Punishment for Felonious Banks

July 7, 2015 by Leave a Comment

Robert Reich, economist, author, blogger, public servant, is always worth turning to in order to understand the world, and some striking alternatives to the status quo.  Here is a June article from his web site, robertreich.org recommending some innovative punishments for felonious banks.

When real people plead guilty to felonies, they go to jail. But big banks aren’t people despite what the five Republican appointees to the Supreme Court say.

The executives who run these banks aren’t going to jail, either. Apologists say it’s not fair to jail bank executives because they don’t know what their rogue traders are up to.

Yet ex-convicts often suffer consequences beyond jail terms.

In many states they lose their right to vote. They can’t run for office or otherwise participate in the political process.

So why not take away the right of these convicted banks to participate in the political process, at least for some years? That would stop JPMorgan’s Dimon from lobbying Congress to roll back the Dodd-Frank act, as he’s been doing almost non-stop.

Why not also take away their right to pour money into politics? Wall Street banks have been among the biggest contributors to political campaigns. If they’re convicted of a felony, they should be barred from making any political contributions for at least ten years.

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Greeks Off the Cliff

July 6, 2015 by Leave a Comment

So the Greeks have voted NO to accepting more austerity as the price of more loans from the Big 3 European banking institutions.  At least most Greeks.

The final results of Greece’s bailout referendum are in, with all 19,159 precincts reporting. The “No” side won with a higher than expected 61.31 percent, while “Yes” got 38.69 percent.

A total of 6.16 million Greeks voted in Sunday’s referendum, or 62.5 percent of eligible voters. The poll needed a minimum 40 percent turnout to be valid.

As usual, one has to wonder about the 37.5% who chose not to vote, in perhaps the most direct and pressing question any electorate has ever been asked to vote on.

What happens next is not at all clear, though certainly more negotiations will take place between the Greek government, their creditors and at least one of the 3 banks, the IMF.  If that fails, as would seem likely, bankruptcy will be declared, ties will be severed between the Eurozone and Greece, and somehow a new currency will be put in place.  One hopes smart people are at least at the drawing boards for that.

It seems to me that in calculations and negotiations not all the externalities are factored in.  One easy postulate for Germany and France, for example, it that a severe weakening of Greece and its economy would make its shores the destination of choice for migrants from the Middle East. Certainly, Turkey, Greece’s near neighbor and once-upon-a-time applicant to join the Eurozone, will be having second thoughts, if only because of the bad management of the whole slow growing crisis.

Not only that, but as with drunk driving charges only being brought against the drinker and not the salesman behind the bar, most of the opprobrium has been directed against Greek pensioners. Here’s a counter-view by an investment banker.

The northern Europeans … were outright enablers of Greek excess. Not only did they aggressively seek to provide loans to Greece during the bubble era (through their private banking sectors and the bond markets), but in what can only be seen historically as a panicked response to preserve the euro system, the euro group (through the European Central Bank and its individual country central banks), together with the International Monetary Fund, bailed out European banks and the bond market by socializing Greece’s bad debt and placing taxpayers throughout the euro zone at risk of sharing the losses thereon.

Paul Krugman has also been a strong opponent of the austerity hawks in Europe, and today repeats his belief that Greece exit from the Euro currency may be better than staying in.

The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding.

Though it’s a lot to ask, I know, I hope the analysts and scholars are hard at work figuring out how it came to this.  When is lending bad policy? How is any group of people rescued from bad luck + bad decisions+ co-dependency with others?  How can improvident loans be identified and those who made them be recipients of the largest ‘hair cuts?” Given the data banks of information of economies rising and falling, how can better predictions be made?  A surplus of questions is swirling, even with a drought of wisdom.

How this might affect “us” depends of course on who “us” is.  If us is drawn narrowly to be our close family, perhaps not too much — some fear of stock market gyrations and uncertainty.  If us is instead, we the people of the world, some of us have been suffering outside their share of human misery already, and may suffer more.

