Tag: Monday Business Edition

Monday Business Edition

H/T to letsgetitdone of Firedog Lake and Corrente for pointing out this 2 part piece by Bill Black and Randall Wray over at Huffington Post.

It’s rather long but well worth the read as is letsgetitdone’s commentary on it-

Democratic politicians profess to be puzzled about why people don’t recognize all the current Democratic Congress has done for them. But, if, in fact, they are puzzled, and not just lying about it, then this only reflects on how out of touch they are.

There is not one big issue area in which Congress has acted in the past two years where their legislative outcomes have been fair to the middle class and to working people generally. And that’s why people are so unhappy. Not because they’re stupid. Not because they’re ignorant. And not because their understanding of Washington is deficient.

It is just true that Administration and Democratic efforts in bailing out the banks, passing the stimulus bill, passing the credit card reform bill, passing its health care reform and its finreg bills, and continuing unemployment insurance for the long-term unemployed, have all ended in unjust legislative outcomes. People know that. They can sense and see the basic unfairness of the system and its bias toward those who are wealthy and powerful at the expense of other Americans.

Foreclose on the Foreclosure Fraudsters, Part 1: Put Bank of America in Receivership

William K. Black and L. Randall Wray

Posted: October 22, 2010 02:08 PM

Our first proposition is this: The entities that made and securitized large numbers of fraudulent loans must be sanctioned before they produce the next, larger crisis. Second: The officers and professionals that directed, participated in, and profited from the frauds should be sanctioned before they cause the next crisis. Third: The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, e.g., through fraudulent foreclosures. Foreclosure fraud is an inevitable consequence of the underlying “epidemic” of mortgage fraud by nonprime lenders, not a new, unrelated epidemic of fraud by mortgage servicers with flawed processes. We propose a policy response designed to achieve these propositions.

…

This nation’s most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth — and working class families’ savings — at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.

Nothing short of removing all senior officers who directed, committed, or acquiesced in fraud can be effective against control fraud. We repeat: Foreclosure fraud is the necessary outcome of the epidemic of mortgage fraud that began early this decade. The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents and have committed “fraud in the inducement.” Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents. If the original documents do not exist the securities might be ruled no good. If the original docs do exist they will demonstrate that proper underwriting was not done — so the securities might be no good. Foreclosure fraud is the only thing standing between the banks and Armageddon.

The second piece deals with 3 objections.

Foreclose on the Foreclosure Fraudsters, Part 2: Spurious Arguments Against Holding the Fraudsters Accountable

William K. Black and L. Randall Wray

Posted: October 24, 2010 11:53 PM

Who is Guilty?

Let us deal with the “borrower fraud” argument first because it is the area containing the most erroneous assumptions. There was fraud at every step in the home finance food chain: the appraisers were paid to overvalue real estate; mortgage brokers were paid to induce borrowers to accept loan terms they could not possibly afford; loan applications overstated the borrowers’ incomes; speculators lied when they claimed that six different homes were their principal dwelling; mortgage securitizers made false reps and warranties about the quality of the packaged loans; credit ratings agencies were overpaid to overrate the securities sold on to investors; and investment banks stuffed collateralized debt obligations with toxic securities that were handpicked by hedge fund managers to ensure they would self destruct.

…

Macro Effects and Culpability

What is important to understand, however, is that the financial sector is largely culpable for the generation of speculative frenzy, the creation of the “financial weapons of mass destruction”, and the transformation toward financial fragility that finally collapsed in 2007. In the aftermath we lost 10 million jobs and millions of homeowners lost their homes. The “collateral damage” inflicted by the SDIs (Systemically Dangerous Institutions) is now endangering tens of millions of American families — most of whom played no role in the speculative euphoria. Almost half of American homeowners are already underwater or on the verge of going under. In short, it was Wall Street that turned our homes over to a financial casino — and so far virtually all the losses have been suffered on Main Street.

…

Can the Frauds be Foreclosed?

