Martin Column - Represent Consumers

Is Detroit dumb and lazy?

"Tribute to an unknown pattern maker," Irving Berg

Detroit’s emergency manager called Detroit “dumb, happy, lazy and rich.”

What is that guy smoking?

How else can you explain such careless invective from Kevyn Orr, one of the country’s top corporate bankruptcy lawyers, the “expert” who holds the future of city’s 700,000 residents in his hands?

It took Orr a couple of weeks to apologize, ascribing his remarks to a “slip of the tongue.” What emerges when our tongues slip? Exactly what we really think.

I was born and raised in Detroit. So were my parents. I wonder what my father would have thought had he lived to hear Orr’s rhetoric. He and his brothers were teachers and small businessmen who started with nothing and worked hard to build a future for their families in Detroit.

My parents were part of the hardy, thriving creative class that has found inspiration in the tough, blue-collar city. Their lives were rooted in the belief that community trumped the bottom line. For them, the arts and creative process were not a luxury to be enjoyed only by the elite but a necessity that enriches everyone.

My own feelings about Detroit are rooted in my family’s deep connection to the place. My father was an artist and art teacher who rummaged through the industrial trash to find discarded tool and die molds, which he turned into sculptures. He told me that he created them as tributes to the beauty of those molds and to the memory of the men who created them, so that their craftsmanship could live on, seen from a fresh perspective.

For 35 years, my dad headed the art department at Cass Tech, a downtown magnet high school housed in a grand 1922 Collegiate Gothic building. It’s gone now, first abandoned, then neglected and finally torn down. But the soul of the place beats strong across the country in the lives and work of students who discovered their passions and vocations there. One of his students, Marie Tapert, an artist who now lives outside Detroit, recently wrote a letter to the New York Times. She was the daughter of a factory worker, and had never been to a museum until my father sent her to the Detroit of Institute of Arts to study sculpture. “I was changed,” Tapert wrote. “A transformative moment like this cannot be unique to me. As a kid from the East Side of Detroit, I was able to wander the galleries of my art museum. What a gift."

My mother, a modern dancer and choreographer, started a company for women with families and kids who wanted to keep studying and performing. Later she became obsessed with the French origins of Detroit and the War of 1812, teaching about the history of Detroit through dance to schools and community groups.

She is a tireless Detroit booster with no patience for the endless parade of horrible publicity surrounding the city. Even the bankruptcy can’t dampen her enthusiasm for the city that’s so much a part of her blood.

Like many of Detroit’s residents, my family ended up there for work. My father’s father was a Polish carpenter turned away from the U.S. twice before he got in on his third try through Canada. He landed in Detroit during the boom years of the 19-teens, saving enough money to bring his wife and four kids over in 1920. My father was the first born in this country. He grew up on Humphrey Street, in the working class neighborhood around Dexter Boulevard, which later became a black neighborhood and burned to the ground in the 1967 riots.

I never knew my father’s dad, who died before I was born. He was not a big talker. My father said he had never had a real conversation with him. He taught my father a love of working with tools and an appreciation of craft.

By contrast, my mother’s father was a looming presence in my family. The son of a Ukrainian innkeeper, he fled Ukraine when he was twelve to avoid arrest for distributing pamphlets for the anarchists in pre-revoluitonairy Russia.

According to family lore, he worked with the legendary cigar makers union in New York wrapping stogies and took turns reading the newspaper out loud. He came to Detroit to work as a milkman, helping to organize the first milkman’s union in Detroit before he started a frozen foods business.

My mother and father lived with her parents when they first married. My father told me about the time my grandfather came home late from work, summoned my father to the bathroom and told him to bring the vodka. His left pant leg was soaked through with blood. He took off his pants, revealing a bleeding gash in the leg. He’d been struck by a 5-gallon container filled with frozen eggs which had fallen from a shelf above his head. “We have to get you to the hospital,” My father said. My grandfather responded: “We’re not going to the hospital. Pass me the vodka.” He poured a stream of vodka to clean the wound, and took a couple of deep tugs from the bottle. My father, a World War II veteran, knew how to improvise first aid, and he cleaned and dressed the wound the best he could; the scar remained.

My grandfather didn’t tell stories about the good old days. When he heard that Ellis Island, where he had entered the country, was being turned into a museum, he said: “They should burn it down. The way they treated people there was a disgrace.”

What would my father and grandfathers have to say to Kevyn Orr, who wants to dismantle what’s left of the city they helped build? How would they respond to his stingy vision, blind to the lives of the city’s people through the boardroom window?

In the last few years thousands of people have moved to the city - artists, musicians, urban pioneers - unlike my own immigrant family decades ago, but similarly charged with vision and energy to join with those who remain to build a city we may not be able to imagine yet. They dream of reshaping Detroit into a much different place, filled with lush urban gardens, recycled art projects and sustainable business laboratories.

Are these people dumb, or lazy....or rich?

Orr needs to get off the corporate crack.

He needs to really understand that the Detroit is much more than its past, with its bitter racial divide, the tough fight for midlde-class wages, national policies that led to the collapse of the automobile industry in Detroit, abandoned buildings and crime. If what he wants to do is to save the city, he should stop selling it, and its residents, short.

He should get out more. Orr could take an outing on Saturday morning to the city’s sprawling Eastern Market for fresh produce, including fruits and vegetables grown in Detroit’s model inner-city community garden program. Over Labor Day weekend, he’s welcome to join me and thousands of others along the banks of the Detroit River, which plays host to a four-day-long free jazz festival, featuring sets by Detroit’s many acclaimed homegrown artists, including James Carter, Geri Allen, Sheila Jordan, Cameron Brown and Joan Belgrave, as as well as other musical luminaries such as Ravi Shankar, Joe Lovano, David Murray, Gary Burton and Danilo Perez, to mention only a few.

