D.C. Disconnect: It's Just a JOBS Recession

According to one of the pontificators on NPR’s Marketplace, the economy is actually fine, we’re just in a “jobs recession.”

Now I feel better.

This is what passes for insightful commentary among the media elite on the day that unemployment shot back up to 9.2 percent.

“If you’re rich, it’s great,” says Felix Salmon, Reuters columnist. “But if you’re a working person it’s terrible.”
As for President Obama, he reacted to the terrible jobs report by saying: “We still have a long way to go.”

Except he shows no inclination to go there.

He’s wrapped up in the Republican austerity agenda so tight he can’t find his way to suggest anything to reduce unemployment.

He meekly suggested that reducing the deficit would help create jobs, though most economists acknowledge such cuts will hurt the economy – and the unemployed.

We all know that President Obama needs to raise $1 billion for his presidential campaign, and Republicans are falling over themselves to kill financial reform in their efforts to woo Wall Street. You have to admire the Republicans' focus: they don't give a damn about the economy, they only care about getting rid of Obama.

But both Obama and the Republicans they must be counting on only the rich voting.

The day before the jobs report, Obama’s top political adviser told Bloomberg News that the unemployment rate wouldn’t hurt Obama’s reelection chances. Obama adviser David Plouffe also asserted that people thought that the economy was getting better, based on anecdotal evidence.

Here’s what Plouffe had to say:

“You see, people’s — people’s attitude towards their own personal financial situation has actually improved over time. You know, they’re still concerned about the long-term economic future of the country, but it’s things like “My sister was unemployed for six months and was living in my basement and now she has a job.

There’s a — a “help wanted” sign. You know, the local diner was a little busier this week. Home Depot was a little busier. These are the ways people talk about the economy.”

Either Plouffe is drinking his own Kool-Aid or thinks he can play off the worst economic downturn since the Great Depression as a minor dip.

As emptywheel points out on Firedoglake, the measures of consumer confidence don’t agree with Plouffe’s blithe assessment. As emptywheel suggests, if they expect voters to keep them in their jobs, Plouffe, Obama and the rest of the administration need to get out of their bubble and start listening “to the pain of real people.”

Martin Berg

 

The Scandal That Won't Go Away

Despite the efforts of our public officials and bankers to ignore it, downplay it, paper it over or make it disappear, the fraud surrounding the mortgages at the heart of the financial collapse is the scandal that won’t go away.

Two big stories breaking over the past week showed what strong legs the scandal has. First, Huffington Post reported on a series of confidential audits that showed five of the country’s largest mortgage companies defrauded taxpayers in their handling of foreclosures on homes purchased with government-backed loans.

Then the New York Times and others trumpeted an investigation of the mortgage securitization process by New York’s new state attorney general, Eric Schneiderman. This investigation won strong praise from two of the toughest watchdogs on the financial beat, Matt Taibbi at Rolling Stone and Robert Scheer at Truthdig, who portrayed Schneiderman as a hared-charging prosecutor who unlike the feds and other state attorney generals, is not intimidated by Wall Street.

But Reuters financial blogger Felix Salmon argued that confidential audits, which were turned over to the Justice Department were a much bigger story than Schneiderman’s investigation.

Until Schneiderman’s investigation bear some fruit, I think history suggests we should be skeptical of officials who claim they are going to get tough on the banks and protect consumers.

Salmon pinpoints the real significance of the Schneiderman investigation – the continuing cracks in the state attorney general’s 50-state coalition that was negotiating with the banks to settle claims of mortgage fraud. Some Republicans had already criticized the state attorney generals for being too tough on the banks, referring to a proposed settlement as a shakedown. Other critics have raised questions about whether the attorney generals are being too soft, having sat down to negotiate without having done robust investigations first to gather ammunition.

Whatever the outcome of these on-going investigations’s, the week’s news guarantees one thing – the mortgage fraud scandal, and its offspring the foreclosure scandal, are not going away any time soon.

 

 

 

 

 

 

AIG Founder Asks “Terrorists” for Help

One of the particularly infuriating aspects of the financial crisis is the unapologetic hypocrisy of the Wall Street titans.

These devotees of free markets didn’t hesitate to grab the taxpayer life preservers blithely tossed to them by the U.S. Treasury when they were about to go under. Taxpayers never got a “thank you,” much less “I’m sorry,” from these geniuses who nearly destroyed our economy.

But one among them has set himself apart. I refer to Maurice Greenberg, the founder of American International Group, or AIG. In its prime, AIG was possibly the largest insurance company on the planet, selling everything from life insurance to environmental liability coverage for big corporations.

Greenberg was used to the royal treatment accorded the billionaires at the top of the Money Industry. He pulled in $20 million in 2004 from AIG and an off-the-books executive slush fund the company setup for its top execs.

Like many of his peers at that level, Greenberg was a major player in American politics. AIG and Greenberg’s charities donated tens of millions of dollars to grease the wheels in Washington and keep his company free of regulation.

But unlike many of his insurance brethren, who had figured out that they were usually better off keeping their thoughts to themselves, Greenberg never hesitated to pronounce his views, especially when he thought it was good for business. So Greenberg put himself and his behemoth insurance company at the forefront of “tort reform” – an insurance industry inspired propaganda effort to blame trial lawyers and personal injury lawsuits (“torts”) for higher insurance premiums.

“Tort reform” conveniently diverted public attention from the fact that insurance companies were raising rates in order to offset investment losses in the stock market  - often while friendly state insurance regulators looked the other way. There was another benefit, too. The “solution” advocated by the insurance companies was to restrict the rights of Americans to have their day in court. This usually involved capping damages or attorneys fees, both of which enabled insurance companies to pay out less in claims, and keep more money for themselves. Too many willing state legislatures fell for this trick, though California voters ultimately got it right and capped the insurance industry’s premiums.

