Weekly Audit: We Need a 'People's Bailout'

By Zach Carter, Media Consortium Blogger

The economic free-fall is finally slowing down, although nobody expects the recovery to be very pleasant. Job losses and foreclosures are expected to increase well into next year. But even if our economic system gets back to normal, it's important to remember that gross inequalities are embedded in the global order. At home, minorities face significant barriers to economic security, while abroad, children in poor countries are denied access to basic nutrition. This is especially disheartening in the wake of the G-20 meeting in Pittsburgh, which demonstrated that the world's economic leaders are more focused on bailing out banks than eradicating global poverty.

Robert Reich sums up the domestic economic scenario succinctly for Salon. The stock market is humming along, even as most Americans are tightening their belts. It's a counterintuitive situation: Wall Street is celebrating an economic recovery, but the consumers that drive our economy are still cutting back. Reich explains that the government has stepped in to fill the hole caused by consumer spending. Business executives may scream "Socialism!" when the tax man comes around, but without massive government help, those same CEOs would be watching their earnings and companies collapse.

Without the jobs and tax cuts created by President Barack Obama's economic stimulus package, we'd see more red ink from just about every industry. The entire U.S. mortgage market is currently supported by the federal government via Fannie Mae and Freddie Mac, while other special initiatives like the Cash for Clunkers program brought the auto industry out of its recession-induced coma this summer.

The trouble is, while a few programs have been good for ordinary citizens, most of the government's economic salvage operations are aimed at giant corporations. Of all the paradoxes in today's economy, the most significant can be found in the financial sector. Bank stocks are up, even though banks are in serious trouble. Their customers are broke, foreclosures are soaring, and analysts are predicting a fresh round of multi-billion-dollar losses on commercial real estate loans soon. So what makes an investor want to buy a bank stock right now? Nothing but the government's limitless willingness to bail out banks.

How much bailout money did the government actually spend? We've all heard about the $700 billion Troubled Asset Relief Program (TARP), but the real haul for bankers is much, much bigger, as Nomi Prins and Christopher Hayes detail in a piece for The Nation. A whopping $17.5 trillion has been dedicated to subsidies, guarantees, below-market-rate loans, and other special perks for the financial industry. That's roughly one-fourth of the entire global economic output for a full year, and more than the entire annual productivity of the U.S.

Prins and Hayes make use of a clever thought experiment: What if, instead of spending the money on big institutions, the money had gone to a small-time gambler? It's an apt comparison. Taxpayer money went to financial speculators who used our homes and neighborhoods as poker chips in a global casino. The dozen or so bailouts the government has enacted seem absurd when we think of them as cheap financing for bets on the craps table. The number of programs is staggering. Bank executives love to proclaim that their banks didn't really need TARP money, they just accepted it because the government wanted them to. Next time you hear that boast (sometimes it sounds more like a whine), remember that every big bank in the country issued debt guaranteed by the government, then scored ridiculously cheap loans from the Federal Reserve while others got federal help through AIG, Fannie and Freddie.

"A fraction of the $17.5 trillion bailout could have been used to cut the principal of homeowners' mortgages (using homes, even devalued ones, as collateral) and cover student loans at zero percent interest," Prins and Hayes write. "Rather than pouring it into the top layers--the banks--a people's bailout would have cost less and been more humane. And it likely would have prevented the ongoing increase in defaults, foreclosures and general economic anxiety."

There are very good reasons to maintain a healthy financial sector, but only if banks actually do something useful. Banks are supposed to lend money to enable socially productive economic activity. This bailout money has not been spent on anything socially productive. Instead, it's covered losses from predatory lending and boneheaded speculation.

