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How Default Would Harm Homeowners, Cities, Businesses And Everyone Else

It’s easy to understand why the government will have more trouble borrowing if it fails to pay its debts, or even has a difficult time paying its debts. It’s a bit harder to see why ordinary Americans, the city of Pittsburgh, hospitals in Iowa, and medium-sized corporations will have more trouble borrowing. But they will. And their trouble borrowing is the main channels through which a default, or even something too close to it for the market’s comfort, could deal a body blow to the economy.

On Wednesday, Moody’s warned that it was putting the U.S. government credit rating on review for a downgrade. But they didn’t stop there. Another 7,000 debt products that are “directly linked to the U.S. government or are otherwise vulnerable to sovereign risk” were also put on review for a possible downgrade. That’s about $130 billion worth of debt. If America tumbles, so do they. But Moody’s still wasn’t done. An unknown amount of “indirectly linked” debt is also getting reviewed.

If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it. It’s going to take the whole credit market with it. Which, as you’ll remember, is exactly how the subprime housing sector took the economy down in 2008.

The first to fall will be “directly linked” debt. These are bonds that rely on payments from the federal government. Naomi Richman, a managing director in Moody’s Public Finance division, puts it bluntly: “There are certain kinds of municipal bonds that are directly reliant on Treasury paying or some other direct payment,” she says. “If those bonds don’t receive their payment, they have no other source of revenue.” So down they go.

Then there’s the “indirectly linked” debt. That’s debt from state government, local governments, hospitals, universities and other institutions that rely, in some way or another, on payments from the federal government. If Medicaid stops paying its bills, all the hospitals that rely on Medicaid’s payments become less creditworthy. If we stop funding Pell grants, then all the universities that enroll students who pay using financial aid become less creditworthy. And since the federal government passes one-fifth of its revenues through to the states, and the states pass those revenues through to cities, if the federal government stops paying its bills, all states and all cities are suddenly in worse financial shape, which will make it harder for them to get loans.

And then there’s everything else. Mortgages. Credit cards. Loans that businesses take out to expand. Much of the debt in the American economy, and in fact globally, is “benchmarked” to Treasury debt. When your bank quotes you a mortgage rate, the calculation begins with the rate on 10-year treasuries and then adds premiums for various types of risk specific to you and your area on top of that. “There’s a whole credit structure,” says Pete Davis, president of Davis Capital Investment Ideas. “Think of it as roads and bridges, but it’s finance, it’s all connected, and it’s all on top of treasuries. Your CD at a bank, your credit card interest rates, your car loans, your mortgages — that’s all built on Treasury rates. So when you shake the basis of it, everything on top of it shakes, too.”

The 2008 economic crisis wasn’t started by a nuclear bomb detonating in New York, or a campaign to sabotage the country’s factories, or a plague that struck our able-bodied young males. Rather, investors bought a lot of debt based on subprime mortgages. They performed some tricky financial wizardry that they thought made the debt low-risk. They found out they were wrong. And then, because the players in the financial system no longer knew how much money anyone had, the credit markets froze and the economy crashed.

Now imagine that happening, not with the housing market, but with the government of the United States of America. The cornerstone of the global financial economy is the idea that Treasuries are risk-free. If they’re not, then like in the financial crisis, no one knows how much money anyone who holds treasuries has. But they also don’t know how much money anyone who depends on the federal government — be they businesses or individuals — holds.

This is how a default gets into the rest of the economy: It takes everything the financial markets thought they could know and rely on and upends it. It then shuts off credit, or makes it prohibitively expensive, for nearly every participant in the economy, from states and cities to hospitals and universities to homebuyers and credit-card applicants. That, in turn, freezes all of their activity, which destabilizes everyone who relies on them, which then destabilizes financial markets further, and so on.

It was one thing to have forgotten that this sort of thing could happen in 2006, when America hadn’t seen it for 70 years. But we just went through it. And if we go through it again, the Federal Reserve, which has pushed interest rates as low as they can go, and Congress, which has vastly expanded the deficit, have a lot less ammunition left for a response.

