged.
The asset purchases were thought to be the cornerstone of the program when Congress cleared it on Oct. 3. But Treasury soon turned its attention to making a direct federal investment in banks, saying such a move would more quickly ease the nation’s credit crunch.
While most lawmakers either voiced support for Treasury’s shift in focus or said nothing about it for weeks, Paulson’s announcement has triggered widespread second guessing on Capitol Hill. Lawmakers have also been urging the Bush administration to be more aggressive in helping homeowners renegotiate troubled mortgages, saying the housing crisis remains a key component of the country’s larger economic woes.
”Treasury, by taking this action that de-emphasizes loan modifications, has essentially sent a signal to banks that this is not something you care about,” Kucinich, who voted against the bailout legislation, complained to Neel Kashkari, the Treasury undersecretary for financial stability.
Kashkari reiterated Paulson’s concerns about the spending nature of the program during testimony in front of a House Oversight and Government Reform subcommittee on Friday.
But, Kashkari said, Paulson “thinks it’s a very interesting idea” that “Congress should look at and consider.”
”We are using all of the tools available to the federal government to try to solve the credit crisis and help homeowners,” he told the subcommittee. “We worked very hard with members of Congress to design the program with maximum flexibility.”
Kashkari said the rate of mortgage modifications had tripled in the past year. A loan modification program announced this week at mortgage finance giants Fannie Mae and Freddie Mac also established a standard for the industry to follow, he said.
”It’s not going to be perfect, but we’re taking aggressive action,” Kashkari testified.
The law also directs other federal agencies to work on averting home foreclosures, he noted.
Rep. Darrell Issa of California, the panel’s top Republican, accused Treasury of “playing a bait-and-switch game.” Issa also voted against the bailout plan.
But supporters of the plan on the panel didn’t spare Kashkari. Citing a Washington Post report that insurance giant AIG intends to pay its top executives $503 million in deferred compensation, Rep. Elijah E. Cummings , D-Md., said AIG “just doesn’t get it.”
Cummings told Kashkari his constituents “feel like it’s ring-around-the-rosy. They hear nice talk [from Treasury], but they’re still being put out of their houses.”
A Quiet Windfall for US Banks November 11, 2008Posted by rogerhollander in Economic Crisis.
Tags: $700 billion bailout, $700 Billion Wall Street Bailout, bank takeovers, Bush bailout, corporate giveaway, Economic Crisis, PNC National City, roger hollander, tax law, tax shelters, Treasury Secretary Henry M. Paulson Jr., US Banks, US Treasury Department, Wells Fargo
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Monday 10 November 2008
by: Amit R. Paley, The Washington Post
Treasury Secretary Henry Paulson. (Photo: Reuters)
The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
”Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.
The change to Section 382 of the tax code – a provision that limited a kind of tax shelter arising in corporate mergers – came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.
Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. “This is part of our overall effort to provide relief,” he said.
The Treasury itself did not estimate how much the tax change would cost, DeSouza said.
A Tax Law “Shock”
The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury’s work seemed focused almost exclusively on the bailout.
”It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops,” said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. “I’ve been in tax law for 20 years, and I’ve never seen anything like this.”
More than a dozen tax lawyers interviewed for this story – including several representing banks that stand to reap billions from the change – said the Treasury had no authority to issue the notice.
Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to “carry out the purposes of this section.”
Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes.
Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.
But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world.
”This has never been a good economic policy,” said Kenneth W. Gideon, an assistant Treasury secretary for tax policy under President George H.W. Bush and now a partner at Skadden, Arps, Slate, Meagher & Flom, a law firm that represents banks.
The opposition to Section 382 is part of a broader ideological battle over how the tax code deals with a company’s losses. Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.
During the current Bush administration, senior officials considered ways to implement some version of the policy. A Treasury paper in December 2007 – issued under the names of Eric Solomon, the top tax policy official in the department, and his deputy, Robert Carroll – criticized limits on the use of losses and suggested that they be relaxed. A logical extension of that argument would be an overhaul of 382, according to Carroll, who left his position as deputy assistant secretary in the Treasury’s office of tax policy earlier this year.
