Weekly Audit: Banks Get Big Bucks, Consumers Get Bupkis

 

by Lindsay Beyerstein, Media Consortium blogger

Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.

The Fed justifies the purchase as an infusion of cash into the U.S. economy. The buy-up will certainly be an infusion of cash into U.S. banks. In effect, the Fed will help the government pay back the banks that lent money to finance deficit spending. The hope is that these banks, suddenly flush with cash, will help the U.S. economy by lending money to finance projects that will create wealth and jobs (i.e. opening factories and hiring more workers).

However, as Hudson points out, there’s no guarantee that the banks are going to use the windfall to build wealth in the U.S. On the contrary, he argues, there’s every reason to suspect that they’ll invest the money overseas in currency speculation deals. Why? Because the Fed has also put massive pressure on Congress to push China into raising its currency by 20%. The banks know this because the House voted overwhelmingly to approve such a threat in September.

If the banks convert their extra billions to Chinese currency, and China raises the value of its currency in response to the threat of an across-the-board U.S. tariff on its imports, then banks that bought Chinese RMB when it was still artificially cheap will reap huge profits overnight.

Later in the Democracy Now! broadcast, Nobel Laureate Joseph Stiglitz describes how the U.S. employed a similar strategy of currency devaluation to insulate itself against the ravages of the Great Depression, with devastating global consequences:

So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of “beggar thy neighbor” policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar.

Trade war between the U.S. and China

The U.S. and China have a longstanding trade rivalry, but suddenly the two powers seem to be even more at odds than usual.

William Greider of The Nation argues that plummeting global demand has ratcheted up tensions as the two exporting nations fight over a dwindling pool of customers. The U.S. accuses China of artificially deflating its currency to make its exports cheaper. In retaliation, the U.S. imposed tariffs on Chinese tires and tubular steel. China, in turn, imposed a tariff on U.S. poultry. As I mentioned above, the House voted 348-79 in September to impose additional tariffs on nearly all Chinese imports if China doesn’t revalue its currency, though the Senate has yet to vote on this legislation.

The U.S. acts indignant about China manipulating its currency, but Grieder argues that this stance is hypocritical in light of the Federal Reserve’s decision to buy an additional $600 billion worth of Treasury bonds from the federal government to help finance the budget deficit. One effect will be to weaken the U.S. dollar, which will make our exports more competitive relative to those of China.

Voters reject free-for-all trade

In last week’s midterm elections, voters rewarded candidates who oppose unfettered free trade, according to Kari Lydersen of Working In These Times. According to a new report by Public Citizen, 60 congressional races were fought wholly or largely on trade issues in 2010. Only 37 candidates favored NAFTA-style free trade pacts and half of them lost. Not all the candidates who won on a protectionist trade platform were advocating a progressive agenda of fairly compensating trading partners, protecting American jobs, and upholding environmental regulations. Senator-Elect Rand Paul (R-KY) argued that the World Trade Organization is a threat to U.S. sovereignty.

Anti-union ballot initiatives win big

Mikhail Zinshteyn of Campus Progress brings us an update on the anti-union initiatives that appeared on the ballots in many states last week. Voters in Arizona, South Carolina, South Dakota and Utah approved legislation to preemptively neutralize the already-stalled Employee Free Choice Act (EFCA), should it ever become federal law. EFCA, also known as card check or majority sign-up, would allow workers to organize by signing up for a union, instead of going through a grueling National Labor Relations Board (NLRB) election process, which makes workers sitting ducks for management threats and propaganda.

Bean there, done that

Move over, Elizabeth Warren. The White House may be poised to appoint one of Wall Street’s favorite Democrats to head the new Consumer Financial Protection Bureau. Andy Kroll and David Corn report in Mother Jones that Rep. Melissa Bean (D-IL) is a favored contender for the job if her still-undecided race for reelection doesn’t work out. That would be heartening news for Bean’s former chief of staff, John Michael Gonzalez, now a leading lobbyist for Big Finance.

Bean, who serves on the House finance and small business committees, has received over $2.5 million in campaign contributions from the financial sector over the course of her 5-year career. Bean was also a big beneficiary of the Chamber of Commerce, which vehemently opposed the Dodd-Frank financial reform bill that created the CFPB in the first place. Bean ultimately voted for the bill, but not before she unsuccessfully attempted to water down the consumer financial protections therein, the very provisions Bean would be tasked with enforcing.

“The White House needs to beat back the Bean idea, otherwise they’ll look like fools,” one Democratic strategist told Corn and Kroll. “This is the craziest thing I’ve ever seen. She’s a tool of the financial industries.”