Are we likely to get to that point? No, of course not. But between here and there are worlds where the economy doesn’t crash, but because the federal government panics the market, interest rates rise and the economy slows. In a recovery this weak, that would be a disaster. And it would be entirely of our own making.

By: Ezra Klein, The Washington Post, July 15, 2011

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July 17, 2011 Posted by | Banks, Budget, Businesses, Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicaid, Middle Class, Politics, Public, Republicans, Right Wing, States | , , , , , , , , , , , , , , , , | Leave a comment

Debt Ceiling Charade: Why Are Republicans Voting Against America’s Interests?

There isn’t much credibility left in Congress, perhaps none at all. In fact, the ceaseless C-SPAN sitcom we call government has offered plot lines from titillating tweets to illegitimate children, foreign lovers to shady cover-ups. But even their writers sometimes run out of ideas. Last week, when they thought you weren’t watching, they stooped to acting out their actual jobs: faking a vote on the debt ceiling.

A group of Republicans and Democrats alongside them turned sacred duty into dramedy. Pretending they would favor something they actually don’t endorse, they voted against their own beliefs and our national interests.

Of course, they first sold their banker buddies the good seats. Along with popcorn and reassurance that they weren’t actually planning a default on our debt, they were just pretending to do so in order to exact concessions.

These “leaders” admit that not raising the debt limit is untenable. Defaulting on our loans, we’re told, has the potential to wreck our economy. In fact, we’re supposed to be very concerned about this economy. It’s not “healthy”; it’s in “free-fall”; it’s “crumbling into ruin”.

But this belies the true damage these members of Congress seem intent to bring upon us. The economy is nothing besides the people that work, buy, save and invest within it. The collateral damage here isn’t to some numerical abstraction; it’s a serious and even fatal blow to Americans. We talk so much about the economy suffering; it’s easy to forget it’s actual people who stand to be hurt badly, over and again.

Even Republicans know raising the debt ceiling is not really negotiable. This issue is at core about whether or not we do what we say, whether or not America can be trusted. And raising the debt ceiling without precondition is about whether we make good on our promises not just to our creditors, but to each other. For all Republicans talk about not being able to afford things, it seems to apply only to food, health care, housing and electricity for their constituents. We’re flush when it comes to not collecting taxes from corporations, giving more to millionaires, subsidizing polluters and bombing other countries.

Without raising the debt ceiling free of conditions, we cannot honor our commitments to our grandparents who need to see their doctors and purchase their meds, to our children who need trained teachers and classrooms with heat and to our neighbors who need help when jobs are scarce and earnings don’t cover what life costs. Further gutting social spending will hurt those least equipped to sustain further injury. The jobless, the homeless, the young and the old will be the ones maimed.

With all this at stake, those of us without Goldman-sized bonuses to cover the cost of a heads-up beforehand are left watching in horror from the nose bleed section. This is a scripted show mocking not only we the people but the very exercise of elected office.

If voting among the masses is democracy in action – the votes of those we’ve voted for should be even more important. This is the logic behind representative democracy as our beloved Constitution has enabled it. This is the belief that has served us as a nation and as a people.

We all like to have occasional fun at the office. Some facebook checking, coffee drinking, office gossiping stress relief help the hours tick by. Republican House Members and some Democrats have turned workplace tricks into a dangerous practical joke on us, and we’re not laughing. This is the scariest kind of reality television. No more theatrics about our security and prosperity. Our elected leaders need to stop playing at their jobs and step up to do them.

By: Anat Shenker, AlterNet, June 12, 2011

June 13, 2011 Posted by | Banks, Congress, Conservatives, Constitution, Debt Ceiling, Deficits, Democracy, Democrats, Economy, Elections, GOP, Government, Government Shut Down, Lawmakers, Politics, Republicans, Right Wing, Voters | , , | Leave a comment

Bush Tax Cuts Turn 10: Wall Street Celebrates, Americans Suffer

Break out the bubbly, because there will be celebrations today on  Wall Street and in corporate boardrooms and mansions all across America. Why?  Because today is the 10th anniversary of the big Bush tax breaks for  bankers and billionaires and the businesses that bankroll their big-budget  campaigns.