Bernie Sanders has called on the U.S. to understand the problem in also ours, as I’ve wondered for months why it has seemed to be only a German-Greek fight.

“It is unacceptable that the International Monetary Fund and European policymakers have refused to work with the Greek government on a sensible plan to improve its economy and pay back its debt,” Sanders said in an exclusive statement to The Huffington Post. “At a time of grotesque wealth inequality, the pensions of the people in Greece should not be cut even further to pay back some of the largest banks and wealthiest financiers in the world.”

All the best to the Greek people, one of whomcalled yesterday, elated by the vote but completely unsure how he or the country was going to make it through the next year.

Ω

If you really want to get down in the weeds about Germany’s claim to the moral high-ground over indebtedness, here are two interesting articles by Eric Toussaint: #1 Greece-Germany: who owes who? (1) London 1953: cancellation of the German debt and #2 Creditors are protected, the people of Greece sacrificed

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Short Term Thinking in a Long Term World

May 21, 2015 by Leave a Comment

Eduardo Porter, business columnist for the NY Times (and always worth reading) tells us the deferred gratification discipline that made modern capitalism such a force is falling apart.

… talk to a scientist in a research lab almost anywhere and you are likely to hear that the edifice of American innovation rests on an increasingly rickety foundation.

Investment in research and development has flatlined over the last several years as a share of the economy, stabilizing at about 2.9 percent of the nation’s gross domestic product in 2012, according to the National Science Foundation.
That may not be far from the overall peak. But other countries are now leaving the United States behind.

And even more critically, investment in basic research — the fundamental building block for innovation and economic advancement — steadily shrank as a share of the economy in the decade to 2012, the last year for which there are comprehensive statistics.

The trend poses two big challenges. The first concerns government budgets for basic research, the biggest source of financing for scientific inquiry. It fell in 2013 to substantially below its level 10 years earlier and, as one of the most politically vulnerable elements in an increasingly straitened federal budget, looks likely to shrink further.

Of course this would have been made clearer by removing the passive voice.  It didn’t just fall.  It was deliberately and consciously cut by a  determined sector of congress, almost entirely Republicans…”

The second, equally important, challenge regards the future of corporate research. Evidence suggests that American corporations, constantly pressured to increase the next quarter’s profits in the face of powerful foreign competition, are walking away from basic science, too.

And again pressured by whom? Actual pressure, or imputed pressure?  The following is more specific:

Corporate executives, their compensation tied overwhelmingly to short-term gains in the market value of their companies, may be responding accordingly.

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Going After the Bigs

May 11, 2015 by Leave a Comment

From Australia:

Australian Treasurer Joe Hockey has said the government will introduce a new tax crackdown against 30 multinational corporations.

Without identifying the targets, Mr Hockey said the big corporations were “diverting profits earned in Australia away from Australia to no-tax or low-tax jurisdictions”.

He described the crackdown as “the first of its kind in the world”.

The legislation will be introduced to Parliament on Tuesday.

Mr Hockey said it was “pretty evident” which companies would be targeted.

Big multinational firms such as Google, Apple and Microsoft have been accused of moving their profits to countries with lower rates of tax.

BBC

From Bloomberg News: Elizabeth Warren is the Real Deal

Warren is a problem the financial industry didn’t expect to have right now. With the Republicans in control of Congress, this should be the time for Wall Street to soften regulators and their rules. The financial crisis is over, the housing market is recovering, and the economy is stable. A year ago, the sense of urgency about keeping a close watch over the financial industry seemed to be subsiding. Not anymore. Warren has re-sounded the alarm.

“There is a lot of talk coming from Citigroup about how Dodd-Frank isn’t perfect,” Warren continued. “So let me say this to anyone who is listening at Citi. I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

…

“More than any of the senators, she is making Wall Street nervous,” says Dick Durbin, a Democratic senator from Illinois and a fellow financial reformer. This spring, news broke that bank executives had told Democrats they were unhappy about the anti–Wall Street rhetoric coming from Warren and others. In some conversations, executives reportedly suggested they might withhold donations. Warren used the news as an opportunity to remind the public once again how banks wield power in Washington. “The big banks have issued a threat, and it’s up to us to fight back,” she promptly e-mailed supporters, asking for donations.