The assertion that the SDIs cannot be resolved because of their size is unsupported. Very large institutions have already been resolved both in this country and abroad. The “too big to fail” (TBTF) doctrine has always been unproven, dangerous, and counter to the law. An institution that is not permitted to fail faces obvious adverse incentive problems. It also destroys healthy competition with institutions that are not considered TBTF. It encourages risk-taking and fraud. And it subverts the law, which requires that insolvent institutions must be resolved.

Business News below.

Monday Business Edition

This is the future Paul Krugman keeps warning us about.

Japan Goes From Dynamic to Disheartened

The Great Deflation

By MARTIN FACKLER, The New York Times

Published: October 16, 2010

For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.

…

The classic explanation of the evils of deflation is that it makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. But in Japan, nearly a generation of deflation has had a much deeper effect, subconsciously coloring how the Japanese view the world. It has bred a deep pessimism about the future and a fear of taking risks that make people instinctively reluctant to spend or invest, driving down demand – and prices – even further.

…

After years of complacency, Japan appears to be waking up to its problems, as seen last year when disgruntled voters ended the virtual postwar monopoly on power of the Liberal Democratic Party. However, for many Japanese, it may be too late. Japan has already created an entire generation of young people who say they have given up on believing that they can ever enjoy the job stability or rising living standards that were once considered a birthright here.

…

Economists said one reason deflation became self-perpetuating was that it pushed companies and people like Masato to survive by cutting costs and selling what they already owned, instead of buying new goods or investing.

“Deflation destroys the risk-taking that capitalist economies need in order to grow,” said Shumpei Takemori, an economist at Keio University in Tokyo. “Creative destruction is replaced with what is just destructive destruction.”

Business News below.

Now with 48 Story goodness.

Monday Business Edition

As much as I would like it to be, the chief problem with Barack Hussein Obama is not Civil Liberties on which he is in fact objectively worse than George W. Bush and Dick Cheney.

Nope.

It’s that he’s a coward economically.

We KNOW! what works and policymakers have willfully choosen to avoid it for the sake of academic reputation and neo-liberal policy purity.

The latest symptom in our economic fever is Title Fraud.  If you’ve financed or re-financed your home in the last 10 years (and who wouldn’t with the interest rates so low?) your title is now in doubt.

Not that this is a problem for you personally or, it shouldn’t be. You’ve maintained your good faith payments to your servicing company which they’ve presumably used in a rational manner to keep that 2nd derivative universe (of which they are Masters ‘Elanie‘ O’Donnell) cranking around.

In translation masturbatory fantasies of value created by leverage.

My ancient Economics 101 Perfesser (twisted and wizend from long years surviving an actual Depression) told me- “It’s only paper profits until you sell it.”

Your good old mortgage should protect your serfdom to your property, but the people who’ve placed their bets on black are going to be exceedingly disappointed when the wheel stops on double zero.  This market has a long way to crash.

And we’ve done nothing at all about it and the economic team (with the exception of Geither) jumped ship to avoid accepting responsibility for this disaster.

Except of course the buck stops at that Oval Office desk Obama occupies.

Government had been warned for months about troubles in mortgage servicer industry

By Zachary A. Goldfarb, Washington Post Staff Writer

Saturday, October 9, 2010; 10:11 PM

Consumer advocates and lawyers warned federal officials in recent years that the U.S. foreclosure system was designed to seize people’s homes as fast as possible, often without regard to the rights of homeowners.

In recent days, amid reports that major lenders have used improper procedures and fraudulent paperwork to seize properties, some Obama administration officials have acknowledged they had been aware of flaws in how the mortgage industry pursues foreclosures.

…

Housing advocates and government reports gave several reasons why servicers try to foreclose so quickly.

In general, servicers make more money when they foreclose on a loan than when they find a better arrangement for the borrower. That’s because the payments to the servicer decline when a loan is modified. But if instead the borrower is in default, the servicer adds fees on the account and can collect when the house is sold, even at foreclosure.

In addition, servicers are under pressure to continue to transfer the money paid by the borrower to the investor in the loan. When a borrower isn’t paying the loan, the servicer has to cover the difference.

Moreover, servicers can expect to charge more if they receive higher ratings from credit rating agencies. And the faster a servicer forecloses when loans are in default, the higher the rating they stand to receive.