Yet lobbyists trying to modify the obscure section found that they could get no traction in Congress or with the Treasury.
”It’s really been the third rail of tax policy to touch 382,” said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.
“The Wells Fargo Ruling”
As turmoil swept financial markets, banking officials stepped up their efforts to change the law.
Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country’s largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort. Lobbyists for the biotechnology industry also raised concerns about the provision at an April meeting with Solomon, the assistant secretary for tax policy, according to talking points prepared for the session.
DeSouza, the Treasury spokesman, said department officials in August began internal discussions about the tax change. “We received absolutely no requests from any bank or financial institution to do this,” he said.
Although the department’s action was prompted by spreading troubles in the financial markets, Carroll said, it was consistent with what the Treasury had deemed in the December report to be good tax policy.
The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.
The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.
The Jones Day law firm said the tax change, which some analysts soon dubbed “the Wells Fargo Ruling,” could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.
The tax world, meanwhile, was rushing to figure out the full impact of the notice and who was responsible for the change.
Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.
Over the next month, two more bank mergers took place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank, Willens said. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said. A spokesman for PNC said Willens’s estimate was too high but declined to provide an alternate one; Santander declined to comment.
Attorneys representing banks celebrated the notice. The week after it was issued, former Treasury officials now in private practice met with Solomon, the department’s top tax policy official. They asked him to relax the limitations on banks even further, so that foreign banks could benefit from the tax break, too.
Congress Looks for Answers
No one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.
DeSouza, the Treasury spokesman, said Congress is not normally consulted about administrative guidance.
Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.
In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.
But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.
”We’re all nervous about saying that this was illegal because of our fears about the marketplace,” said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. “To the extent we want to try to publicly stop this, we’re going to be gumming up some important deals.”
Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal. “Congress wants to help,” Grassley said. “We also have a responsibility to make sure power isn’t abused and that the sensibilities of Main Street aren’t left in the dust as Treasury works to inject remedies into the financial system.”
Carol Guthrie, spokeswoman for the Democrats on the Finance Committee, said it is in frequent contact with the Treasury about the financial rescue efforts, including how it exercises authority over tax policy.
Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely.
But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.
”None of us wants to be blamed for ruining these mergers and creating a new Great Depression,” one said.
Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.
”It’s just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system,” said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. “We’re left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?”
Questions on the Heels of an Historic Victory November 11, 2008Posted by rogerhollander in U.S. Election 2008.
Tags: $700 billion bailout, $700 Billion Wall Street Bailout, Afghanistan War, Barack Obama, Colin Powell, Condoleezza Rice, Dwight Eisenhower, Iraq occupation, Iraq war, McCain Palin, military industrial complex, Palin Vice President, roger hollander, white voters
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What if the first Afro-American President of the United States were Colin Powell? Would we celebrate as we have for Obama? How about Condoleezza Rice???
What if Palin had become the first woman Vice-President of the United States? Would there have been cause to celebrate?
What significance that, according to exit polls, the vote amongst American Whites was 54%-45% in favor of McCain/Palin? Did the quality of their campaign merit such support?
Is the will of the American voting public with respect to terminating the U.S. occupation of Iraq going to be frustrated this time around as it was in 2006?
Will Obama’s commitment to escalate the war in Afghanistan have the same result as it had for the Russians?
Barack Obama was born a year after Dwight David Eisenhower warned us about the “Military Industrial Complex.” Do you think President-elect Obama is aware of the concept (not to mention the reality)?
Will the $700 Billion still go to the banks, other financial institutions and corporations, or will some of it trickle down to people in need of homes and jobs?
Paulson’s Swindle Revealed November 2, 2008Posted by rogerhollander in Economic Crisis.
Tags: $700 billion bailout, $700 million Wall Street bailout, bank bailout, Congress and Bailout, Goldman Sachs, Henry Paulson, Paulson and bailout, Paulson Goldman Sachs, Paulson swindle, Treasury Secretary Paulson, United Steelworkers, Warren Buffett Goldman Sachs
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Wednesday 29 October 2008
by: William Greider, The Nation
A protester in front of the New York Stock Exchange. The United Steelworkers conducted its own financial analysis of the $700 billion bailout and concluded, in a letter to Secretary Paulson, that the bailout constituted a $350 billion gift from the American taxpayers. (Photo: Getty Images)
The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson’s transaction, the taxpayers were taken for a ride – a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public’s money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.