Back in 2004, when George Bush and the Corporate Republican Establishment were firmly in control of Washington, “tort reform” was high on their list of priorities. In fact, they expanded their attack, targeting the class action lawsuits that consumers often bring against corporations. Greenberg was a particularly vociferous cheerleader for the push to limit the ability of injured or ripped-off consumers to undertake a class action.

Referring to legislation that would restrict consumers’ ability to bring a class action lawsuit, Reuters reported in 2004 that "Greenberg likened the battle over reforming class action litigation to the White House's 'war on terror.’” Reuters quoted Greenberg as saying, “It's almost like fighting the war on terrorists….I call the plaintiff's bar terrorists."

That was 2004. A year later, Greenberg himself was in a world of legal trouble (PDF). He was ousted in 2005 after an investigation by New York Attorney General Elliot Spitzer found that AIG had engineered a series of sham transactions intended to make AIG’s financial picture look better. In 2006, AIG paid $1.6 billion to settle a variety of charges.

Then came the financial collapse. AIG was at the forefront of the form of Wall Street gambling known as “credit default swaps,” under which AIG would sell insurance on packages of subprime mortgages known as “derivatives.” Though long gone, Greenberg remained AIG’s biggest shareholder, so he lost billions when AIG’s credit default swaps went into default and the Bush Administration took over the company in exchange for a taxpayer bailout that now totals $182 billion.

Ever since then, Greenberg’s been insisting on justice… for himself.

Demanding an investigation of the government’s decision to seize AIG, Greenberg suggested “class-action lawsuits that put people under oath in depositions and discovery.”

A fervent deregulator, Greenberg now blames the federal government for failing to regulate his industry. “I don’t recall any regulator coming to look at the [insurance] holding companies, and if they did, it was a very superficial job,” according to a report on a speech Greenberg gave last year.

In a speech in February, Greenberg had this to say about improving America’s judicial system: “We go around the world preaching about the importance of the rule of law…. We better take a look at America and make sure we have the rule of law here first.”

Fed Up: Down With Bernanke

President Obama can’t credibly rail against Wall Street fat cats while fighting for their chief enabler.

Here’s all you need to know right now to decipher the confusing messages from the White House and the Democratic leadership:

Ignore the faux populist rhetoric and keep your eyes on the contentious U.S. Senate vote on confirmation of Ben Bernanke to a second term as chair of the Federal Reserve.

If Obama and Democrats want to show they now “get it” on why people are so angry over the mishandling of the bailout and the economy, they should dump Bernanke without delay.

But the White House and Democratic leadership, including senators Harry Reid and Chris Dodd, continue to strongly support Bernanke. Other Democratic senators, like Russ Feingold, Bernie Sanders and Barbara Boxer, as well as Republicans such as senators Richard Shelby and John McCain, oppose him.

The prime reason Bernanke deserves to be dumped is that he is not a reformer or strong regulator during a time of reform and increased regulation. The crisis hasn’t caused him to reconsider. Bernanke even opposes a key plank in President Obama’s reform proposal – the Consumer Financial Protection Agency.

He may nod reassuringly in the direction of Main Street but he’s an insider of the Wall Street elite whose prevailing philosophy is a combination of “What’s good for Wall Street is good for the U.S.A” and “There’s a sucker born every minute.”

Some observers credit Bernanke with keeping the country from slipping into another Great Depression.

The country managed to avoid an economic fiasco on the scale of the depression. But why should Bernanke get the credit?

Everything the Fed does is cloaked in a secrecy and doublespeak that mocks the president’s promise of the most transparent administration in history.

What we know for sure about the Fed’s response is that it shoveled cash and cheap credit in the direction of its favored Wall Street targets. Bernanke and the Fed have resisted disclosure of any facts and figures about what they did. When the details do emerge, they smell fishy.

For example, Reuters reported on emails that were obtained through subpoena by Rep. Darrell Issa, R-California, who is investigating the role of the Fed in the AIG bailout.

What Reuters found was that the Fed, under Bernanke’s direction, along with the SEC, wanted to protect the details of the AIG bailout with a level of secrecy usually reserved for matters of national security.  In the emails, Bernanke’s staff ridicules the clamor for more public disclosure about the bailout.

At issue are payments the Fed made to firms that carried insurance with AIG on bed bets those firms had made on investments. Those firms, called counterparties, included the likes of Goldman Sachs. The Fed paid off AIG's counterparties 100 cents on the dollar on their bad bets: extremely unusual with companies in such deep distress relying on the kindness of taxpayers not to take some losses.

Just what do Bernanke and the Fed have to hide? Whose interests are being protected?  We need to get to the bottom of those questions, not reward those keeping us from the answers to them.

Even if Bernanke did get credit for his role in the bailout, that wouldn’t be enough reason to confirm him for another term. He missed the housing bubble before the meltdown and has shown no indication he would recognize another bubble when it occurs. He has also misread the impact of the economic stimulus.

In addition, the Fed under Bernanke's watch failed at on one of its cores missions – reducing unemployment. Bernanke is more afraid of increasing inflation than he is of increasing unemployment. It’s time for the Fed to shed its cloak of secrecy and elitism and push for an economy that benefits everybody, not just Wall Street. That transformation will be challenging; Bernanke has shown he’s not the kind of leader for these times.

Obama’s treasury secretary, Tim Geithner, is trying out the old scare tactics, threatening that the markets will fall if Bernanke loses his job. But these are the same kinds of scare tactics that a previous administration used on Congress to forestall debate in its haste to push a poorly considered bailout scheme. We may have expected such tactics from the Bush Administration, but President Obama set higher standards for his administration. Now is the time for him to live up to them.

Contact the president and let him know what you think. Let your senator know too.