Before he starts selling off its treasures, he should visit the world-class collections of the Detroit Institute of Arts. If he listens carefully, he’ll hear my Dad’s spirit, holding forth in the DIA’s magnificent Diego Rivera Court, filled with the mythical murals that portray, not just the city’s history, but how that history fits into the fabric of our civilization. If Orr wants to know what my mother thinks, he can find her across the street, in the historic Park Shelton Apartments, where she’s lived for more than three decades. She’ll give him an earful.

Stepping up on middle out: From rhetoric to reality

President Obama’s latest effort to portray himself as the champion of the middle class has so far been long on rhetoric and painfully short of real proposals.

The problem is that if smooth rhetoric alone could do the job, the economy would be humming along right now, not sputtering.

To get this done, the president is going to have to harness all of our fabled American know-how . He’s also going to have to adopt a quality that’s been too rare in our politics: the ability to admit mistakes and abandon failed policies. Tweaking the status quo is not going to get us anywhere. This is not the job for a temp.

I know it’s not just up to the president. We’re all going to have get involved. So here are my seven suggestions to help the president start to fill in the details that could take “middle out” into the realm of reality.

Some of them should be easy: the president already said he’d do them, like create a robust jobs program raise the minimum wage. Some of these proposals are bound to get the president out of his corporate-friendly comfort zone. But we need to get real - and so does the president. We should demand that the president stop pursuing policies that will further erode what’s left of the middle-class. Here’s my summons to President Obama:

Repudiate the Trans-Pacific Partnership: Take your pick: it’s either a “Free Trade Frankenstein,” as I described it previously, or “NAFTA on Steroids,” as it’s been labeled elsewhere. Either way it’s not free and has little to do with trade and everything to do with strengthening corporate rights around the globe and weakening protections for labor, the environment, local agriculture and generic drugs. We know from NAFTA that these phony deals kill jobs, not promote them. It’s the 2013 version of the Big Lie. You can’t be both for the middle class and the TPP. (If we let the president get away with this, our bad.)
Do something about African-American unemployment: The rate is 13.6, twice the national rate. For African-American youth, the rate is an unbelievable 42.6 percent, and worse this year than last. This is a national disgrace. Mr. President, you can’t advocate middle out economics and tolerate 42 percent unemployment for African-American youth – and we shouldn’t let you. Yes, Republicans will stand in your way. It’s your job to develop a strategy that doesn’t allow them to stop you from taking action.
Drop the loony “bipartisan” agreement that will allow student loan rates to float upward to an exorbitant beyond the usurious 8 percent range. Go back to the drawing board and lead an effort to reduce the cost of higher education, not just the relatively small portion that goes to paying the cost of a student loan. In the meantime, put a moratorium on student loan payments until the unemployment rate has stabilized at 5 percent. (Hat tip to investigative journalist Dave Lindhorff for that one.)
Push for your own American Jobs Act, the legislation you proposed in 2011 that would cut payroll taxes for businesses, double the size of the payroll tax cut for individuals, give aid to states to prevent public sector layoffs, and increase infrastructure spending. All together, the Jobs Act would create 1.9 million jobs. You haven’t mentioned it lately, but an updated version was recently reintroduced in Congress.
Make raising the minimum wage a top priority. It was a good idea when you proposed it back when you ran for president in 2008 and it’s a better idea now that you’re president in full control of your bully pulpit.
Dump Larry Summers as a candidate to run the Federal Reserve: You have a clear choice to make here. Summers is the Robert Rubin protégé who, under Bill Clinton, pushed the deregulation of high finance that led to the crash of 2008, and then helped craft the policies in your administration that propped up banks and bankers with unlimited amounts of nearly free cash but offered only the most tepid support to homeowners facing foreclosure and the unemployed. As far as the middle class goes, Summers has never missed a chance to get it wrong. Since he left your administration, he’s taken a job with too-big-to-fail Citibank. Your other choice is the current No. 2 at the Fed, Janet Yellen, who was one of those ignored voices expressing concerns about the banks before the crash, and continued to push the Fed toward fulfilling its obligations towards those in the country who aren’t wealthy bankers. Americans know the difference between these two. You can’t be both for Larry Summers and the survival of the middle class.
Don’t abandon Detroit: By standing aside, you are conceding the city’s future to the state’s right-wing governor, Rick Snyder, the banks and their lawyers to dictate the future of the city’s 700,000 residents. Snyder is downright hostile to the traditionally Democratic city and he’d like nothing better than to build his reputation with his conservative backers as the man who finally broke Detroit. The bankers have already done their best to pick the city clean. Detroiters would stand a much better chance with the resources and creativity of your administration on their side. You’ve shown that you know how to use federal authority to keep bankers afloat, now use it to help one of the nation’s great cities.

Federal Reserve / Martin Column / middle class / Minimum wage / President Barack Obama - 08/11/2013

Banking without banksters

Bravo to the Public Banking Institute for suggesting an alternative vision of what banks are and for raising a basic question: what should a bank do, and who should it serve?

I attended the Institute’s recent conference, which drew activists and interested citizens from around the country to San Rafael, California, to hear about public banking and to brainstorm about ways to fund a new economy that creates a sustainable economy for all of us, since current government officials and bankers are doing such a lousy job at it.