These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson’s bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?
Leo W. Gerard, president of the United Steelworkers, raised these explosive questions in a stinging letter sent to Paulson this week. The union did what any private investor would do. Its finance experts vetted the terms of the bailout investment and calculated the real value of what Treasury bought with the public’s money. In the case of Goldman Sachs, the analysis could conveniently rely on a comparable sale twenty days earlier. Billionaire Warren Buffett invested $5 billion in Goldman Sachs and bought the same types of securities – preferred stock and warrants to purchase common stock in the future. Only Buffett’s preferred shares pay a 10 percent dividend, while the public gets only 5 percent. Dollar for dollar, Buffett “received at least seven and perhaps up to 14 times more warrants than Treasury did and his warrants have more favorable terms,” Gerard pointed out.
”I am sure that someone at Treasury saw the terms of Buffett’s investment,” the union president wrote. “In fact, my suspicion is that you studied it pretty closely and knew exactly what you were doing. The 50-50 deal – 50 percent invested and 50 percent as a gift – is quite consistent with the Republican version of spread-the-wealth-around philosophy.”
The Steelworkers’ close analysis was done by Ron W. Bloom, director of the union’s corporate research and a Wall Street veteran himself who worked at Larzard Freres, the investment house. Bloom applied standard valuation techniques to establish the market price Buffett paid per share compared to Treasury’s price. “The analysis is based on the assumption that Warren Buffett is an intelligent third party investor who paid no more for his investment than he had to,” Bloom’s report explained. “It also assumes that Gold Sachs’ job is to protect its existing shareholders so that it extracted from Mr. Buffett the most that it could…. Further, it is assumed that Henry Paulson is likewise an intelligent man and that if he paid any more than Mr. Buffett – if he paid $1 for something for which Mr. Buffett would have paid 50 cents – that the difference is a gift from the taxpayers of the United States to the shareholders of Goldman Sachs.”
The implications are staggering. Leo Gerard told Paulson: “If the result of our analysis is applied to the deals that you made at the other eight institutions – which on average most would view as being less well positioned than Goldman and therefore requiring an even greater rate of return – you paid a$125 billion for securities for which a disinterested party would have paid $62.5 billion. That means you gifted the other $62.5 billion to the shareholders of these nine institutions.”
If the same rule of thumb is applied to Paulson’s grand $700 billion bailout fund, Gerard said this will constitute a gift of $350 billion from the American taxpayers “to reward the institutions that have driven our nation and it now appears the whole world into its most serious economic crisis in 75 years.”
Is anyone angry? Will anyone look into these very serious accusations? Congress is off campaigning. The financiers at Treasury probably assume any public outrage will be lost in the election returns. I hope they are mistaken.
William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and – due out in February from Rodale – Come Home, America.
Marxist Humanist View on the Crisis and Bailout October 22, 2008Posted by rogerhollander in Economic Crisis.
Tags: $700 billion bailout, $700 Billion Wall Street Bailout, alientated labor, Bailout failure, Bush bailout, capitalism, Economic Crisis, finance capitalism, Marxist Humanism, mortgage crisis, Paulson and bailout, roger hollander, ron kelch, Treasury Secretary Paulson
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Bailout can’t save capitalism from its own gravediggers
www.newsandletters.org, October – November 2008
by Ron Kelch
As news spread that Treasury Secretary Henry Paulson was asking the government for $700 billion to buy “toxic” assets to save Wall Street banks, Congress was inundated with a flood of angry opposition in letters, e-mails and calls from ordinary working people. The tidal wave of communications–99 to 1 against–didn’t subside even after threats that failure to act might mean the collapse of the capitalist system. There were also spontaneous public demonstrations throughout the country. On Sept. 25 alone there were 251 rallies in 41 states against this humongous bailout. On Sept. 27 thousands joined the California Nurses Association marching across the Golden Gate Bridge in San Francisco against the bailout and for universal single-payer health care.
