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Standard And Poor’s Attempt To Influence The Political Debate

In what appears to be an attempt to influence the political debate in Washington over federal government deficits, Standards & Poor’s rating firm downgraded U.S. debt to negative from stable. Yes, the raters who blessed virtually every toxic waste subprime security they saw with AAA ratings now see problems with sovereign government debt.

The best thing to do is to ignore the raters — as markets usually do when sovereign debt gets downgraded — but this time stock indexes fell, probably because of the uncertain prospects concerning government budgeting. After all, we barely avoided a government shutdown earlier this month, and with S&P. joining the fray who knows whether the government will continue to pay its bills?

Mind you, this has nothing to do with economics, government solvency or involuntary default. A sovereign government can always make payments as they come due by crediting bank accounts — something recognized by Chairman Ben Bernanke when he said the Fed spends by marking up the size of the reserve accounts of banks.
Similarly Chairman Alan Greenspan said that Social Security can never go broke because government can meet all its obligations by “creating money.”

Instead, sovereign government spending is constrained by budgeting procedure and by Congressionally imposed debt limits. In other words, by self-imposed constraints rather than by market constraints.

Government needs to be concerned about pressures on inflation and the exchange rate should its spending become excessive. And it should avoid “crowding out” private initiative by moving too many resources to our public sector. However, with high unemployment and idle plant and equipment, no one can reasonably argue that these dangers are imminent.

Strangely enough, the ratings agencies recognized long ago that sovereign currency-issuing governments do not really face solvency constraints. A decade ago Moody’s downgraded Japan to Aaa3, generating a sharp reaction from the government. The raters back-tracked and said they were not rating ability to pay, but rather the prospects for inflation and currency depreciation. After 10 more years of running deficits, Japan’s debt-to-gross-domestic-product ratio is 200 percent, it borrows at nearly zero interest rates, it makes every payment that comes due, its yen remains strong and deflation reigns.

While I certainly hope we do not repeat Japan’s economic experience of the past two decades, I think the impact of downgrades by raters of U.S. sovereign debt will have a similar impact here: zip.

By: L. Randall Wray, The New York Times, April 18, 2011

April 19, 2011 Posted by | Bankruptcy, Banks, Congress, Debt Ceiling, Debt Crisis, Deficits, Economic Recovery, Economy, Federal Budget, Financial Institutions, Financial Reform, Government, Government Shut Down, Ideology, Politics, Social Security, Standard and Poor's | , , , , , , , , , , , | Leave a comment

Grave Consequences: Wall Street Tells John Boehner To Back Off The Debt Ceiling

Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation’s $14.29 trillion debt ceiling could have on U.S. financial markets.

House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.

Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.

Treasury could then implement emergency measures to continuing making interest payments on existing debt until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery.

Republicans and even some fiscally conservative Democrats want to use the debt limit fight as leverage to wring more significant spending cuts out of the White House. Politicians of all stripes are worried about how independents will react to a vote — or multiple stop-gap votes — to raise the debt ceiling. Many executives on Wall Street believe Washington is playing an enormously dangerous game with what is typically a non-controversial vote.

Sen. Chuck Schumer (D-N.Y.), who leads the Senate Democrats’ messaging efforts, expressed anger that Boehner was searching for leeway on the debt limit.

“The speaker seems to be testing out how far he can venture onto a frozen lake before the ice breaks. He should listen to business leaders who are telling him to watch his step. Messing around with the debt ceiling just to satisfy the tea party will lead to higher interest rates and an economic cataclysm.”

The Wall Street executives say even pushing close to the deadline — or talking about it — could have grave consequences in the marketplace.

“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.

Another said that “anyone interested in ‘testing’ the debt ceiling should understand the U.S. debt traded wider [with a higher yield] than Greek debt roughly five years ago. Then go ask CBO what happens to our deficits/public debt to GDP, if the 10-year [Treasury bond] goes from 3.5 percent to 5.5 percent to 7.5 percent.” The executive said such an increase would result in a downgrade of U.S. debt by ratings agencies and an end to the dollar as the standard global reserve currency.

By: Ben White, Politico, April 13, 2011

April 13, 2011 Posted by | Banks, Congress, Conservatives, Debt Ceiling, Democrats, Economy, Federal Budget, GOP, Independents, Lawmakers, Politics, Republicans, Swing Voters, Voters, Wall Street | , , , , , , , , , , , | Leave a comment

Despite Scandalous Abuses, Banks Are Off the Hook Again

Americans know that banks have mistreated borrowers in many ways in foreclosure cases. Among other things, they habitually filed false court documents. There were investigations. We’ve been waiting for federal and state regulators to crack down.