The varied presentations included nuts and bolts sessions on the steps involved in developing a plan and pushing for a public bank, reports on worker-owned cooperatives across the country, as well as an eye-opening session on how the government has been selling off our most gorgeous post offices, many built as part of the federal government’s robust effort to get the country back to work during the Great Depression – the Works Progress Administration.

It’s the lack of any such effort now, either by government or the private sector, that made the public banking conference so key. While it’s fashionable to minimize government’s ability to do anything right, it’s hard to argue with the track record of the Bank of North Dakota, the sole publicly owned bank in the U.S., operating successfully in that state since 1919, when it started with $2 million in capital.The solidly Republican state started its bank as part of a populist wave of anger that swept the state against Wall Street and big city bankers who were denying North Dakota farmers a credit lifeline. Though the state may have turned Republican since then, its residents continue their strong support of their public bank. The state places its revenues from taxes and fees into the bank, which currently holds $2.7 billion in deposits. It has plowed more than $300 million into the state’s economy over the past 10 years, including emergency assistance, state and local government funding and support for small businesses (in partnership with local banks) over the past 10 years, and has enjoyed a 25-26 percent return on equity annually. During that same time, we know what the too big to fail banks were up to – they paid their bankers outrageous bonuses while sinking the economy with risky investments they didn’t understand and relied on taxpayers’ generosity to keep them in business, then improperly foreclosed on millions of homeowners with forged or otherwise fraudulent documents while illegally manipulating the key mortgage interest rate known as LIBOR.

In North Dakota, the public bank makes below-market rate loans to business – but they come with strings attached: every $100,000 in loans must result in the creation of at least one job.

And while the president and CEO of the Bank of North Dakota earns a handsome living by most people’s standards – $232, 500 a year, it’s a pittance compared to the money lavished on the kings and queens of Wall Street.

North Dakota’s success has attracted attention around the country in the last few years: 20 states are now considering legislation to either enable public banks or study their feasibility.

California, with the eighth largest economy in the world, is a particularly intriguing case. The Public Banking Institute’s Ellen Brown estimates, based on the Bank of North Dakota’s experience, a California public bank might generate $148 billion in deposits; with a 10 percent reserve requirement, that could generate $133 billion for credit.

In 2011, California’s legislature passed a proposal to establish a commission to study the feasibility of setting up a such legislation a couple of years ago but then-Gov. Brown vetoed it, saying if the Legislature wanted to evaluate public banking, it should do so with its existing resources. Even though both Assembly and Senate passed the measure Gov. Brown vetoed, two years later, California’s Democratic-majority legislature has yet to answer Gov. Brown’s challenge. That might have something to do with the political contributions from the financial industry, which lavished nearly $78 million to influence state politics last year, according to the National Institute on Money in State Politics. The question we’re going to have to answer is: just how long will stand for private bankers standing in the way of the progress for the common good? If these banks want to gamble with their own money and take the consequences of their losses, that’s one thing. But why should we continue to give them our money? Shame on us if we do, with better alternatives like the Bank of North Dakota staring us in the face.

Video of some of the presentations is available here, and more will become available as time goes by. I’ll be exploring some of the issues raised at the conference in greater depth in the coming weeks.

Martin Column / Public banking - 06/27/2013

Dummies For Austerity

From Athens, Greece to Stockton, California and Detroit, bankers feast while citizens and workers starve.

The diet takes many forms. But the basic idea behind it is that the only way to save our government is to starve it, cut services to those who need them most, and above all, keep the big bondholders and wealthy political contributors happy.

Meanwhile, beyond the government halls and bankers’ offices, the austerity diet causes real suffering.

In Greece, the bankers have exacted a painful price, with tax hikes, and layoffs that pushed unemployment over 27 percent, including 50 percent youth unemployment, in exchange for $310 billion in aid from the European Union and the International Monetary Fund.

And of course the money doesn’t go to the Greeks. It goes to the too big to fail bankers who the Greek government borrowed from.

Meanwhile the health consequences of austerity-related cuts to the social safety net amid extended recession across U.S. and are widespread and dire. Oxford and Stanford University researchers found that the U.S. suicide rate jumped during the 2007-2009 recession, with 4,750 “excess deaths” – beyond what pre-existing trends would predict, with the highest increases in the states that experienced the most job losses.

In Greece, suicide rates have skyrocketed, increasing 26 percent over the past year. The Oxford and Stanford University researchers found that, with cuts to HIV prevention and a huge increase in youth unemployment and drug abuse, the rate of the infection has risen 200 percent, while the country has seen its first malaria outbreak in decades after mosquito-spraying programs were cut.

In the U.S., more than 5 million Americans have lost access to health care – including Stockton’s retired city employees. Millions of long-term unemployed Americans will see their unemployment benefits slashed or eliminated as a result of the congressionally-approved sequester budget cuts. Meanwhile, in England, austerity policies have thrown 10,000 British families have been thrown into homelessness.

“The harms we have found include HIV and malaria outbreaks, shortages of essential medicines, lost healthcare access, and an avoidable epidemic of alcohol abuse, depression and suicide,” David Stuckler, Oxford researcher and co-author of “The Body Economic: Austerity Kills,” said. “Austerity is having a devastating effect.”

With no end in sight. In the U.S. Senate, it’s not just Republicans who are enthusiastically getting behInd austerity. Democrats supported a $4.1 billion cut to the nation’s food stamp program, the Nation’s Greg Kaufman reported.