Events leading up to this public outrage began on Sept. 18 when Paulson, a former Wall Street investment banker, and Ben Bernanke, Chairman of the Federal Reserve Bank, visited President Bush, and then the leaders of the Democratic Party-controlled Congress. They requested immediate action to raise the national debt ceiling to $11.3 trillion, give Paulson a whopping $700 billion and unfettered authority to buy up Wall Street’s bad debt, mostly mortgage-backed securities and credit default swaps (CDS) that insure those securities. This, they said, was the only chance to avoid a total meltdown of credit markets and another Great Depression.
This “mother of all bailouts” was preceded just ten days earlier with a $200 billion Fed takeover of Fannie Mae and Freddie Mac, which together own $5 trillion or half of the entire U.S. mortgage market. When Wall Street investment bank Lehman Bros., also previously designated as “too big to fail,” came calling, the Fed let it go bankrupt. Credit markets locked up, including money market funds, which banks and companies use to finance daily operations. There was widespread lack of confidence that any given bank could repay their loans. There was even the beginning of an old-fashioned run on the bank between banks themselves and by ordinary depositors, withdrawing uninsured money market funds.
Then came the impending collapse of AIG, the world’s largest insurance company holding half a trillion dollars in CDS and employing 116,000 in 130 countries. A single bank–Goldman Sachs, the unregulated Wall Street investment bank Secretary Paulson headed until 2006–was liable to lose up to $20 billion if AIG could no longer pay its CDS claims. The Fed turned again 180 degrees and gave AIG an $85 billion loan and, in effect, nationalized this corporate giant by demanding nearly 80% ownership in exchange.
IDEOLOGY AND REALITY
By the time of the $700 billion offer-you-can’t-refuse, politicians and bankers alike were in a giddy-whirl of free-market ideology and nearly simultaneous embrace of direct state control of vast corporations and sections of global finance. Liberal economist Paul Krugman, who supported the bailout eventually passed by the Congress, shared his half-joking first reaction: “Commissar Paulson has just seized the means of production.” The only thing new in these ideological poles–statism vs. free market–revealing themselves as identical, was how that identity made so many political ideologues look like deer caught in the headlights.
In spite of the public outrage, both presidential campaigns, the extremely lame duck President Bush, and leaders of both political parties in Congress lined up behind passing a bailout in the name of saving the “real” economy or “Main Street” from Wall Street’s excesses.
Presidential candidate John McCain, a long-time fervent backer of banking deregulation, who, a day earlier, was telling the Fed to get out of the business of bailouts, lined up behind the super bailout even as he repeated that the underlying economy was fundamentally strong. This was so out of touch with the reality of workers increasingly faced with losing their homes, jobs and health care, McCain suddenly lost ground in the polls after he had pulled ahead of Barack Obama through an ad campaign of blatant lies and appeals to racism. Obama gave cautious support for the Treasury Secretary’s power grab, appearing with a line of his own financial experts, including Clinton’s Treasury Secretary Robert Rubin, also a former Goldman Sachs Co-Chairman, and former Fed Chairman Paul Volcker.
Feeling the heat from their constituents, the House failed to pass the bill by 12 votes. Four days later, the Senate, where only a third are up for re-election, passed a new bill adding another $110 billion in spending and tax cuts, which then made it through the House and was immediately signed by President Bush.
NATIONAL DEBT IS WORKERS’ DEBT
This colossal sum, on the scale of the cost of the Iraq War, will be added to the already exploding annual budget deficits now running over $500 billion. At the birth of capitalism Karl Marx noted that the national debt is the only part of the national wealth truly owned by the workers. The national debt has been a pivotal instrument of state-capitalism’s despotism over workers, especially over the last two and a half decades. President Reagan started exploding the deficit through military spending in order to starve the gains in the social safety net workers had won after WWII. Obama has already intimated that the bailout will necessitate scaling back some of his spending plans.
In the U.S., workers have been falling further and further behind with a concentration of wealth at the top in the last three decades of globalization and restructuring comparable to the era of robber barons of the 19th century. Under deregulation, demanded by Wall Street bankers like Paulson, the share of profits flowing to the financial sector of the economy increased from 10% to 40%. In 2006 Wall Street bankers gave themselves $62 billion just in bonuses.