Bloomberg News — including a nice graphic of friends and enemies.

And Krugman at the Times weighs in, calling out the Wall Street Vampires:

…. let’s just note that these days Wall Street, which used to split its support between the parties, overwhelmingly favors the G.O.P. And the Republicans who came to power this year are returning the favor by trying to kill Dodd-Frank, the financial reform enacted in 2010.

And why must Dodd-Frank die? Because it’s working.

…. Republicans would love to undo Dodd-Frank, but they are, rightly, afraid of the glare of publicity that defenders of reform like Senator Warren — who inspires a remarkable amount of fear in the unrighteous — would shine on their efforts.

Does this mean that all is well on the financial front? Of course not. Dodd-Frank is much better than nothing, but far from being all we need

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Inequality Rules

May 6, 2015 by Leave a Comment

Eduardo Porter in the NY Times business section, always interesting to read, reminds us that inequality is not simply a minimum wage issue.  Citing Joseph Stiglitz’s latest book, “The Great Divide” (W.W. Norton & Company), he writes:

It includes the steady tightening of intellectual property rights and the rise of finance, with its lavish rewards for activities of dubious social value. It includes the furious consolidation of industry, which has reduced competition across the economy.

Professor Stiglitz is particularly incensed by the Obama administration’s attempt to include investment pacts in trade agreements it is negotiating with Asia and Europe, which would allow multinationals to sue governments for compensation if regulation hurts their profits.

Another commentator, Shi-Ling Hsu at the Florida State University College of Law, that that a huge piece of the inequality puzzle is being missed:

 the role of law in distributing wealth.” Subsidies, tax treatment, legal protection and other mechanisms conspire to aid the wealthy while often serving to damp economic gains.

Grandfathering existing businesses to protect them from new regulation is a classic way to protect profits, shielding incumbent businesses and deterring new entrants that would face costlier regulations. Granting water rights to whoever first uses the water amounts to another gift to business that can entail large social costs. (In California, for example.)

Read it all.  Good thought points

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Corporate Welfare

May 2, 2015 by Leave a Comment

Editorial in the NY Times today

… as labor standards have eroded, allowing profitable corporations to pay chronically low wages, taxpayers are not only supporting the working poor, as intended, but also providing a huge subsidy for employers by picking up the difference between what workers earn and what they need to meet basic living costs. The low-wage business model has essentially turned public aid into a form of corporate welfare.

I’m sure all sorts of investigations are going to pop-up to find out why this is happening….

Short of cracking down on such welfare frauds, California has an idea worth pursuing…

In 2016, California will start publishing the names of employers that have more than 100 employees on Medicaid and how much these companies cost the state in public aid.

Excellent!

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Tax Subsidies to Corporate Giants

April 15, 2015 by Leave a Comment

From the Washington Post:

The low wages paid by businesses, including some of the largest and most profitable companies in the U.S. – like McDonald’s and Wal-Mart – are costing taxpayers nearly $153 billion a year.

After decades of wage cuts and health benefit rollbacks, more than half of all state and federal spending on public assistance programs goes to working families who need food stamps, Medicaid, or other support to meet basic needs. Let that sink in — American taxpayers are subsidizing people who work — most of them full-time  (in some case more than full-time) because businesses do not pay a living wage.

[Actually, it’s worse than that.  Living wage means enough to live on now, while working. Nothing about putting aside enough, or paying back, for the years you don’t work, can’t work, aren’t allowed to work.]

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$2.1 Trillion Withheld from Contributing to Nation’s Well Being

March 5, 2015 by Leave a Comment

These corporate guys are like teenagers partying at what was once a nice location, tossing junk into the lakes, roaring up and down the roads, turning them into washboards and reading only beer can labels instead learning new and better ways of making the stuff of human nutrition.