In addition, while debating the farm bill, Democrats supported a draconian measure that would bar the families of those convicted of certain violent crimes from receiving food stamps – ever.

For his part, President Obama himself who has advocated cuts to Social Security (which will do nothing to bring down the deficit) in his budget earlier this year. His supporters say the president is just trying to appear more reasonable in budget negotiations than intransigent Republicans, and that the president would never cut Social Security. But they ignore the fact that when President Obama appointed a task force to make recommendations on entitlements in 2010, he stacked it with austerity hawks from both parties bent on cutting Social Security, like former Clinton chief of staff Erskine Bowles and former Republican Sen. Alan Simpson. While that commission failed to agree on specific recommendations, the president has continued to pursue proposals that would reduce Social Security benefits.

Austerity’s proponents don’t even pretend that that the majority supports it. The bankers and the politicians assure us they know what’s best, then try to sell their noxious cutbacks through fear and demonization – of the undeserving poor, overpaid government workers and others characterized by losing Republican presidential candidate Mitt Romney as the “47 percent” who get assistance from the government.

Sanjay Basu, the Stanford researcher who worked with Stuckler, insisted that the negative health affects of recession are worsened by austerity. The researchers found the negative health affects and the anguish that accompanies them aren’t inevitable. The citizens of European countries that chose stimulus and maintained social safety nets, like Germany, Iceland and Sweden, fared much better than countries that imposed austerity, like Spain, Italy and Greece.

We don’t have to swallow the austerity diet. But we will have to fight to get a menu that doesn’t include it.

“Ultimately what we show is that worsening health is not an inevitable consequence of economic recessions,” Basu said. “It's a political choice."

Austerity / Congress / Martin Column / President Barack Obama - 06/01/2013

Latest D.C.-Wall Street brainstorm – bailouts with your bank deposits

Think your federally insured bank deposits are safe? Think again.

The geniuses that are supposed to be protecting your money have dreamed up a scary idea to use your money to help fund the next bailout.

This is not some paranoid conspiracy theory.

In December, the U.S. Federal Deposit Insurance Corp. (which is supposed to insure your money in the bank) and the Bank of England proposed using your bank deposits to defray the costs of rescuing a too big to fail bank when it gets in trouble. Wall Street hates the term “bailout,” so they’ve came up with a more innocuous term: “resolution.” The report, “Resolving Globally Active, Systematically Important Financial Institutions,” is linked here.

“In all likelihood [in a bank collapse],” the report’s authors write, “shareholders would lose all value and unsecured creditors [including depositors] should thus expect that their claims would be written down to reflect any losses that shareholders did not cover.”

People who trusted the bank and put their money there would not get their money back under this proposal. Instead their deposits would be turned into shares in the newly resuscitated bank.

A version of this already happened as a result of the Cyprus financial crisis. Now FDIC/BOE have proposed a similar approach for the U.S. and England the next time the big bankers fail.

Inside the Washington-Wall Street bubble, that’s not an “if.” It’s a “when.”

This latest proposal is what passes for smart thinking inside the bubble, untroubled by the bad banker behavior it enables or any concern for the public outrage simmering outside.

The proposal stems from a fact that surprised me when I learned it: when you put your money in the bank, you no longer own it; the bank does. It becomes the banks’ asset, which it promises to give you back under certain conditions. In legal terms, the depositor becomes an “unsecured creditor” of the bank. Under the terms of the FDIC/BOE joint December 2012 proposal, the unsecured creditors’ money could be used to offset the costs of resuscitating a bank that the geniuses in Washington and Wall Street determine is too big to fail.

The bankers and their faux regulators are in the hunt for new source of bailout fund because, under Section 716 of the Dodd-Frank law passed in the aftermath of the 2008 meltdown, they can’t use taxpayer funds the next time the $230 trillion derivatives market tanks.

Derivatives, you will recall, are those pieces of paper, unconnected to any physical assets, that created the house of cards that collapsed back in 2008 because nobody could figure out what the derivatives were worth.

Why not just let banks that engage in derivatives speculations and lose fold? The firms’ executives, bondholders and investors would get hurt. And we can’t let that happen, of course.

So they want to “resolve” a bank’s excessive risk-taking with our money.

In Cyprus, only the wealthiest’s deposits were seized. The FDIC is supposed to insure individual depositors’ account up to $250,000 per depositor per account. But under the FDIC/BOE proposal, even accounts of $250,000 or less could be seized by the failing bank and converted to stock as part of a bailout scheme.

Meanwhile, what about the purchasers of those risky derivatives, which the banks are still trafficking in more than ever? They would fare better than lowly depositors because they are treated as “secured creditors,” under a little-noticed provision that the bankers’ lobbyists had inserted into a 2005 rewrite of U.S. bankruptcy law.

I’ve been surprised by how little attention this proposal has gotten. It’s been covered mainly by Ellen Brown, a longtime critic of the banking sector and the government’s failure to regulate it. Certainly a major reason for the paucity of mainstream coverage is the lack of transparency around the regulation of banking institutions, and the media’s failure to push back against that. The big media, with few exceptions, has largely bought the narrative that the Obama administration has been selling, which is that the Dodd-Frank financial reform law successfully reined in banks and solved the TBTF issue, and that we have left the bad old days of financial collapses and bailouts behind us.

Nothing could be further from the reality, as the FDIC/BOE proposal makes clear. The banks continue to engage in risky derivatives gambling, resist any efforts to get them to stop, and enlist their allies at the Fed and other faux regulators to find someone else to absorb the costs of their own inevitable gambling losses.