Prepare for a disappointment. As early as this week, federal bank regulators and the nation’s big banks are expected to close a deal that is supposed to address and correct the scandalous abuses. If these agreements are anything like the draft agreement recently published by the American Banker — and we believe they will be — they will be a wrist slap, at best. At worst, they are an attempt to preclude other efforts to hold banks accountable. They are unlikely to ease the foreclosure crisis.

All homeowners will suffer as a result. Some 6.7 million homes have already been lost in the housing bust, and another 3.3 million will be lost through 2012. The plunge in home equity — $5.6 trillion so far — hits everyone because foreclosures are a drag on all house prices.

The deals grew out of last year’s investigation into robo-signing — when banks were found to have filed false documents in foreclosure cases. The report of the investigation has not been released, but we know that robo-signing was not an isolated problem. Many other abuses are well documented: late fees that are so high that borrowers can’t catch up on late payments; conflicts of interest that lead banks to favor foreclosures over loan modifications.

The draft does not call for tough new rules to end those abuses. Or for ramped-up loan modifications. Or for penalties for past violations. Instead, it requires banks to improve the management of their foreclosure processes, including such reforms as “measures to ensure that staff are trained specifically” for their jobs. The banks will also have to adhere to a few new common-sense rules like halting foreclosures while borrowers seek loan modifications and establishing a phone number at which a person will take questions from delinquent borrowers. Some regulators have reportedly said that fines may be imposed later.

But the gist of the terms is that from now on, banks — without admitting or denying wrongdoing — must abide by existing laws and current contracts. To clear up past violations, they are required to hire independent consultants to check a sample of recent foreclosures for evidence of improper evictions and impermissible fees.

The consultants will be chosen and paid by the banks, which will decide how the reviews are conducted. Regulators will only approve the banks’ self-imposed practices. It is hard to imagine rigorous reviews, but if the consultants turn up problems, the banks are required to reimburse affected borrowers and investors as “appropriate.” It is apparently up to the banks to decide what is appropriate.

It gets worse. Consumer advocates have warned that banks may try to assert that these legal agreements pre-empt actions by the states to correct and punish foreclosure abuses. Banks may also try to argue that any additional rules by the new Consumer Financial Protection Bureau to help borrowers would be excessive regulation.

The least federal regulators could do is to stress that the agreements are not intended to pre-empt the states or undermine the consumer bureau. If they don’t, you can add foreclosure abuses to other bank outrages, like bailout-financed bonuses and taxpayer-subsidized profits.

By: The New Yor Times, Editorial, April 9, 2011

April 10, 2011 Posted by | Banks, Consumers, Financial Institutions, Foreclosures, Mortgages, Politics, Regulations, States, Wall Street | , , , , , , , , , | Leave a comment

Wisconsin Supreme Court Race Throws A Spanner In The Works Of Wisconsin Wingnuts

While Wisconsin Congressman Paul Ryan prepares to shut down the federal government to prove that government is bad, analysts say the radical agenda of Wisconsin Governor Scott Walker suffered a major set back today as his good friend incumbent Justice David Prosser was defeated for Wisconsin Supreme Court. The AP unofficial vote count, with 100 percent of the precincts reporting, puts challenger Joanne Kloppenburg ahead by slightly more than 200. A recount is doubtless on the way.

In a state that has never unseated a conservative Supreme Court justice, people power fueled a concentrated effort to deny the Imperial Walker one branch of government. Walker’s opponents hope a Kloppenburg victory will swing the Supreme Court in a more independent direction and set the stage for the court to strike down Walker’s controversial collective bargaining law. While the fate of the law is uncertain, Kloppenburg’s three week sprint from dead-in-the-water to victor may give Walker, Ryan and other Wisconsin politicians pause as they rush to radically reshape government to benefit the privatizers and profiteers. 

Sleepy Court Race Electrifies the State

While it may seem odd to many Americans, Wisconsinites like to elect their judges. Although an elected judiciary has its problems (namely, unseemly high-dollar elections), the ballot box sometimes hands citizens a rare opportunity to un-elect judges — and that is what many Wisconsinites decided to do today.  Prosser, a former Republican Assembly Speaker, stumbled when his campaign embraced Walker’s election.