Business News below.

Monday Business Edition

Economics isn’t much of a science.

Sure they try and dress it up with the maths and produce the pretty graph, but in the end the letters are all just acronyms designed to make words look like numbers and somehow impart the dignity of 2 + 2 = 4 to arguments considerably more specious (a hard currency pun).

Take for instance Keynesian.  Today it’s being thrown as a slur and adopted to include almost anything that’s not related to Monetary policy and a Friedmanite/Greenspan fantasy land where government employment doesn’t produce anything of value (otherwise Capitalists would be doing it, by definition) and the concept of ‘public good’ is unknown.

The 2 leading schools of economic thought in the United States are the Freshwater School centered on the University of Chicago where Friedman taught and the Saltwater School which would be every one else.  Krugman has an essential summary.

But they’re both Monetarist Schools and Monetary Policy prescriptions don’t work when you have zero interest rates and incredible liquidity but your problems are under capacity utilization, over supply, and lack of aggregate demand.  You can’t push a string.

Then you need Fiscal Policy and deficits don’t matter.  We’ve grown or devalued our way out of every deficit we’ve ever had, our Currency is Sovereign (when I pay off my T-Bills I give you nice shiny greenbacks and tell you they taste great in a vinagrette), and who gives a rat’s ass about devaluation anyway, the only people it hurts are bankers and billionaires and they both deserve a spanking (some prefer the haircut metaphor).

My point about labels is this-  my views about macro economics, political economy, are what is properly called Neo-Classical Synthesis believe it or not because they’re grounded in Samuelson’s seminal 1948 Economics.  Krugman, DeLong, Stiglitz, Reich, etc. get called Neo Keyesians but that’s not what they’re really about, they’re all Samuelson Neo-Classicists.  Part of the problem with academic debate is that there has to be some otherwise you might lose your phony baloney job or, even worse, go out and teach some smelly undergraduates instead of sitting in your office writing papers.

Neo Liberal is an entirely different philosophy, but because lazy and stupid media people think anything new is Neo even though they live in the matrix and Liberal is Goldwater and Nixon, that one gets thrown around a lot too.

Krugman–

The point is that we have perfectly good models  for thinking about the state we’re in – models in which we can describe what all the agents are doing and why, models that have done a very good job in terms of predicting how events have proceeded. Moving back and forth between simple new Keynesian models and their IS-LM translations, it was straightforward to show that a huge expansion in the monetary base could and would go along with continuing disinflation, that massive government borrowing would not cause an interest rate spike, and so on.

So what’s wrong with my “one model to rule them all”? Well, it doesn’t easily translate into anything that looks like monetarism – for a good reason: when short-term interest rates are near zero, the distinction between the monetary base, which the central bank controls, and the much broader class of safe short term assets, which it doesn’t, more or less vanishes. That’s not a bug, it’s a feature; it says that when you’re in a liquidity trap, thinking in terms of the supply and demand for money is just not a helpful way to approach the issues.

More Krugman–

But maybe this is an opportunity to reiterate a point I try to make now and then: economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity – a pretty good system most of the time, though not always – with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don’t work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that’s not an argument against progressive taxation and the welfare state; it’s just an argument that says that there are limits. Cuba doesn’t work; Sweden works pretty well.

And when we’re experiencing depression economics, by which I mean a situation in which it’s hard to create sufficient demand to achieve full employment – mainly because short-term interest rates are up against the zero lower bound – the essentially amoral nature of economics becomes even more acute. As I’ve said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.

The trouble in practice is that conventional modes of thought tend to prevail even when they shouldn’t; in particular, public spending on the scale needed never seems to happen. That’s why Keynes facetiously proposed burying bottles full of cash in coal mines, so people could dig them up again: since any proposal to spend money on things we need got shot down on grounds of prudence and efficiency, he proposed completely pointless spending instead.