Much of the regulations that would implement Dodd-Frank are being watered down behind closed doors, where the public is locked out and bank lobbyists have easy access to apply relentless pressure.

Even after multiple foreclosure fraud scandals, the LIBOR interest-rate fixing scandal, and the J.P. Morgan London Whale derivatives trade scandal, the media is more interested in touting the revival of the merger and acquisitions market than doing skeptical reporting on big banks and regulators.

Another reason that the reality gets lost is that it doesn’t fit neatly into the Republican-Democrat frame through which most of the media sees all policy. While Democrats at least rhetorically favor regulation and Republicans blame government for all the banks’ problems, beyond a little political stagecraft the two parties have collaborated smoothly to continue to bury the issue and let the bankers off the hook. This gives members of both parties a wide berth to keep raising campaign money from the bankers, and their congressional staffers a pathway unobstructed by any unpleasantness on their way to lucrative employment on Wall Street when they want to cash in.

This FDIC/BOE proposal is just the latest example of the government regulators protecting the bankers’ interests and throwing the rest of us to the wolves. That’s not what a majority of Americans want, obviously. According to this Rasmussen poll, 50 percent of all Americans favor breaking up the big banks so they don’t pose such a threat to our financial future, and can’t continue to dominate our political landscape. Only 23 percent oppose such a breakup.

Sen. Bernie Sanders, the independent socialist from Vermont, has introduced legislation to break up the banks. Rep. Brad Sherman, a Democratic legislator from Los Angeles, has said he will introduce companion legislation in the House.

Breaking up the banks is critical, but its only the first step. We need the re-imposition of a modern-day version of the Glass-Steagall Act, the Depression-era law that barred banks from mixing in other financial businesses that place depositors’ money at risk. Its repeal in 1999 led directly to the 2008 meltdown.

In the updated Glass-Steagall, federally insured banks should be barred from gambling in derivatives or other complicated investments.

Meanwhile, we need full public hearings on the FDIC/BOE proposal, and any other proposals regulators are considering about how to pay for future bailouts that involves taxpayers or consumers.

Contact your senator and representative and demand an end to big banks and publicly insured bank gambling. This FDIC/BOE proposal is a grim reminder of what we get when we’re left out of the political process, and we leave our financial system in the hands of the politicians, the experts and the bankers.

Derivatives / Financial Crisis / Financial Reform Legislation / Martin Column / Too Big To Fail - 04/27/2013

Can left & right unite – against cat food diet?

If our dysfunctional politicians can collaborate to do the bidding of the 1 percent, why can’t members of the 99 percent find ways to work with those we disagree with to protect all of our interests?

Specifically, can progressive Democrats who oppose President Obama’s proposed cuts to Social Security work with members of the Tea Party who also oppose the cuts – along with everything else the president does?

The gulf between these two groups is obviously deep and wide.

Rank and file Democrats tend to want to put government to work in their interests, and believe that it can. Meanwhile, the Tea Party sees the government as the perpetual problem, and the only good thing it could do is ... disappear altogether.

But on the single issue of Social Security, the two groups appear to enjoy a rare agreement – along with most of the rest of the country.

According to this 2011 Marist poll, voters identified with the Tea Party oppose cuts to Social Security nearly as strongly as voters from across the political spectrum: nearly 8 in 10 Tea Partiers are against the cuts. Of all voters, slightly more than 8 in 10 dislike such cuts.

As for the president, he would rather not be seen as cutting Social Security benefits at all. What he’s suggesting is a change to the way cost of living adjustments are calculated, called chained CPI, in exchange for more tax hikes. Supporters say chained CPI is more accurate because it reflects how people actually react to price increases.

According to this theory, if the price of hamburger goes up, people will switch to beans. So why should the government give you more money to buy hamburger, if you’re just going to go out and eat beans? Under chained CPI, Social Security benefits would be limited to increases in the cost of beans. As economist Michael Hudson says of chained CPI, “It’s not really a cost of living index. It’s a cost of lower living standards index.”

Naked Capitalism’s Yves Smith has labeled it, “the cat food index.”

For many rank and file Democrats, it’s a bitter betrayal of President Obama’s 2012 campaign pledge to strengthen the middle class. It’s also a reversal of one of Obama’s unequivocal campaign promises as a candidate back in 2008. Drawing a contrast to his opponent, John McCain, Obama said McCain favored raising the retirement age and reducing Social Security cost of living adjustments. “Let me be clear,” candidate Obama said. “I will not do either.”

Stopping the president’s scheme will take more than just the efforts of his disgruntled base. President Obama seems to welcome their opposition, wearing it as a badge of honor. He would like people to think he’s making a principled, political sacrifice for the greater good of the country against the wishes of his own base.

Getting the 99 percenters in the Democratic base to work with their opposite numbers in the Tea Party might not be as outlandish as it first appears.

One of the founders of the Tea Party has already been reaching out to Democratic Party activists to discuss specific issues. Earlier this year, Mark Meckler met with MoveOn.org’s Joan Blades.about crony capitalism and with activist Jose Antonio Vargas about immigration. These talks haven’t yielded action – yet. Here’s Meckler talking about it.

The Tea Party has its own links to the 1 percent that undermine its credibility as a grassroots activist movement – and its ability to fight for the interests of ordinary Americans.

The Tea Party has been closely linked to the Club for Growth and Freedomworks, big-money conservative Republican operations that in the past have pushed for privatization of Social Security, most recently pushed by President George W. Bush. Privatization would be a financial bonanza for Wall Street… and would have been a catastrophe for the rest of us if George Bush’s 2005 plan had gone into effect. Most Americans would have lost all their benefits in the great crash of 2008.