The Kloppenburg victory is stunning. Six weeks ago, sitting Judge David Prosser was a shoo-in and the challenge by Assistant Attorney General Kloppenburg was a snooze fest. But something happened on the way to the high court. A governor, who was elected to create jobs, took office and quickly moved to disenfranchise voters and kneecap unions so they could no longer be a viable force in state elections. The raw power grab sparked a spontaneous uprising, the likes of which this state has never seen, and the Supreme Court race was the next vehicle for people to have their voices heard.

Proxy Fight Over Worker Rights

The whole country took notice when firefighters, teachers and cops stood with working families across Wisconsin to say ‘no’ to Walker’s radical plans to bust unions, cut $1 billion from schools and privatize the university system.

When his “budget repair bill” was passed March 9th, many national observers thought the fight was over.  With large margins in both houses, Walker’s stranglehold on government seemed invincible.

But irate Wisconsinites fought back on multiple fronts, filing lawsuits over the way in which Senate leaders rammed the bill through with less than the requisite notice required under the state open meetings law, blocking the bill’s implementation. They filed recall petitions against eight Wisconsin senators and this week delivered the requisite signatures for two of those recalls well ahead of schedule. They turned their attention to the heretofor unnoticed race for Wisconsin Supreme Court. Within days, handmade signs for Joanne Kloppenburg popped up across the state. Many voters understood that to win any of the battles ahead over worker rights, over the recalls, over redistricting and more, a more balanced judiciary was needed.

Kloppenburg went from being a long-shot to victory in a three-week sprint marked by huge independent expenditures on both sides. The anticipated recount will keep the juices flowing and will fuel the remaining recall fights.

Shock Doctrine at Work

While some voters believe the court will act as a check and balance on the madness at the state level, they are concerned that Paul Ryan continues to run amok at the federal level — threatening a complete government shut down. At the same time that Walker was working to obliterate unions and privatize public schools, Ryan, Chair of the House Budget Committee, decided to go after Grandma with the complete privatization of Medicare. His radical budget bill, unveiled this week, slashes trillions of dollars from America’s social safety net and throws the elderly into the private insurance market with a “voucher” in their pocket.

Less interested in balancing the budget than redistributing wealth, his budget plan would funnel billions into the pockets of big insurance firms while also giving a ten percent tax break to corporations and the very richest Americans.

What is really going on here? Naomi Klein warned in her groundbreaking book “Shock Doctrine” that the right-wing excels at creating crises, real and imagined, to viciously advance their pro-corporate anti-government agenda. She credits economist Milton Friedman who observed that “only a crisis—actual or perceived—produces real changes. When the crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is out basic function: to develop alternatives to existing policies to keep them alive and available until the politically impossible becomes politically inevitable.”

UW Professor Joel Rogers wrote recently:  “As explained by Grover Norquist and Karl Rove, this project aims at national repeal of most of democratic achievements of the 20th century, a return to business domination of public life not seen since the Gilded Age and McKinley.”

The Wall Street financial crisis caused by years of deregulation and lack of government oversight cost Americans eight million jobs, tanking federal and state tax receipts and creating budget shortfalls. Ryan and Walker are moving to take advantage this real jobs crisis to cook up a fake deficit crisis to advance a radical agenda that is hostile to the very idea of government – the idea that sometimes services are best provided and things are best accomplished collectively, for the public good, and not for corporate profit.

Today, many voters believe that this agenda was checked in Wisconsin. While another recount battle looms, voters of Wisconsin are pledging that they will not allow this victory to be stolen.

By: Mary Bottari, Center For Media And Democracy, April 6, 2011

April 6, 2011 Posted by | Banks, Collective Bargaining, Corporations, Debt Crisis, Deficits, Democracy, Economy, Elections, GOP, Gov Scott Walker, Government Shut Down, Labor, Medicare, Middle Class, Politics, Public Employees, Rep Paul Ryan, Republicans, Right Wing, Union Busting, Unions, Voters, Wisconsin, Wisconsin Republicans | , , , , , , , , , | Leave a comment

Are There No Standards For Punditry?

Last Sunday, ABC’S “This Week” turned to none other than Donald Rumsfeld, the former Bush administration defense secretary, to get his informed judgment of the mission in Libya. Last month, the journal International Finance featured former Federal Reserve chairman Alan Greenspan commenting on what is “hampering” the economic recovery.