Still More Krugman–

What I’d say about America now is that we have big problems, very much including too much talent going into financial fiddling, too few people who actually make stuff – actually, I worry as much or more about machinists as I do about scientists and engineers. But that observation has virtually no bearing on high unemployment right now. So I’d hope we can walk and chew gum at the same time, appreciating the structural problems but not letting that understanding get in the way of fighting the immediate jobs crisis.

Robert Reich–

My argument is just to opposite. For three decades American consumers managed to maintain demand despite flat real wages. They did this by sending women into paid work, working longer hours, and then borrowing to the hilt. But all these coping mechanisms have come to an end. So it’s only now that we have to face the reality that most Americans have not shared in America’s prosperity.

Now with 26 Stories from Yahoo Business News.

Monday Business Edition

Republican Economics as Social Darwinism

by Robert Reich

Sunday, September 26, 2010

In the late 19th century it was called Social Darwinism. Only the fittest should survive, and any effort to save the less fit will undermine the moral fiber of society.

Republicans have wanted to destroy Social Security since it was invented… Remember George W. Bush’s proposal to privatize it? Had America agreed with him, millions of retirees would have been impoverished in 2008 when the stock market imploded.

Of course Republicans don’t talk openly about destroying Social Security, because it’s so popular. The new Republican “pledge” promises only to put it on a “fiscally responsible footing.” Translated: we’ll privatize it.

…

Republicans also hate unemployment insurance. They’ve voted against every extension because, they say, it coddles the unemployed and keeps them from taking available jobs.

That’s absurd. There are still 5 job seekers for every job opening, and unemployment insurance in most states pays only a small fraction of the full-time wage.

…

Finally, like Hoover and Mellon, Republicans want to cut the deficit and balance the budget at a time when a large portion of the workforce is idle.

This defies economic logic. When consumers aren’t spending, businesses aren’t investing and exports can’t possibly fill the gap, and when state governments are slashing their budgets, the federal government has to spend more. Otherwise, the Great Recession will turn into exactly what Hoover and Mellon ushered in – a seemingly endless Great Depression.

What are the results of Hoover/Mellon policies?

The Super Rich Get Richer, Everyone Else Gets Poorer, and the Democrats Punt

by Robert Reich

Friday, September 24, 2010

The super-rich got even wealthier this year, and yet most of them are paying even fewer taxes to support the eduction, job training, and job creation of the rest of us. According to Forbes magazine’s annual survey, just released, the combined net worth of the 400 richest Americans climbed 8% this year…

…

From another survey we learn that the 25 top hedge-fund managers got an average of $1 billion each, but paid an average of 17 percent in taxes (because so much of their income is considered capital gains, taxed at 15 percent thanks to the Bush tax cuts).

The rest of America got poorer, of course. The number in poverty rose to a post-war high. The median wage continues to deteriorate. And some 20 million Americans don’t have work.

Only twice before in American history has so much been held by so few, and the gap between them and the great majority been a chasm – the late 1920s, and the era of the robber barons in the 1880s.

Structure of Excuses

By PAUL KRUGMAN, The New York Times

Published: September 26, 2010

What can be done about mass unemployment? All the wise heads agree: there are no quick or easy answers. There is work to be done, but workers aren’t ready to do it – they’re in the wrong places, or they have the wrong skills. Our problems are “structural,” and will take many years to solve.

But don’t bother asking for evidence that justifies this bleak view. There isn’t any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand – full stop.  …

…

After all, what should we be seeing if statements like those of Mr. Kocherlakota or Mr. Clinton were true? The answer is, there should be significant labor shortages somewhere in America – major industries that are trying to expand but are having trouble hiring, major classes of workers who find their skills in great demand, major parts of the country with low unemployment even as the rest of the nation suffers.

None of these things exist. Job openings have plunged in every major sector, while the number of workers forced into part-time employment in almost all industries has soared. Unemployment has surged in every major occupational category. Only three states, with a combined population not much larger than that of Brooklyn, have unemployment rates below 5 percent.

Oh, and where are these firms that “can’t find appropriate workers”? … (T)he percentage citing problems with labor quality is now at an all-time low, reflecting the reality that these days even highly skilled workers are desperate for employment.