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

Elizabeth Warren - Obama Stretching a Triple Into a Single

Today's Friday Afternoon News Dump from the White House was the official announcement by President Obama that Elizabeth Warren would not be appointed to direct the Consumer Financial Protection Bureau. Instead, Warren was appointed as an assistant to the President and special adviser to Timothy Geithner (i.e. answer to both Rahm and Geithner instead of being an independent voice for consumers).

What this means for policy remains to be seen. Yves Smith lays out a strong case that this is the sidelining of Warren:

However, the end game seems obvious: keep her in orbit through mid-terms to prevent a hissy fit from her many fans, then name a more bank friendly permanent director (the argument no doubt being that her effectiveness is compromised by her not being confirmed, and with the odds high that the elections will put more Republicans in Senate seats, the Administration will argue its hands are tied).

While what this means from a policy standpoint remains to be seen, this is very clearly a total loss when it comes to the politics of the matter. Obama ducked a fight where the GOP would have had to defend Wall Street ripping off consumers, just before the election. This was a fight Democrats wanted -- Democrats needed -- yet Obama let the GOP off the hook. It was a squandered opportunity.

UPDATE: Quick thought exercise: In the 24 hours since the Friday afternoon announcement, in how many senate races has there been local media coverage on whether the GOP nominee supports Elizabeth Warren or defends allowing Wall Street to swindle consumers?

Obama's Last Test

The final financial reform package has been dramatically watered down and is riddled with loopholes. But its supporters (and some critics) say that we shouldn't worry because it at least allows regulators to get tough on the financial industry later -- if they think it's necessary. That is actually true. It does have such provisions.

So, who those regulators are could not be more important. Right now, Tim Geithner is leading the charge to make sure the regulators are as weak and banker-friendly as possible -- as usual. So, he is fighting against Elizabeth Warren.

I don't write this to encourage the president to pick Warren as the head of the Consumer Financial Protection Bureau. That pick is the most obvious thing in the world -- if he cares to actually do consumer protection. Everybody on the planet knows this, and that's precisely why Geithner is fighting against her.

No, I write this to give you a way of knowing for yourself if this financial reform legislation has any chance of working or if it was a Democratic joke all along to pretend they're doing something while continuing to pocket corporate contributions.

Warren is not the only pivotal regulator. I think Gary Gensler at the Commodity Futures Trading Commission is even more important. He's a reformed reformer. He used to work at Goldman Sachs and previously helped to deregulate the industry in the first place. But he has been one of the toughest voices for financial industry reform recently (see, redemption is possible for him and this administration). And his agency can regulate derivatives, stop fraud and limit speculation. That's more important than the Consumer Financial Protection Bureau, which looks to protect consumers on a more micro level.

So, if in a year Elizabeth Warren and Gary Gensler are gone, then you know that it was all a sham. The industry won again and we never really had a chance. If they are still there and they're doing their job of protecting American consumers and taxpayers, then there is hope. We might just pull this economy out before the banks crash it again.

Of course, this is an over-generalization. And our fate is not bound up in just two people. I wouldn't want to put the same kind of faith in them that people did in Obama and hope that everything works out just fine. But they are important indicators. They give us a sense of which direction we're going to go.

The early signs are not good. The Obama administration is reaching out to the Business Roundtable as we speak to see how they can quietly loosen regulations on them again. The CEO of Citigroup says financial reform will not impact their derivative trading at all. And Elizabeth Warren is teetering on the edge as the tools of Wall Street attack her.

We can rally. There can be change. We can have hope. But it's all up to Obama. Which way is he going to go? Is he a smart tactician that's actually going to bring real change in subtle ways through strong regulators or does he think he can play the Washington game a little better and trick us into thinking he gave us real reform while gutting the regulators and protecting the status quo?

No more excuses about the wrong advisors. He can choose right now between good and bad advisors. And everyone knows who is actually trying to do real reform. What's it going to be? You'll know the character of the man by the people he chooses. And you'll also know the economic fate of our country.

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Elizabeth Warren - Obama Stretching a Triple Into a Single

Today's Friday Afternoon News Dump from the White House was the official announcement by President Obama that Elizabeth Warren would not be appointed to lead the Consumer Financial Protection Bureau. Instead, Warren was appointed as an assistant to the President and special adviser to Timothy Geithner.

What this means for policy remains to be seen. Yves Smith lays out a strong case that this is the sidelining of Warren:

However, the end game seems obvious: keep her in orbit through mid-terms to prevent a hissy fit from her many fans, then name a more bank friendly permanent director (the argument no doubt being that her effectiveness is compromised by her not being confirmed, and with the odds high that the elections will put more Republicans in Senate seats, the Administration will argue its hands are tied).
While what this means from a policy standpoint remains to be seen, this is very clearly a total loss when it comes to the politics of the matter. Obama ducked a fight where the GOP would have had to defend Wall Street ripping off consumers, just before the election. This was a fight Democrats wanted -- Democrats needed -- yet Obama let the GOP off the hook

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