The dominant cause of the recession was the collapse of an $8 trillion housing bubble, which banks helped inflate with all outrageous loans. For decades, the value of a family's house was the foundation of most American middle-class wealth. When home prices took a nosedive, so did the spending power of every homeowner. Even borrowers who had affordable mortgage payments were hit hard. For borrowers stuck with expensive, predatory mortgages, the result was a wave of foreclosures. Writing for Mother Jones, Andy Kroll highlights a hard reality: Recovery in the housing market will not lead to middle-class financial security. It will be at least a decade before home prices reach pre-crash levels.

It's critical to remember how the recession is deepening existing inequalities, particularly along racial lines. In a post for In These Times, Michelle Chen explains how African Americans and Latinos are consistently paid less than whites during boom times, and are pushed even further down the ladder when things go bust. Communities of color are more likely to be targeted by predatory lending, which can devastate entire neighborhoods for generations. That means people of color are more likely to be foreclosed on, more likely to be laid off, and less likely to have access to basic necessities like health insurance.

The statistics are stark. In a story for New America Media, Christina Fernandez-Pereda, notes that while the overall unemployment stands at 9.7%, for minorities, the actual number is much higher. A full 15.1% of Blacks are unemployed, while unemployment among Asian Americans has doubled since early 2007. A full third of Latinos between the ages of 16 and 29 are unemployed.

The bank bailout has done nothing to improve the status of the global poor. The G-20 made grand promises to help those who need it most in developing countries this year, but so far, the talk has resulted in very little action. As Hayley Hathaway explains at Sojourners, only $50 billion has been dedicated to the 78 countries where humanitarian risk is greatest. As Hathaway notes, that's less than 25% of the TARP money received by the 20 largest U.S. banks.

Without major action, between 1.4 million and 2.8 million children will die of malnutrition in the next five years. Instead of pushing major humanitarian aid, the G-20 has promised $750 billion to the International Monetary Fund. The IMF was supposed to act as an international lender of last resort--if a nation's financial woes got really bad, they could get a loan from the IMF while they restructured. But IMF money ends up flowing to private-sector banks, and governments in need are forced to cut spending on programs that help the poor. When the G-20 met in Pittsburgh last week, a major topic of discussion involved giving developing nations a greater voice in IMF policies. But despite this talk, wealthy nations remain committed to the status quo, protecting the interests of their bankers eyeing future international bailouts.

For most people, it will be a long time before our economic recovery is a reality. But as the economy crawls out of the ditch, it's critical to build our future on a stronger foundation, one where we don't allow millions children to starve and where skin color does not determine economic security.

This post features links to the best independent, progressive reporting about the economy and is free to reprint. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

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Weekly Audit: Ending the Economic Status Quo

by Zach Carter, TMC MediaWire Blogger  

The banking lobby still holds enough sway inside the Beltway to torpedo sensible consumer protection rules, even after releasing a flood of predatory mortgages that kicked off the current economic crisis. On issues ranging from payday loans to subprime mortgages, the banking industry continues to successfully defend itself against new regulations that would protect the consumer. As if that weren't outrage enough, the finance lobby has also joined other corporate interest groups to fund misinformation campaigns that smear unions and block wage growth.  

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Weekly Audit: Why Accountability Matters

 

by Zach Carter, Media Consortium MediaWire Blogger 

With workers all over the globe trudging through a catastrophic recession, it's almost a given that governments will be battling the economic slide for a long time. Part of the effort to rebuild must involve new rules and regulations, but meaningful systems for economic accountability will be just as essential. If we do not hold the reckless executives who caused this crisis accountable for their actions, we risk regressing into similar turmoil in the near future.  

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Post-Stimulus, Obama Is Losing The Right, Consolidating The Middle and Left

During the stimulus debate, Republicans waged all out war on the president's plan, blanketing the airwaves with born again deficit hawks and, at one point, at least, seemed to actually be winning the stimulus message war. So what did they get for their hard work?

An increase in deficit anxiety? Check:

Overall, 59 percent of Americans are now "very concerned" about the size of the federal budget deficit, 10 percentage points higher than in a Post-ABC poll in mid-December.