Keep their profits off-shore, avoid taxes, contribute to the collapsing of the U.S. infrastructure and education of the young so that eventually the economic ecosystem that enabled their phenomenal growth collapses, and they along with it.

Eight of the biggest U.S. technology companies — including five from the Silicon Valley — added a combined $69 billion to their stockpiled offshore profits over the past year, even as some corporations in other industries felt pressure to bring cash back home.

Microsoft Corp., Apple Inc., Google Inc. and five other tech firms now account for more than a fifth of the $2.1 trillion in profits that U.S. companies are holding overseas, according to a Bloomberg News review of the securities filings of 304 corporations.

The total amount held outside the U.S. by the companies was up 8 percent from the previous year, though 58 companies reported smaller stockpiles.

There are mounting calls to bring back the military draft of young people so that “everyone has a stake” in the decisions to go to war or not.  I say, draft the corporations and the profits they make due not only to their own genius, hard work and good luck, but to the societal, legal and governmental structures that made it possible, and which all need on-going maintenance.  Take that away and the U.S. will soon look like an untended neighborhood, with abandoned houses, broken windows, listless residents and no way to find a way out.

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Ecosystem Services

October 14, 2014 by Leave a Comment

James Surowiecki of the New Yorker, brings to our attention the concept of wealthy countries paying for ‘ecosystem services’ as one tool in the vast array needed to mitigate climate change and associated environmental destruction.  As in many things, Norway is showing by example.

It was notable when Norway announced a deal with Liberia: Norway will give Liberia up to a hundred and fifty million dollars in aid, in exchange for which Liberia will work to stop the rapid destruction of its trees.

Liberia has much of what remains of West Africa’s rain forest, but logging is rampant. The initiative is not an act of charity but a trade: Liberia gets income, which it needs; Norway gets to preserve biodiversity and take a small step against climate change. A similar deal that Norway struck with Brazil years ago helped slow deforestation there. Economists call arrangements of this kind “payments for ecosystem services,” and they follow a rationale known as the Coase theorem. In 1960, the economist Ronald Coase argued that bargaining between parties could, under certain conditions, produce a mutually beneficial and efficient solution to problems like pollution. Trying to force Liberia to stop chopping down trees (by using, say, sanctions) would be high-handed and probably ineffective. Paying Liberia to do so makes both sides better off.

… For the West, which is historically responsible for most of the carbon dioxide in the atmosphere today, paying developing countries to make the transition away from carbon is not only the right thing to do but also squarely in our self-interest. Greenhouse gases emitted in Africa harm us as much as those emitted here. “If Africa just burns the coal and oil that it has at home in order to industrialize, it’ll do trillions of dollars of damage…

Good, thoughtful stuff

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Slashing Spending Increases Deficits

October 8, 2014 by Leave a Comment

Economists Paul Krugman, Brad DeLong and even Larry Summers have long argued that cutting government spending during a recession is bad policy — and have pointed to the failure of such policies in Europe as proof.  Now new evidence supports them.

The fundamental economic question of the last five years has been a simple one: how much does stimulus work? The answer, according to a new paper by Daniel Riera-Crichton, Carlos Vegh, and Guillermo Vuletin, is much more than we previously thought. And that means austerity has also hurt more than we thought — so much so that it might even be self-defeating.

That’s right: cutting spending in a slump might actually make debt problems worse.

…This leaves us in an upside-down world where smaller deficits might actually make our debt problems worse. When interest rates are zero, spending cuts can cripple the economy so much that GDP falls more than the government saves. And that means the debt-to-GDP ratio might increase even though government spending is decreasing — like it has in Greece. That’s why the IMF thinks infrastructure spending would almost pay for itself right now,

WonkBlog: Washington Post

So let’s get it on!  The American Society of Civil Engineers gives the U.S. a D+ for its infrastructure effort.

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