Fox News trumped even that, trotting out retired Marine Col. Oliver North, the former Reagan security staffer who orchestrated the secret war in Nicaragua, to indict President Obama for — you can’t make this stuff up — failing to get a congressional resolution in support of the mission in Libya.

Next we’ll see a cable talk show inviting the former head of BP to tell us what it takes to do offshore drilling safely.

Are there no standards whatsoever for punditry? Do high government or corporate officials suffer no consequence for leading us into calamity? Public officials who have failed spectacularly in office should have the common decency to retire in disgrace. But even if modern-day officials know no shame, why in the world would opinion pages, network talk shows and reputable journals give them a forum to offer their opinions, when they have shown that their advice isn’t worth the air it disturbs?

On ABC, Rumsfeld criticized Obama for “confusion” in the Libyan mission, noting that the coalition “is the smallest in modern history.”

As Bush’s defense secretary, Rumsfeld played a lead role in perhaps the worst foreign policy calamity since the British burned down the White House in the War of 1812. He helped cook the books that justified the war of choice in Iraq, costing thousands of Americans their lives and limbs and the government a projected $3 trillion. His war squandered the global goodwill in the wake of Sept. 11, 2001, left millions of Iraqis dead or displaced, and strengthened our adversaries in Iraq and the terrorists of al-Qaeda.

Rumsfeld personally approved the torture techniques that despoiled the nation’s reputation when they were revealed at Abu Ghraib prison. He is now hawking his unrepentant and disingenuous memoir, which concludes that the Bush administration “got it right” on the big things in Iraq and elsewhere. Why would any rational news show invite his opinion on anything except maybe how to live with yourself after screwing up big-time?

Greenspan, the ex-Maestro Chairman of the Federal Reserve, argues that “the current government activism is hampering what should be a broad-based, robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.”

But Greenspan hasn’t got a clue. His ruinous policies at the Federal Reserve helped drive the economy into the worst downturn since the Great Depression. He cheered on the housing bubble while denying its existence; touted the benefits of subprime mortgages; turned a blind eye to reports of pervasive fraud and abuse in mortgage markets; and opposed the regulation of derivatives that, he claimed, were making the system more stable.

Greenspan admitted he was “shocked” that his worldview had a “flaw.” An apology, penance, self-reflection and even a memoir describing what he did wrong are in order. Surely we can be spared Mr Greenspan’s opinion of what impedes recovery from the Great Recession that his own blind market fundamentalism did so much to produce.

And do we really need Oliver North’s views on the Constitution and the law? “[I]t’s unparalleled in my entire experience in the military going all the way back to the 1960s,” North said. “Every president has gone to the Congress to get a resolution to support whatever it is he wanted to do.”

This from the White House operative who ran a secret war not only without congressional authorization, but also despite a congressional prohibition — a folly that ended in his indictment and nearly in the impeachment of his president.

There is a striking double standard operating in America. We hear much about enforcing “accountability” from the powers that be. Teachers, students and schools are judged in high-stakes tests. Minority students particularly are subjected to “no excuses” school punishments. Punitive “three strikes and you’re out” prison sentencing disproportionately snares those caught for drug possession or other nonviolent offenses.

At the top of society, bankers, CEOs and hedge funders enjoy increased license, prestige and lavish rewards. Yet when their excesses, lawlessness, ideological blindness or simple incompetence result in calamity, there seems to be no consequence. When Charles Ferguson received an Oscar for his riveting documentary “Inside Job,” he reminded the audience that “not a single financial executive has gone to jail, and that’s wrong.” Wall Street bankers haven’t been prosecuted.

Rumsfeld and the neo-cons still enjoy plush chairs in think tanks as well as high visibility and high speaking fees. Greenspan is allowed to pose as the Maestro, even after his reputation has been completely shredded.

In Japan, high officials who failed so spectacularly would be contemplating seppuku. In Britain, they’d resign, repair to drink and end up in the House of Lords. In America, they become pundits and are offered a stage to argue the same ideas that earlier brought the nation to near-ruin, rewriting history to fit their theory.

As Talleyrand said of the restored French monarchy under Louis XVIII, they have “learned nothing and forgotten nothing.” It is a pity that these discredited pundits are offered a stage to project their inanity on the rest of us.

By: Katrina vanden Heuvel, Opinion Writer, The Washington Post, March 29, 2011

March 31, 2011 Posted by | Banks, Constitution, Economic Recovery, Journalist, Journalists, Pundits | , , , , , , , , , , | Leave a comment

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