Today is an opportunity to ponder these questions: If the Bush  tax cuts are so great, why has the economy been so bad since they became law 10  years ago? And how about this brain  teaser: If the GOP theology of cutting taxes for the rich brings in more  revenue, why is Democratic President Bill Clinton the only president in the  last generation to leave a surplus behind for the next president?

In 1980, President George H.W. Bush called it voodoo economics.  Bush 41 conveniently changed his position when he became Ronald Reagan’s  running mate that year. But the first President Bush was right the first time.  The idea that tax revenues will go up when you cut taxes has cast an evil spell  over the U.S. economy going all the way back to Ronald Reagan. In 1981, the new  GOP math became 1 + 1 = 3. With this kind of fuzzy math, it’s no wonder that  President Reagan left behind a massive budget deficit.

George W. Bush may have had George H.W. Bush for a father, but Ronald  Reagan was his role model. The latest incarnation of voodoo economics was the  creation of the second President Bush. The tax cuts for bankers and  billionaires that became law in 2001 quickly turned the Clinton surplus into  the Bush budget deficit as big as Donald Trump’s ego. Voodoo is what  Republicans do so well.

But Bush 43 did not stop there in handing out goodies to Wall  Street. In 2008, the president asked his Treasury Secretary, Henry Paulson, the  former CEO of Goldman Sachs, to bail out Goldman Sachs and other Wall Street  investment firms to the tune of three quarters of a trillion dollars. Of  course, President Bush never even considered an attempt to rescue the millions  of working Americans who first lost their jobs and then their homes because of malfeasance  on Wall Street.

Last month, the Center for Budget Priorities released a study  that demonstrated that the two biggest reasons for the current budget deficit  were the Bush tax cuts and the wars in Afghanistan and Iraq. So what do the  Republicans do? Do they vote to cut  Pentagon spending or end  dole welfare for wealthy Americans? Of course  they don’t. They gut Medicare. Genius!

Yesterday, Frank Patitucci, CEO and Chairman of NuCompass  Mobility Service, called on Republican Speaker John Boehner to increase taxes on  Americans making more than $1 million a year. Patitucci explained his position  by saying businesses need a strong middle class to prosper.

But I don’t want to be a party pooper or rain on Wall Street’s  parade, so party hardy, guys. Don’t scrimp on the Dom Perignon and the caviar.  Santa Claus comes only once a year. Let’s worry about the GOP cuts in healthcare for seniors and nutrition programs for women and their infant children another day.

By: Brad Bannon, U. S. News and World Report, June 7, 2011

June 7, 2011 Posted by | Banks, Budget, Businesses, Conservatives, Consumers, Corporations, Debt Crisis, Deficits, Economic Recovery, Economy, Financial Institutions, GOP, Government, Health Care, Ideologues, Ideology, Jobs, Medicare, Middle Class, Politics, Republicans, Right Wing, Seniors, Taxes, Wall Street, Wealthy, Women | , , , , , , , , , , , , , | Leave a comment

Why All Workers Should Support Unions

The current assault on collective-bargaining rights shows that ideology and smash-mouth politics can triumph over economic reality.

Unions did not cause our economic mess: Greedy bankers drove the financial system to the brink of collapse. Moreover, public workers’ desire for decent wages and benefits is not busting state budgets: The same recession is starving states of essential revenue.

Destroying unions will do nothing to create more jobs or balance budgets, but it will further impoverish millions of American workers.

Yet, with the national union membership rate barely more than 10 percent, why should the rest of the work force care about unions? There are three reasons everyone who works for a living should want to rebuild the American labor movement.

First, if you want a job with a living wage and decent benefits, then you want a strong labor movement. When unions decline, many workers — whether organized or not — see a drop in their standard of living. And driving down wages does not help the American economy, which depends on strong consumer spending.

Second, if you like spending time on the weekends with your friends and family, then you want a strong labor movement. Unions struggled for many decades to get laws mandating an eight-hour day, a minimum wage and a ban on child labor. Given what is happening across the country today, with basic rights being heaved out the window, working people need unions to preserve the gains they have made.