So all the evidence contradicts the claim that we’re mainly suffering from structural unemployment. Why, then, has this claim become so popular?

…

I’ve been looking at what self-proclaimed experts were saying about unemployment during the Great Depression; it was almost identical to what Very Serious People are saying now. Unemployment cannot be brought down rapidly, declared one 1935 analysis, because the work force is “unadaptable and untrained. It cannot respond to the opportunities which industry may offer.” A few years later, a large defense buildup finally provided a fiscal stimulus adequate to the economy’s needs – and suddenly industry was eager to employ those “unadaptable and untrained” workers.

But now, as then, powerful forces are ideologically opposed to the whole idea of government action on a sufficient scale to jump-start the economy. And that, fundamentally, is why claims that we face huge structural problems have been proliferating: they offer a reason to do nothing about the mass unemployment that is crippling our economy and our society.

So what you need to know is that there is no evidence whatsoever to back these claims. We aren’t suffering from a shortage of needed skills; we’re suffering from a lack of policy resolve. As I said, structural unemployment isn’t a real problem, it’s an excuse – a reason not to act on America’s problems at a time when action is desperately needed.

And for all their ‘Galtian’ Social Darwinist self reliance, what is the richest woman in the world doing?

Queen tried to use state poverty fund to heat Buckingham Palace

Ministers were asked if money earmarked for schools, hospitals and low-income families could be used to meet soaring fuel bills

By Robert Verkaik, The Independent

Friday, 24 September 2010

The Queen asked ministers for a poverty handout to help heat her palaces but was rebuffed because they feared it would be a public relations disaster, documents disclosed under the Freedom of Information Act reveal.

Royal aides were told that the £60m worth of energy-saving grants were aimed at families on low incomes and if the money was given to Buckingham Palace instead of housing associations or hospitals it could lead to “adverse publicity” for the Queen and the Government.

It seems our evil, greedy, immoral, hypocritical “betters” are all too willing to accept government handouts for “the right sort of people” and steal food out of the mouths of babies, the sick, and the elderly so they can line their pockets to impress others of their “class” with their conspicuous consumption and ‘flash cash’.

Business News below.

Monday Business Edition

Monday Business Edition is an Open Thread

The Angry Rich

By PAUL KRUGMAN, The New York Times

Published: September 19, 2010

(I)f you want to find real political rage – the kind of rage that makes people compare President Obama to Hitler, or accuse him of treason – … (y)ou’ll find it … among the very privileged, people who don’t have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the thought of paying modestly higher taxes.

…

(W)hen Forbes magazine runs a cover story alleging that the president of the United States is deliberately trying to bring America down as part of his Kenyan, “anticolonialist” agenda, that “the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s.” When it comes to defending the interests of the rich, it seems, the normal rules of civilized (and rational) discourse no longer apply.

…

Tax-cut advocates used to pretend that they were mainly concerned about helping typical American families. Even tax breaks for the rich were justified in terms of trickle-down economics, the claim that lower taxes at the top would make the economy stronger for everyone.

These days, however, tax-cutters are hardly even trying to make the trickle-down case. Yes, Republicans are pushing the line that raising taxes at the top would hurt small businesses, but their hearts don’t really seem in it. Instead, it has become common to hear vehement denials that people making $400,000 or $500,000 a year are rich. I mean, look at the expenses of people in that income class – the property taxes they have to pay on their expensive houses, the cost of sending their kids to elite private schools, and so on. Why, they can barely make ends meet.

And among the undeniably rich, a belligerent sense of entitlement has taken hold: it’s their money, and they have the right to keep it.