The American consumer was then continuously hailed as the reliable “hero” of the world economy, but that was at the cost of going deeper in debt. The U.S. savings rate is now effectively zero, the lowest among developed nations. When the Fed turned on the cheap money spigot to keep the economy up through a real estate bubble, mortgage debt exploded under the sales pitch that home prices would always rise. Many workers used their biggest asset–the homes in which they live–to survive, to pay today’s exorbitant education costs and medical emergencies. It all collapsed when home prices retreated. The foreclosure crisis, now at 10,000 per day, continues unabated. Vacant foreclosed houses blight whole neighborhoods along with modern day “Hoovervilles,” tent cities set up by the new homeless, which are springing up throughout the U.S. For those workers a new Depression has already begun.
Capitalists have learned from the 1930s to keep the system of global finance capital flowing at all cost. What is so crucial about finance capital, and why now does it require an economic czar with unprecedented state power to save it from its own implosion? As our April-May editorial put it after the then-unprecedented $30 billion bailout of “too big to fail” Bear Stearns:
“Finance capitalism, ‘uncoupled’ from production, feeds the illusion that profit can come from speculative bubbles. At the moment of reckoning, the truth asserts itself: that profit only comes from extracting ever more surplus value or unpaid hours of labor from workers. The real vital function of the system of finance is divvying up the loot from all the sweated, alienated labor extracted in labor-intensive manufacturing locales like India, China and Vietnam, as well as what remains in the U.S.”
CRISIS DEEPER THAN LIQUIDITY
This financial crisis brings into sharp relief the U.S.’s status as the world’s largest debtor nation. The tremendous loss of paper profits brings new tension between different centers of capital when they divvy up the shrinking pot of loot extracted from workers. The Chinese government, which could still teach U.S. capitalists a thing or two about combining authoritarian state control and a free market, quietly dropped a bombshell in a state newspaper in the face of what they called a “financial tsunami” emanating from Wall Street. The Chinese state-capitalists, who for now continue to buy much of the U.S. debt, are looking for a way to move away from the U.S. dollar as a global currency and for a global “financial order no longer dependent on the United States.”
A crucial function of state-capitalism in a globalized economy is to discipline workers according to the needs of free-moving global capital. In one country after another, world financial bodies to which those countries have been indebted have been forced into structural adjustments that have cut social spending. The U.S.’s colossal indebtedness and the failure of the dollar to hold its value against other currencies threaten its privileged position in the global system of finance capital. This will bring even more pressure to bear against any expansion of social benefits in the U.S.
The Fed may have learned from the banking mistakes of the 1930s to immediately address liquidity problems, but the intractable problem of unemployment in the Great Depression, reflected also in today’s global unemployed army, has much deeper roots than liquidity. Marx’s prediction that the rate of profit tends to fall because of unemployment–a failure of capitalism to reproduce its source of value, alienated labor–comes alive at different crisis points.
Great Depression economists had to confront the need to couple the economy with employment. However, New Deal programs, which ameliorated severe hardship, never really succeeded in bringing the economy out of the Depression. It was the global human disaster of WWII, which also destroyed a vast amount of global capital, that was the basis for restarting the process of accumulation with a relatively unscathed U.S. as its center.
By the mid-1970s, after Europe and Japan rebuilt their economies with the then latest technology, there was a global recession and an era of low growth. Once again, economists rediscovered Marx’s prediction of a falling rate of profit. Capital’s remedy was massive restructuring of the global economy, moving manufacturing to low cost nineteenth century conditions of labor. This restructuring has run into its own internal barrier with the present crisis as a watershed.
TIME FOR DOING AND THINKING
The U.S. economy has eliminated over 760,000 jobs in the last nine months. In February the unemployment rate was 4.8%. It steadily climbed to 6.1% by August. Many more U.S. workers will join the global ranks of an unemployed army who are already “ill-housed, ill-clad, and ill-nourished” and rebellious. (see “World Food Crisis stirs revolt,” June/July, N&L). With its failure to reproduce alienated labor, Marx said, capitalism produces its own gravediggers.