Earlier this month, when one conservative Oregon Republican member of Congress criticized the president’s Social Security scheme as “a shocking attack on seniors,” the Club for Growth threatened to find an even more conservative Republican to run against him. The Club for Growth apparently thinks chained CPI is a good downpayment on further, deeper Social Security cuts down the road.

Members of the Tea Party will have to decide whether they want to work for the interests of the elites in Club for Growth and Freedomworks or join with other ordinary citizens to fight for their own interests. (Meckler quit his leadership role with the Tea Party, saying it was becoming too top down)

The Democratic base will face its own challenges. Is it prepared to fight the president and Democratic leadership that,not so long ago it worked so hard to elect, and has defended so vociferously, despite growing income inequality and continuing high unemployment?

If the two groups found a way to move beyond their disagreements, that would really be something fresh in American politics, showing leadership to replace stale rhetoric with robust action in support of the majority of Americans. Not only could that coalition mobilize a successful campaign against Social Security cuts, it could throw a genuine scare into a complacent political class and the 1 percent it serves.

Austerity / Bipartisanship / Martin Column / President Barack Obama / Social Security / Tea Party - 04/22/2013

Revolve this

For many of the government officials cashing in, it seems that the more spectacular their failure to serve the public, the more valuable they are to the big Washington players that hire them.

Our government may be a dysfunctional mess, but for the public officials leaving their jobs, it’s been a banner couple of months. Unemployment may be above 9 percent in Washington, D.C., but our top government officials don’t have to spend too much time on the unemployment line.

Take for example, Mary Schapiro, who recently left her post as head of the Securities and Exchange Commission to go to work for a consulting firm named Promontory Financial, which is filled with former bank regulators making big bucks – working for banks!

You may recall Promontory as one of the “consulting” firms that banks got paid a total of $2 billion to do internal investigations of the banks’ foreclosures, in the wake of the robo-signing scandal. They were supposed to find out how widespread the robo-signing – using forged or otherwise fraudulent documents – was.

But the consultants’ investigations were shut down because the investigations themselves were such a mess. I wrote about it here. Basically $2 billion that could have gone to assist troubled homeowners and stabilize the housing market went instead to enrich a bunch of former bank regulators for shoddy work, while helping few of the many Americans who had victims of fraudulent foreclosures. A Senate subcommittee will holding hearing on the flawed foreclosure investigations beginning Thursday in Washington. Will Schapiro be working in the background, helping her new employer avoid accountability?

Schapiro’s tenure at the SEC is notable in the agency’s failure to go after a single high-ranking official at a too big to fail banks for the fraud and recklessness that led to the 2008 financial collapse. In academic circles, this is known by the polite name of “regulatory capture,” which is an overly nice way to describe the sinister legalized corruption that constitutes the status quo in Washington.

We don’t know how much Promontory is planning to pay Schapiro, or exactly what she’ll be doing. Curiously, the firm says she’ll be doing something called “risk management,” which is a strange job for Schapiro, since in her previous positions at the Commodities Futures Trading Commission and the Financial Industry Regulatory Authority, she never saw any risk in the malignant cancerous growth of derivatives investments that made bankers wealthy before they blew up the economy.

While her duties may be nebulous, her new employer was kind enough to leave her time for another part-time job, serving on the board of directors of General Electric, which pays no taxes but compensates its board members about $250,00 year.

Asked about the revolving door aspect of her departure, Schapiro told the Wall Street Journal, “In my case, there’s no revolving door, I’m not going back to government.”

Now don’t you feel better?

Schapiro should fit right in at Promontory, which was founded by Eugene Ludwig, right after his tenure as head of the Office of the Comptroller of the Currency.

As a federal regulator, Ludwig specialized in blocking states from enforcing their own predatory lending laws against big banks on grounds that they were preempted by the OCC. Meanwhile the OCC was way too cozy with the bankers and saw no problems as its charges. In 2000, he left government to found Promontory, which has consistently worked for the too big to fail banks Ludwig once was in charge of regulating.

Earlier this year, one of Ludwig’s remaining colleagues at OCC, Julie Williams, former deputy controller and chief counsel of the OCC, also joined her former boss at Promontory.

Also headed for the exit this month is Lanny Breuer, the head of the Justice Department’s Criminal Division; he co-chaired one of the Obama administration’s faux task forces that boldly promised to get to the bottom of who was responsible for the financial collapse before tiptoeing quietly off into the bureaucratic ether without any resources to do its work. Breuer resigned a day after he was the target of a devastating Frontline documentary that focused on the administration’s failures to hold the big bankers accountable.

Breuer went back to his previous employer, the white-shoe D.C. law firm, Covington & Burling, which represents, you guessed it, the very big banks Breuer and his task force supposed to be investigating. Breuer leaves behind another heavy hitting Covington & Burling alumni – the U.S. attorney general, Eric Holder.

Schapiro and Breuer’s moves are a stark reminder that the real action in Washington is not in the debate between the Republicans and Democrats that we see on television every day, it’s in the never-ending battle, mostly out of public view, by the members of the Money Party to protect their interests against the rest of us, who don’t belong.

Financial Crisis / Martin Column / Revolving door - 04/10/2013

Post-election, President Obama's populism goes missing

When it comes to reviving the middle class and reducing the country’s widening income gap, President Obama in his second term has so far offered little more than a classic bait and switch from the strong promises he made during his successful reelection campaign.

