“Taboo Ideas”: Regular People Could Use A Bailout Every Bit As Much As Wealthy Elites
Via Atrios, I see that the idea of just printing money and handing it out is gaining some elite traction. Here’s Anatole Kaletsky in Reuters:
Last week I discussed in this column the idea that the vast amounts of money created by central banks and distributed for free to banks and bond funds – equivalent to $6,000 per man, woman and child in America and £6,500 in Britain – should instead be given directly to citizens, who could spend or save it as they pleased. I return to this theme so soon because radical ideas about monetary policy suddenly seem to be gaining traction. Some of the world’s most powerful central bankers – Mario Draghi of the European Central Bank last Thursday, Eric Rosengren of the Boston Fed on Monday and Mervyn King of the Bank of England this Wednesday – are starting to admit that the present approach to creating money, known as quantitative easing, is failing to generate economic growth. Previously taboo ideas can suddenly be mentioned.
The nice thing about this is it wouldn’t rely on some second-order effects through the expectation channel. With a big cash windfall a major fraction of the population are sure to spend it or use it to pay down some debt. When you’re in a depression, as we are, that’s just what the doctor ordered. This is as opposed to normal quantitative easing, which relies on pushing on the economy through the rotten banking system. Like a sponge, the banks absorb most of the money before it seeps out into the real economy.
Probably the biggest obstacle with this is how ridiculous it sounds. “The money has to come from somewhere,” people say. Actually, no it doesn’t. That’s the whole idea behind fiat money. Nothing behind it. “It’ll create hyperinflation,” conservatives will say. Nope. Right now we’re in a depression: we have very low inflation from too few people with jobs and money buying not enough goods and services to run the economy at potential.
Therefore, more spending will just pull in more idle people and resources. Only when the economy is at capacity is serious inflation a possibility. If it starts to happen, the Fed can easily act to restrain it.
The least convincing counterargument is the moral hazard one. “Can’t give people free money,” people say, “otherwise they’ll lose their moral fiber. Success must be earned.” I suppose all other things equal that’s the case, but that argument sure didn’t stop the Treasury from stuffing $700 billion down the rotting throats of the banks back in 2008, and it hasn’t stopped the Fed from stuffing God knows how many more trillions in cheap loans after it.
Again, I agree that moral hazard should be a consideration, especially for the richest and most powerful people and corporations, but we recognize in a crisis sometimes it’s more important to keep the system from collapsing than make sure every person gets exactly what she deserves. When we had a banking crisis, everyone agreed on this. Elites everywhere panicked, and swooped in with “incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary.” We’re now in the fourth year of an unemployment crisis, and it’s high time we found some similar urgency.
Nothing I haven’t said before, and still probably little chance of happening, but here’s hoping. Regular people could use a bailout every bit as much, if not more, than wealthy elites.
By: Ryan Cooper, Washington Monthly Political Animal, August 9, 2012
“Politically Worrisome”: What Are The Worst Things We Could Find In Romney’s Tax Returns?
Mitt Romney’s campaign is taking heat for declining to disclose more than the two most recent years’ worth of his tax information. Even conservative commentators such as The Washington Post’s George Will and the Weekly Standard’s Bill Kristol are saying it’s past time to come clean. Of course, members of Romney’s team, unlike their friends on the outside, presumably know what the documents would reveal, so we should probably assume that they have fairly good reason not to release them. Could the criticism Romney would suffer over the contents of the returns be worse than the criticism he’s getting for not disclosing them? Here are some guesses about legal — but potentially embarrassing — things in Romney’s tax returns:
Profits from the financial crash
The vast majority of American families lost wealth in the housing bust of 2007-09 and the financial crisis that came in the middle of it, and millions lost jobs or earnings. But it was possible for a canny or lucky investor to profit from the chaos — especially for a wealthy individual with access to unusual financial products. Maybe Romney made a lot of money through bets on skyrocketing foreclosures or well-timed investments in bailed-out banks. There’s nothing wrong with smart financial planning, but making money on the crash could be awkward for a politician. There’s a tension between promising to make things better and profiting off human misfortune.
A low tax bill because of the crash
There’s also the possibility that Romney’s investments lost some value during the crash years and that he combined this with aggressive exploitation of loopholes to pay a strikingly low tax bill. One rumor was that he managed to pay nothing in taxes, something his campaign has denied. But would paying $2.75 really look all that different from paying $0? A super-low tax bill would turn Romney into the poster child for President Obama’s very popular “Buffett rule” proposal, which aims for a minimum tax level on high-income individuals.