However, labor doesn’t move with the kind of expeditious class solidarity capitalist rulers have shown in this crisis. There is always a lot of thinking and struggle before labor presents its own collective response in what appears to be mass spontaneity. There are a lot of small strikes against capital’s continuous demand for takebacks like the recent three month strike of 3,650 workers at American Axle that ended in a UAW sellout. Nurses and other health care workers continue to strike over working conditions that diminish quality care and for universal health care. Immigrant labor, now under near police state repression, showed its vitality and crucial place in the U.S. economy in a massive strike in May 2006.
Trying to stir opposition in their own direction, nearly all politicians expressed their “outrage” while claiming there is no alternative to saving capitalism and showing “bipartisan” solidarity with capitalists when the whole economy is at risk. This crisis revealed how rapidly objective events can call the whole capitalist system into question and generate a lot of action and new thinking about what is possible. Past failures surely show that the opposite of alienated labor is not to be found in statist intervention, political parties or trade unions, all of which broker on capitalist ground. At this crucial moment of capital’s reorganization, it is important to engage that rethinking with Marx’s concept of what it would take for humanity to break with being organized under the rule of capitalist production’s alienated labor.
1. See “Today’s Epigones Who Try to Truncate Marx’s Capital,” Sept. 21, 1977, in Marx’s Capital and Today’s Global Crisis by Raya Dunayevskaya.
Requiem for the Bailout Storyline October 16, 2008Posted by rogerhollander in Economic Crisis.
Tags: $700 billion bailout, $700 Billion Wall Street Bailout, Bailout failure, Bush bailout, Congress and Bailout, Economists on bailout, Media and bailout
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by: Norman Solomon, t r u t h o u t | Perspective
Stocks continue to plummet, despite the bailout. (Photo: Reuters)
It’s mid-October, and the Wall Street bailout that was supposed to save the economy from collapse is a flop.
Only two weeks ago, the media hype behind the $700 billion bailout was so intense that it sometimes verged on hysteria. More recent events should not be allowed to obscure the reality that the news media played a pivotal role in stampeding the country into a bailout that was unwise and unjust.
Exceptions in the news coverage underscore the fact that other perspectives were readily available when the Bush administration began pushing its bailout proposal in late September. “Many of the nation’s brightest economic minds are warning that if the Wall Street bailout passes, it would be a dangerous rush job,” McClatchy Newspapers reported on September 26. For instance, economist James K. Galbraith called the warnings of economic disaster in the absence of a swift bailout “more hype than real risk.” He added: “A nasty recession is possible, but the bailout will not cure that.”
When the House of Representatives rejected the bailout on September 29, all media hell broke loose. During the next few days, journalists and selected sources took turns decrying the failure of House naysayers to recognize the urgency of the moment. The nation’s economy was at stake, and craven ideologues on Capitol Hill were dithering around!
Countless editorials and pundits castigated House members who had voted no. The condemners spanned the mainline media spectrum; liberals, moderates and conservatives excoriated the House and called for a swift reversal.
Senate passage came on Thursday, October 2, and the next day a chastened House approved a revised version. That Friday afternoon, President Bush signed the $700 billion Wall Street bailout into law.
Despite all the media hype about how the bailout measure would quickly steady the stock market, it fell and kept falling. Over the next week, ending October 10, the Dow made history as stocks plunged by 18 percent in five trading days.
And what about the ostensible main reason for the humongous bailout in the first place – unfreezing the credit markets? Well, in spite of the enormous media outcry for the bailout to get credit flowing, it didn’t. And the key economic factor in the recession – housing – remained just as stuck as before.
At the Center for Economic and Policy Research, on October 1 – two days before the House caved – economist Dean Baker addressed a pivotal flaw in the spin. “It would be foolish to issue a mortgage loan without a very substantial down payment, since the expected decline in house prices will quickly destroy much or all of the equity held by the homeowner,” he wrote. “In other words, it is the drop in house prices that is causing banks to demand 20 percent down payments in many markets, not their lack of capital. This situation will only be changed by a government house-price support program. Improving the financial conditions of banks will make little difference.”
But the media storyline required – in fact, demanded – that committing many billions of dollars to the “rescue” was the essential step to be taken from Capitol Hill.