Finally, if you believe in a healthy democracy, then you want a strong labor movement. Many unions work for more than just good wages and benefits; organized labor has also campaigned for access to affordable health care and for protecting the rights of immigrant workers.

So regardless of whether you belong to a union, every working American should be worried about the current open season on workers’ rights.

If the labor movement is weakened further, we will lose one of the last bulwarks against unbridled corporate greed and one of the last champions for dignity at work and a decent standard of living.

By: David Zonderman, CommonDreams.org, Originally published in The Providence Journal, May 26, 2011

May 27, 2011 Posted by | Banks, Collective Bargaining, Democracy, Economic Recovery, Economy, Gov Scott Walker, Governors, Health Care, Ideologues, Ideology, Immigrants, Income Gap, Jobs, Labor, Lawmakers, Middle Class, Politics, Public Employees, Republicans, State Legislatures, States, Union Busting, Unions | , , , , , , | Leave a comment

In America, Being Poor Is A Criminal Offense

It takes a special kind of bully to target the most vulnerable and neediest families in society, which millionaire politicians like to argue are draining America’s treasury.  I am referring to Rep. Charles Boustany (R-LA), who recently introduced a bill that would require states to implement drug testing of applicants for and recipients of the federal Temporary Assistance for Needy Families (TANF) program.  This is reminiscent of Sen. Orrin Hatch’s (R-UT) failed legislation last summer to drug test the unemployed and those receiving other forms of government cash assistance, which ultimately died in the Senate.  So far, Boustany’s proposal is following the same fate as Hatch’s, but around the country states are taking matters into their own hands.

In at least 30 state Legislatures across America, predominately wealthy politicians are quite impressed with themselves for considering bills that would limit the meager amount of state help given to needy families struggling to make ends meet.  Many have proposed drug testing with some even extending it to recipients of other public benefits as well, such as unemployment insurance, medical assistance, and food assistance, in an attempt to add more obstacles to families’ access to desperately needed aid.

Florida’s Legislature has passed a bill that will require welfare applicants to take drug tests before they can receive state aid.  Once signed into law by Republican Gov. Rick Scott, which is likely, all adult recipients of federal cash benefits will be required  to pay for the drug tests, which are typically around $35.  In Maine, Republican lawmakers introduced two proposals that would impose mandatory drug testing on Maine residents who are enrolled in MaineCare, the state’s Medicaid program for low-income and disabled residents.  Under a similar bill that passed both the House and Senate in Missouri, recipients found to be on drugs will still be eligible for benefits only if they enter drug treatment programs, though the state wouldn’t pick up the tab for their recovery.

In Massachusetts — where about 450,000 households receive cash or food assistance — a bill introduced by state Rep. Daniel B. Winslow (R-Norfolk) would set up a program requiring those seeking benefits to disclose credit limits and assets such as homes and boats, as well as the kind of car they drive.  His reasoning is “If you have two cars and a snowmobile, then you aren’t poor. If we do this, we will be able to preserve our limited resources for those who are truly in need and weed out fraud, because we know there’s fraud and we’re not looking for it.” State Rep. Daniel K. Webster (R-Pembroke) filed a budget amendment requiring the state to verify immigration status of those seeking public benefits.  Webster made it clear that his proposal does not mean he dislikes poor people or immigrants, but “this is all unsustainable and the system is being abused.”

This is rather shocking because I can’t recall any Republicans or Democrats demanding that the CEO of Bank of America or JP Morgan disclose inventory of their vacation homes, private jets, and yachts before bailing them out in what amounts to corporate welfare.  Nor did they insist that these CEOs submit to alcohol and drug screenings before receiving taxpayer money.  No objections were made regarding the immigration status of the people running these companies or whether they happen to employ undocumented workers for cheap labor.

Some would argue that corporations are different, in that they create jobs.  To that I will point out that corporations are making record profits, even as they layoff workers and pay next to nothing in Federal income taxes.  And this doesn’t even begin to scratch at the surface of corporate abuse by the very entities that are soaked in taxpayer money.  Just contrast these proposals with the way the rich are treated in this country with billions of dollars in subsidies and tax breaks.