While the president has provided leadership on issues that don’t challenge the economic status quo, like immigration reform and same-sex marriage, his administration is still not bucking the bankers and the austerity hucksters peddling their scams.

Meanwhile, the president pleads for patience, based on the discredited theory that if we just hold out a little longer, the recovery that’s humming along for the 1 percent will trickle down to the rest of us.

When Republicans floated that myth during the Reagan administration, Democratic officials howled. Now they fall in line, with a barely a peep as issues of longtime unemployment, falling incomes, the growth of lousy, low-income jobs and rising health care costs ? without any proposals to address them, at the same time his administration pursues a massive secret Pacific trade deal that dwarfs NAFTA – which was a disaster for jobs in the U.S.

In his inaugural address, the president proclaimed “an economic recovery has begun” and left it at that.

Back in December 2011, the president was warming up the populist theme he would use to batter his opponent, Mitt Romney, as an out-of-touch plutocrat. In Osawatamie, Kansas the president said: “I am here to say the [the supply siders] are wrong. I’m here in Kansas to reaffirm my deep conviction that we’re greater together than we are on our own. I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, when everyone plays by the same rules.”

When it came to the economy, Obama blew Romney away. In a Bloomberg poll, respondents were asked who they thought did a better job laying out a vision for the country’s economic future: President Obama beat Romney by 10 points.

But where are the policies that would give that vision even a fighting chance of becoming reality? Since his reelection, the president has pivoted sharply away from the populism that got him elected towards cuts that hurt the very people he said government should protect.

On a recent visit to family in Detroit, I was struck again by the painful gap between the president’s rhetoric and his actions, and the stark contrast between the recovery for the banks and corporate profits and the stock market while ordinary people continue to suffer.

Detroit was hit hard by the 2008 financial collapse, and though the Obama administration helped engineer the bailout of General Motors, the city is still struggling under the weight of years of economic decline and bad politics. Home prices have fallen 35 percent over the past three years. That the unemployment rate has dropped from a post collapse high of 16 percent in September 2009 to 10.6 percent in January, still high above the national rate of 7.9 percent, offers only small comfort.

The city, the seventh-largest in the country in 1990 with more than 1 million people, is now 18th largest, with 700,000 people, and officials have closed schools and laid off teachers. While some auto jobs have returned, they pay half of what they used to, along with scaled-back benefits.

Now the city’s residents are caught in a feud between Michigan’s Republican state government and their own Democratic politicians. While Detroit’s situation may be worse than other old urban areas, the others are not far behind.

Detroit has been particularly hard hit by absorbing the costs of bank “walkaways” – bank-owned properties that the bankers have either decided not to pay taxes on or have abandoned before foreclosure is complete. Officials estimate the cost to the city of Detroit this year at $118 million.

That’s just another example of the costs of bankers‘ irresponsible behavior getting passed on to taxpayers, in this case, the remaining residents of Detroit.

When the bankers triggered a nationwide economic collapse, the federal government stepped in to rescue them with all the resources it could muster – no questions asked. But as Detroit and the nation’s other cities have continued to struggle, there’s not even a decent debate about options to help them.

Of course Detroit’s auto workers are not alone. The majority of jobs created during the “recovery” have been low paying.

Also ignored is the plight of the millions of long-term unemployed. Four million Americans have been unemployed more than a year. That’s 30 percent of all unemployed people – triple the 10 percent before the financial collapse.

But you won’t hear the president or any of the rest of our political leaders say much about those four million people – more than the population of of Los Angeles. They’ve been tossed aside, along with the rhetoric that proved so useful just a few months ago.

Income inequality / Jobs crisis / Martin Column / President Barack Obama - 04/02/2013

Hold on to your wallets, the privatization circus is back in town

If public-private partnerships were such a good idea, our bridges and roads wouldn’t be crumbling and our middle class wouldn’t be facing extinction.

Because public-private partnerships, touted by President Obama in his State of the Union speech as a key tool in his administration’s second term, have been around for a long time.

Fifteen years ago, Pulitzer Prize-winning journalists Donald Bartlett and James Steele, after an 18-month investigation for Time Magazine, called public-private partnerships a form of corporate welfare and raised doubts about their effectiveness [no link].

Too often, public-private partnerships have meant local or state governments handing over valuable pubic assets to private control without adequate public oversight.

These partnerships come in many forms – governments leasing out parking lots, contracting with private firms to build toll roads, funding repairs of bridges with money from union pension funds repaid with public bonds.or the ever-popular public subsidy or tax break for the promise of new jobs or even just maintaining the jobs in a particular location.

In the wake of the financial collapse, politicians across the spectrum from economically strapped cities and states have latched on to public-private partnerships as a way to fund projects that were once paid for wholly out of public funds.

One city that has embraced the public-private partnerships with gusto is Chicago, President Obama’s hometown – with dubious results. In one notorious deal, the city leased its parking meters for 75 years to a Morgan Stanley-led partnership in exchange for $1.6 billion upfront. Later citizens watched as parking rates skyrocketed and the full costs of the deal to taxpayers emerged – the city was obligated to pay the Morgan Stanley partnership $11.6 billion over 75 years.

Another fan of private-public partnerships was the president’s former Republican opponent, Mitt Romney. As a private businessman, his firm, Bain Capital, benefited from many goodies bestowed by government officials, making “avid use of public-private partnerships,” the Los Angeles Times reported. While Romney liked to brag about the jobs Bain created at an Indiana steel mill, he didn’t mention the tax breaks and other subsidies taxpayers gave Bain to create those jobs.