Swiss bank amnesty
We know from the tax documents Romney has released that he once had a Swiss bank account, a fact that the Obama campaign has played up in ads. But his 2010 tax return did not include a Report on Foreign Bank and Financial Accounts form (“FBAR” to accountants) detailing his offshore investments. In 2009, the Swiss government began to relent on its traditional banking secrecy rules, and banks turned over information about tens of thousands of American tax scofflaws to the U.S. government. To help deal with the crush, the IRS staged a limited-time amnesty in 2009 for American citizens with previously non-disclosed foreign accounts to pay their back taxes without penalty. It’s possible that earlier tax documents or the 2010 FBAR would show that Romney took advantage of the amnesty. While legal, this would amount to a problematic confession of past wrongdoing.
None of the above
The possibilities are endless. Romney’s vast wealth has already provided plenty of campaign fodder — from his car elevator to his proposed $10,000 bet with Texas Gov. Rick Perry during a debate — so almost any additional details about his finances would add fuel to the fire. But the most likely candidates for compromising revelations could relate to the 2008-09 period. Romney isn’t disclosing his 2006 or 2007 taxes, but by his own two-year standard he would have had to if he had won the 2008 Republican nomination. That makes the time between his presidential runs — a period that coincides with major upheavals in financial markets and bank secrecy practices — far and away the most likely window for something more politically worrisome than a reputation for reticence.
By: Matthew Yglesias, The Washington Post, July 20, 2012
“Creative Destruction Of Capitalism”: Mitt Romney Is No Economic Savior
Republicans say they’re eager for the presidential campaign to turn away from “distractions” and focus instead on the economy. Someone should warn them that if they’re not careful, they might get their wish.
It is true that voters’ unhappiness with high unemployment and slow growth poses a challenge for President Obama as he seeks reelection. But for Mitt Romney and the GOP to take advantage of this potential opening, they’ll have to do more than chant the word “economy” like a mantra. They have to make the case that their policies will work better than Obama’s.
And what might Romney’s proposed economic policies be? Why, they’re basically the same as those of George W. Bush, only worse.
Just as Obama owns the recession and the slow recovery, Bush owns the financial crisis that sent the slumping economy over a cliff. But for all his sins — the gratuitous tax cuts, the off-budget wars, the defiance of basic arithmetic — Bush at least demonstrated a certain empathy for Americans who struggle to make ends meet. One of his budget-busting initiatives, for example, was expanding Medicare to cover prescription drugs without worrying about how this much-needed new benefit would be paid for.
It’s safe to predict that Romney would never make such a gesture out of compassion for the beleaguered middle class. To this day, he refuses to take back his criticism of Obama for bailing out General Motors and Chrysler — even though letting the companies fail would have meant the extinction of the U.S. auto industry and the elimination of hundreds of thousands of jobs.
It is a measure of Romney’s ideological stubbornness that, even with Chrysler rebounding under new ownership and GM reporting record profits, he still insists that his view — let the companies go bankrupt so the “creative destruction” of capitalism could work its magic — was correct.
Romney is something of an expert on creative destruction, I guess, having orchestrated a good deal of it while running the private-equity firm Bain Capital. The Obama campaign recently released an ad about one of Bain’s less successful acquisitions, a small steel mill in Kansas City called GST Steel.
The company, which was more than 100 years old, failed after a decade under Bain’s ownership; GST’s 750 employees lost their jobs, pensions and health benefits. Bain, however, made money, investing $8 million in the company and taking out $4 million in profits and $4.5 million in management fees. The Romney campaign contends that GST, with its unionized workforce, could not compete with cheap foreign steel being dumped on the market. The Obama campaign alleges that Bain burdened GST with crushing debt while sucking the company’s coffers dry.
Is this the genius of free markets at work, or is it “vulture capitalism” run amok? Let’s have that argument. Please.
Let’s also have a long, detailed discussion of Romney’s economic plans versus Obama’s. Romney wants to make tax rates for the wealthy even lower than they are now; Obama wants a small increase for those making more than $1 million a year, whom he challenges to pay “their fair share.” Romney’s entire economic plan, basically, involves tax cuts and deregulation — in other words, a repeat of the Bush-era policies that led to the crisis.
Does Romney have any fresh ideas? Well, when he was governor of Massachusetts, he was smart enough to see that universal health coverage would not only improve the lives of the uninsured but also help rein in runaway medical costs. He found the solution in an innovative idea developed in Republican-leaning think tanks: an individual health insurance mandate.
It worked. In fact, it was Romney’s greatest policy success as a public official. But now he doesn’t talk about it much.