After the House initially balked at approving the Wall Street bailout on September 29, the range of New York Times op-ed columnists took turns with the denunciation chores. None was more bitterly caustic than David Brooks. On September 30, under the headline “Revolt of the Nihilists,” he denounced the noncompliant House members for failing to heed “the collected expertise of the Treasury and Fed.”
A week later, on October 7, when Brooks wrote a follow-up column, the bailout had been law for several days. But the stock market was plunging faster than ever, and the credit crunch was unabated. “At these moments, central bankers and Treasury officials leap in to try to make the traders feel better,” Brooks wrote. “Officials pretend they’re coming up with policy responses, but much of what they do is political theater.”
Now he tells us.
Before the bailout gained approval on Capitol Hill, the media narrative was dangling the prospects of immediate results. But afterwards, there were none.
”Global markets have so far given thumbs down to the giant $700 billion bailout plan,” former Labor Secretary Robert Reich said in an October 8 public-radio commentary, five days after the bailout had become law. “The easy answer to why the bailout hasn’t worked is it hasn’t been implemented yet. But its purpose was largely psychological – to boost confidence that the government is doing something big to clear out bad debts that have been clogging the system. That psychological boost should have happened as soon as the bailout was enacted. Yet no one seems to believe that $700 billion will make much difference.”
On October 12, the lead story on The New York Times’s front page wondered aloud “whether the administration squandered valuable time in trying to sell Congress on a plan that officials had failed to think through in advance.”
The Times now tells us that the much-hyped bailout plans to “buy distressed assets” will be diminished in favor of a “capital infusion program for banks.” But what hasn’t changed with the $700 billion planning is a basic approach for trickle-down instead of trickle-up.
As the Institute for Policy Studies pointed out on October 1, “A real ‘bailout’ would target the troubled households of working American families. A $200 billion ‘Main Street Stimulus Package’ could bolster the real economy and those left vulnerable by the subprime mortgage meltdown.”
Components of such a stimulus package could include “a $130 billion annual investment in renewable energy to stimulate good jobs anchored in local economies and reduce our dependency on oil” – and “a $50 billion outlay to help keep people in foreclosed homes through refinancing and creating new homeownership and housing opportunities” – and “a $20 billion aid package to states to address the squeeze on state and local government services that declining tax revenues are now forcing.” But that kind of discourse for grassroots economic stimulus hasn’t gotten into the media storyline this fall.
It’s now being revised with quite a bit of backspin. But the media storyline for justifying the Wall Street bailout was great while it lasted. And it lasted long enough to stampede Congress into approving a massive jolt of taxpayer money to redistribute wealth upwards in the United States.
American Insurance Group (AIG) Corporate Orgy: With Our Money! October 9, 2008Posted by rogerhollander in Economic Crisis.
Tags: $700 billion bailout, $700 Billion Wall Street Bailout, AIG, American Insurance Group, bailout, Bush's bailout, roger hollander, Treasury Secretary Paulson
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Two weeks ago, Treasury Secretary Paulson bailed out American Insurance Group (AIG) with $85 billion dollars in taxpayer money – and now they are back for more. He said they needed it to stay afloat. Now, we know what they did with our money.
AIG executives headed out on a taxpayer funded junket to the St. Regis resort in California. While there, they had a blast at our expense. They helped themselves to:1
$201,047.42 for hotel rooms and $147,301.71 for catered banquets
$23,380 for the hotel spa and another $1,488 for the salon.
Golf for $6,939.09 and $5,016.32 spent at the Tavern.
Now they are back at the trough. This is outrageous. Tell Treasury Secretary Paulson: The Director who authorized this junket should be fired and every penny spent on this lavish retreat must be returned to the Treasury.
Send a message to Secretary Paulson right now.
Our government needs to be involved in restoring the economy. We need an economic recovery package for Main Street instead of more giveaways to Secretary Paulson’s buddies on Wall Street.
These bailouts are the last money grab by the Bush Administration on their way out of office. It’s on us to provide oversight and make sure taxpayer money isn’t wasted.
Thanks for being vigilant,
Darcy Scott Martin
TrueMajority Washington Director