A decrease in President Obama's approval rating? Check:

President Barack Obama remains highly popular among the U.S. public at the end of his first month in office. However, the 63% of Americans currently approving of his job performance is down slightly from his initial 68% rating in January. The percentage disapproving has doubled, from 12% to 24%.

But look more closely at the numbers and you see these poll results have two things in common: 1. the rise in deficit anxiety and drop in Obama's approval are almost entirely due to shifts among Republicans and right-leaning Independents; and 2. among Democrats, Obama's approval has actually risen and deficit anxiety has dropped.

From WaPo/ABC News's poll on attitudes toward the deficit:

Among Democrats, though, top level concern has slipped four points, despite the billions in new governmental outlays passed by the new Democratic president and the Democratically-controlled Congress.

By contrast, 74 percent of Republicans in the new poll expressed grave worry about the deficit, 29 points higher than in December when George W. Bush held the reins.

Sixty-one percent of independents are very concerned about the deficit, up 12 points from December, with the increase almost entirely among those who said they tend to side with the GOP.

From TPM's summary of the Gallup presidential approval poll:

Between the polling sample from January 21-25, compared to February 9-15, Obama's ratings went from 90% to 94% among self-identified liberal Democrats, from 87% to 88% among moderate Dems, from 80% to 84% with conservative Dems, and from 47% to 50% among independents. On the other hand, his approval fell from 53% to 47% moderate Republicans, with a plummet of 36% down to 22% with conservative Republicans.

While some pundits like to dismiss political disagreement as "partisan" as though the Ds and Rs next to people's names are primarily responsible for disagreement on political issues, what's become clear is that the stimulus bill has revealed a deep-rooted ideological faultline: the more liberal you are, the more comfortable you are with the stimulus package, the more conservative you are, the less you support it and the president. Which reveals a couple of lessons that I hope the administration takes away: the Republican noise machine is effective but only among a small minority; and while pushing progressive priorities will lose him some support on the right, it will solidify his support among the middle and the left.

I hope you're listening, Mr. President.

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Stimulus Getting Smaller

After the Senate passed their version of the stimulus package yesterday, the conference committee wasted no time negotiating a compromise bill with the White House. The problem is, it's getting even smaller.

Negotiators for Congress and the White House have tentatively settled on a $790 billion price tag on President Barack Obama's economic stimulus bill and are working to narrow differences on individual elements of the bill.

After unofficial talks stretching into the late evening on Tuesday, officials announced a formal meeting of negotiators for mid-afternoon in the Capitol as they try to get a bill to Obama's desk for signing by week's end.

The smaller cost of the bill seems to be the price for some concessions to the President, namely the restoration of at least some of the funding to states:

Democratic aides said that Obama's negotiating team had prevailed in restoring some lost funding for school construction projects during talks Tuesday, and had also increased aid to state governments above the $39 billion approved in a compromise with a handful of Senate GOP moderates.

In addition, it looks like some tax breaks for people who, let's face it, will have minimal stimulative impact, have been pared down a bit.

Baucus had said earlier that $35.5 billion to provide a $15,000 homebuyer tax credit, approved in the Senate last week, would be cut back. There was also pressure to reduce a Senate-passed tax break for new car buyers, according to Democratic officials.

At least there seems to be some good faith bargaining here -- no one is stomping their foot and refusing to play nice. But, really, the pared down size of the new package will make it far more difficult for the bill to have the impact it needs to have and virtually guarantees that Obama is going to have to come back for more, which sort of makes you wonder if that's the whole point.

dday:

The Axis of Centrism sees reducing the effectiveness of the bill as an end in itself. They've already reduced it to a half-measure, and they're coming back for more. Did Obama's early emphasis on post-partisanship rather than browbeating Republicans into acceptance change this reality? I'm not really sure. The moderates seem to be goring this bill and liking it, and no matter Obama's pose he would still be constrained by the essential nature of getting something passed.

It's Susan Collins and Ben Nelson's world, we're just living in it.

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