My guess is that Republicans won’t want to talk about the past or the future in much detail. They’d like to keep things blurry, so that we only see Romney in broad outline: a successful businessman who’ll put us back in business. For details, we’ll mail you the prospectus.
I can’t help but think of the “prosperity theology” movement, or scam, in which preachers persuade congregants that God’s will is for Christians to be rich — and that the way to become rich is to put lots of money in the collection plate. It’s not believable unless the preacher looks and acts the part. Maybe he lives in a mansion. Maybe his wife drives “a couple of Cadillacs.”
Actually, it’s not believable even then.
BY: Eugene Robinson, Opinion Writer, May 14, 2012
“Exceptions, Exemptions And Loopholes”: How J.P. Morgan Chase Has Made The Case For Breaking Up The Big Banks
J.P. Morgan Chase & Co., the nation’s largest bank, whose chief executive, Jamie Dimon, has lead Wall Street’s war against regulation, announced Thursday it had lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses, due to excessively risky bets.
The bets were “poorly executed” and “poorly monitored,” said Dimon, a result of “many errors, “sloppiness,” and “bad judgment.” But not to worry. “We will admit it, we will fix it and move on.”
Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.
Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).
Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.
Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.
And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threaten or diminish the savings of millions more, and send the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place.
In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.
The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?
Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”
Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.
But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.
By: Robert Reich, Robert Reich Blog, May 10, 2012
“Plutocracy, Paralysis, Perplexity”: The Distorting Effects Of Great Wealth On Our Society
Before the Great Recession, I would sometimes give public lectures in which I would talk about rising inequality, making the point that the concentration of income at the top had reached levels not seen since 1929. Often, someone in the audience would ask whether this meant that another depression was imminent.
Well, whaddya know?
Did the rise of the 1 percent (or, better yet, the 0.01 percent) cause the Lesser Depression we’re now living through? It probably contributed. But the more important point is that inequality is a major reason the economy is still so depressed and unemployment so high. For we have responded to this crisis with a mix of paralysis and confusion — both of which have a lot to do with the distorting effects of great wealth on our society.
Put it this way: If something like the financial crisis of 2008 had occurred in, say, 1971 — the year Richard Nixon declared that “I am now a Keynesian in economic policy” — Washington would probably have responded fairly effectively. There would have been a broad bipartisan consensus in favor of strong action, and there would also have been wide agreement about what kind of action was needed.
But that was then. Today, Washington is marked by a combination of bitter partisanship and intellectual confusion — and both are, I would argue, largely the result of extreme income inequality.
On partisanship: The Congressional scholars Thomas Mann and Norman Ornstein have been making waves with a new book acknowledging a truth that, until now, was unmentionable in polite circles. They say our political dysfunction is largely because of the transformation of the Republican Party into an extremist force that is “dismissive of the legitimacy of its political opposition.” You can’t get cooperation to serve the national interest when one side of the divide sees no distinction between the national interest and its own partisan triumph.
So how did that happen? For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal. Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.
And the takeover of half our political spectrum by the 0.01 percent is, I’d argue, also responsible for the degradation of our economic discourse, which has made any sensible discussion of what we should be doing impossible.
Disputes in economics used to be bounded by a shared understanding of the evidence, creating a broad range of agreement about economic policy. To take the most prominent example, Milton Friedman may have opposed fiscal activism, but he very much supported monetary activism to fight deep economic slumps, to an extent that would have put him well to the left of center in many current debates.
Now, however, the Republican Party is dominated by doctrines formerly on the political fringe. Friedman called for monetary flexibility; today, much of the G.O.P. is fanatically devoted to the gold standard. N. Gregory Mankiw of Harvard University, a Romney economic adviser, once dismissed those claiming that tax cuts pay for themselves as “charlatans and cranks”; today, that notion is very close to being official Republican doctrine.
As it happens, these doctrines have overwhelmingly failed in practice. For example, conservative goldbugs have been predicting vast inflation and soaring interest rates for three years, and have been wrong every step of the way. But this failure has done nothing to dent their influence on a party that, as Mr. Mann and Mr. Ornstein note, is “unpersuaded by conventional understanding of facts, evidence, and science.”
And why is the G.O.P. so devoted to these doctrines regardless of facts and evidence? It surely has a lot to do with the fact that billionaires have always loved the doctrines in question, which offer a rationale for policies that serve their interests. Indeed, support from billionaires has always been the main thing keeping those charlatans and cranks in business. And now the same people effectively own a whole political party.
Which brings us to the question of what it will take to end this depression we’re in.
Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.
No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence.
By: Paul Krugman, Op-Ed Columnist, The New York Times, May 3, 2012
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