This is simply an extension of a conversation that began in 1996, when President Bill Clinton and House Speaker Newt Gingrich passed bipartisan welfare reform, whose results have been tragic to say the least.  The 1996 Welfare Reform Act authorized, but did not require, states to impose mandatory drug testing as a prerequisite to receiving state welfare assistance.  Back then, unproven allegations of criminal behavior and drug abuse among welfare recipients were the rationales cited by those in support of the bill’s many punitive measures that were infused with race, class, and gender bias.

The majority of the proposals for drug testing require no suspicion of drug use whatsoever.  Instead they rest on the assumption that the poor are inherently inclined to immoral and illegal behavior, and therefore unworthy of privacy rights as guaranteed under the Fourth Amendment.  These proposals simply reaffirm the longstanding concept of the poor as intrinsically prone to and deserving of their predicament.  Jordan C. Budd, in his superb analysis Pledge Your Body for Your Bread: Welfare, Drug Testing, and the Inferior Fourth Amendment, demonstrates how the drug testing of welfare recipients is part of what’s called a “poverty exception” to the Constitution, particularly the Fourth Amendment, a bias that renders much of the Constitution irrelevant at best, and hostile at worst, to the American poor.

Kaaryn Gustafson extensively documents the trend toward the criminalization of poverty.  She demonstrates how, in her words “welfare applicants are treated as presumptive liars, cheaters, and thieves,” which is “rooted in the notion that the poor are latent criminals and that anyone who is not part of the paid labor force is looking for a free handout.”  I would argue that given the disdain that has been shown for “entitlements” over the years, it won’t be long before this treatment extends to Social Security, Medicare, and even Financial Aid recipients.

The notion that the poor are more prone to drug use has no basis in reality.  Research shows that substance use is no more prevalent among people on welfare than it is among the working population, and is not a reliable indicator of an individual’s ability to secure employment.  Furthermore, imposing additional sanctions on welfare recipients will disproportionately harm children, since welfare sanctions and benefit decreases have been shown to increase the risk that children will be hospitalized and face food insecurity.  In addition, analysis shows that drug testing would be immensely more expensive than the acquired savings in reduced benefits for addicts

With regard to welfare legislation, it’s beneficial to highlight where on the class ladder members of Congress stand.  According to a study by the Center for Responsive Politics released late last year, nearly half of the members in congress — 261 — were millionaires, compared to about 1 percent of Americans.  The study also pointed out that 55 of these congressional millionaires had an average calculated wealth in 2009 of $10 million dollars and up, with eight in the $100 million-plus range.  A more recent study released in March, found that 60 percent of Senate freshman and more than 40 percent of House freshmen of the 112th congress are millionaires.

Why is this so important?  Because very few of our lawmakers understand what it’s like to struggle financially.  Millionaires can generally afford healthcare without grappling with unemployment, foreclosure, or an empty refrigerator.  The majority of our representatives haven’t a clue what the daily lives of the people they represent are like, let alone the constant struggle of single mothers living below the poverty line.  They are constantly arguing that we all must sacrifice with our pensions, our wages, our education, the security of our communities, and with the belly’s of our children, while they sit atop heavily guarded piles of money.

With the ranks of the underclass growing and the unemployment level at a staggering 9%, it’s more clear than ever that the wealth divide between “we the people” and our representatives has caused a dangerous disconnect.  State and federal legislators claim to be acting fiscally responsible, but they support budgets that create unimaginably difficult circumstances for the lives of the most vulnerable people, especially children.  There is no question that these newest proposals amount to class warfare, and the longer we ignore it, the more it will spread.

By: Rania Khalek, CommonDreams.org, May 14, 2011

May 14, 2011 Posted by | Banks, Class Warfare, Congress, Conservatives, Constitution, Corporations, Economy, GOP, Gov Paul LePage, Gov Rick Scott, Government, Governors, Health Care, Income Gap, Jobs, Lawmakers, Maine, Middle Class, Politics, Republicans, Right Wing, State Legislatures, States, Unemployment Benefits, Wealthy | , , , , , , , , , , , , , , , , , | Leave a comment