As Chicago attorney Clint Krislov said of his city’s foray into public-private schemes: “I think this is just the latest way for people to make money off state and local governments. This is the new way the investment banks, their lawyers, and consultants squeeze the taxpayers....They’re going around making these deals, and it’s very lucrative. It’s like a circus coming to town.”

The most egregious example of a public-private partnership gone wrong is the 2008 federal bailout of the financial industry: after the bankers’ recklessness and fraud wrecked the economy, taxpayers came to the rescue, as government officials promised that the goal was not to enrich bankers but to restore Main Street. But bankers got billions without any conditions, while Main Street continued to suffer. When we hear the grand promises of everything that public-privatization can do for us, we should remember who won and who lost out in the bailout.

Martin Column / President Barack Obama / Privatization / TARP / Tax breaks - 03/14/2013

Recuse Obama's 1 percent economic team

While President Obama campaigned for reelection as a candidate to fight for the 99 percent, he has assembled a second-term economic team that is extraordinarily cozy with the 1 percent.

His picks for Treasury, the head of the Securities and Exchange Commission and director of the Office of Management and Budget are guaranteed not to make anybody on Wall Street or the biggest corporations nervous.

First there was the prospective SEC chief, Mary Jo White, a tough former prosecutor who cashed in as a top defense attorney for big bankers post-bailout. When bankers like John Mack of Morgan Stanley needed to make insider charges go away or Jamie Dimon needed to make sure settling federal foreclosure fraud charges didn’t hurt too much, Mary Jo White was by their sides.

Then came the new Treasury secretary, Jacob Lew, the recipient of a series of lucrative favors from Citibank during his incredibly profitable trip through the Wall Street-Washington revolving door. The most galling was Citibank’s nearly $1 million bonus for Lew – after the bank was bailed out by taxpayers. The bonus was contingent upon him snagging a high-level government job.

That was not Lew’s only taste of taxpayer-funded generosity. Earlier, he got another big, highly unusual bonus on his way out the door from an executive position at state-financed New York University, after making a deal for Citibank to handle the school’s loan business. Meanwhile NYU students were seeing their tuition skyrocket. So after cutting a deal with Citibank, Lew gets a bonus from New York taxpayers to leave NYU. Then he gets hired by Citibank – no big surprise – and then gets a bonus to leave Citibank if he can become a high-ranked alumnus.

No wonder we call him “Lucky Lew.”

In the midst of all the recent furor over the sequester, the Senate confirmed Lew with little debate – and few answers to the many questions raised by his taxpayer-funded bonuses and benefits. One Republican senator spoke fiercely against Lew. Sen.Charles Grassley of Indiana said on the Senate floor, “Mr. Lew’s eagerness and skill in obtaining bonuses, severance payments, housing allowances and other perks raises concerns about whether he appreciates who pays the bills.”

Lew was confirmed with barely a peep from Republicans or Democrats. Independent Vermont Sen.Bernie Sanders, who caucuses with Democrats, voted against Lew.

Democrats fell in line with their president. But why did Republicans make so little fuss about Lew? (Only 25 voted against him.) Sen. Orrin Hatch, of Utah for example, offered a long list of reasons why choosing Lew was a bad idea, then voted for him.

This was after Republicans had mounted a robust attack on Obama’s nominee for defense secretary, Chuck Hagel, the former Republican senator from Nebraska. Hagel might have had an easier time if he was pushing Wall Street’s agenda of punishing the vast majority with of Americans with a bitter stew of unemployment, falling wages and austerity after a severe recession that Wall Street, not Main Street, caused.

Lew and White, meanwhile, have both offered comfort to the bankers. Lew told a Congressional committee that he doubted deregulation was a major cause of the financial collapse that wrecked the economy and forced taxpayers to pay for big bankers fraud and recklessness. For her part, White expressed concerns about overzealous prosecutors unfairly targeting bankers.

The latest candidate that Obama wants to put on the economic team, Sylvia Reynolds Burrell is, like Lew, an alumnus of the Clinton administration team who was mentored by then-Treasury secretary Robert Rubin. He helped big bankers’ dreams come undo true by working to end the Depression-era Glass-Steagall law before going through the revolving door himself to become Citibank’s president.

Reynolds went on to work at the Gates Foundation before taking over the Wal-Mart Foundation, the charitable arm of one the nation’s biggest and most profitable corporations, as well as one of the largest employers of low-wage workers.

She is not without ties to big financial institutions, serving on the board of directors of MetLife, the country’s biggest life insurance company. In the post Glass-Steagall world of high finance, Metlife through its subsidiaries lost big on bundled derivatives based on worthless real estate loans.

It’s quite a team the president is assembling, drawn from the country’s largest corporations and those who represent their interests. They may be very smart people. They also share this: one can scrutinize their records and find no hint of any of them questioning the impact of excessive corporate power or the big banks, or advocating policies that would empower and revive the middle-class. President Obama’s economic team exposes the wide and painful gap between his election-year rhetoric about income inequality and his willingness to do something about it.

White has already said she will recuse herself, if she is confirmed, from cases involving her former clients – not that the SEC has shown much interest in scrutinizing the too-big-to fail banks. Lew should likewise remove himself any decision-making that would affect Citigroup, though that would leave him twiddling his thumbs for most days, since the Treasury’s main job in the Obama administration so far has been figuring out ways to prop up Citigroup and the other too-big-to-fail institutions.

Bonuses / Citibank / Income inequality / Martin Column / President Barack Obama / Too Big To Fail - 03/06/2013