In Which Mr. Deling Responds to Someone Who Might Be Professor Todd Henderson

J. Bradford DeLong, Department of Economics, U.C. Berkeley

September 18, 2010

As best as Michael O’Hare could determine (and Professor Henderson or whoever it is does not challenge him), the Henderson annual family budget is this:

$455,000 a year of income, of which:

• $60,000 in student loan payments
• $40,000 is employer contributions to 401(k) and similar retirement savings vehicles
• $15,000 is employer contributions to health insurance
• $60,000 is untaxed employee contributions to tax-favored retirement savings vehicles
• $25,000 building equity in their house
• $80,000 in state and federal income taxes
• $15,000 in property taxes
• $10,000 for automobiles
• $55,000 in housing costs for a $1M house (three times the average price in the Hyde Park neighborhood
• $60,000 in private school costs for three children
• $35,000 in other living expenses

And of this budget, Professor Henderson (or whoever) writes:

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby…. [W]e have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive. If our taxes rise significantly… the (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center…

Now it is time for a reality check on this “most working Americans.” The median household income in the United States today is $50,000. Half of all households make more than this. Half of all households make less. The big expenses in the Henderson family budget–their $60,000 a year in contributions to tax-favored retirement savings vehicles, their $25,000 a year savings building home equity, their $55,000 for housing, their $60,000 in private school costs, even their $10,000 a year for new cars–are simply out of reach for the overwhelming majority of Americans. Half of all households make less than $50,000 a year–the Hendersons make nine times that. 90% of households make less than $100,000 a year–the Henderson’s make 4.5 times that. The Henderson’s are solidly in the top 1% of American households, in the select 1% group that receives more than $350,000 a year.

By any standard, they are really rich.

But they don’t feel rich. They have a cash flow problem. When the bills are paid at the end of the month, the money is gone–and they feel that they have to scrimp.

…

Professor Henderson’s problem is that he thinks that he ought to be able to pay off student loans, contribute to retirement savings vehicles, build equity, drive new cars, live in a big expensive house, send his children to private school, and still have plenty of cash at the end of the month for the $200 restaurant meals, the $1000 a night resort hotel rooms, and the $75,000 automobiles. And even half a million dollars a year cannot (get) you all of that.

…

(W)hy does he think that that is the way things should be? … (H)ere is the dirty secret: Professor Henderson thinks that that is the way things should be because he knows people for whom that is the way it is.

…

Professor Henderson in 1980 would have known who the really rich were, and they would on average have had about four times his income–more, considerably more, but not a huge gulf. He would have known people who were truly rich, and he would have seen himself as one of them–or as almost one of them.

…

Now fast forward to today.

…

Of the 100 people richer than he is, fully ten have more than four times his income. And he knows of one person with 20 times his income. He knows who the really rich are, and they have ten times his income: They have not $450,000 a year. They have $4.5 million a year. And, to him, they are in a different world.

And so he is sad. He and his wife deserve to be successful. And he knows people who are successful. But he is not one of them–widening income inequality over the past generation has excluded him from the rich who truly have money.

And this makes him sad. And angry. But, curiously enough, not angry at the senior law firm partners who extract surplus value from their associates and their clients, or angry at the financiers, but angry at… Barack Obama, who dares to suggest that the U.S. government’s funding gap should be closed partly by taxing him, and angry at the great hordes of the unwashed who will receive the Medicare, Medicaid, and Social Security payments that the government will make over the next several generations.

And in the real world-

Poverty stats show the damage

By Carol Morello, Washington Post Staff Writer

Friday, September 17, 2010

In the second year of a brutal recession, the ranks of the American poor soared to their highest level in half a century and millions more are barely avoiding falling below the poverty line, the Census Bureau reported Thursday.

About 44 million Americans – one in seven – lived last year in homes in which the income was below the poverty level, which is about $22,000 for a family of four. That is the largest number of people since the census began tracking poverty 51 years ago.

Business News below the fold.

Monday Business Edition

Monday Business Edition is an Open Thread

I don’t believe it.  I think this is pre-election posturing.  Still, as some have suggested, it’s possible this administration may be forced to make some policy promises that are not so easy to walk away from.

Geithner Urges Action on Economy

By DEBORAH SOLOMON, The Wall Street Journal

September 12, 2010

“If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth,” Mr. Geithner said during an interview with The Wall Street Journal in his U.S. Treasury office, citing the example of countries who “shift too quickly to premature restraint” after a crisis, including the U.S. in the 1930s.

…

On Sunday, a top Republican lawmaker signaled there might be room to compromise on extending the Bush tax cuts for high-income earners but, in a sign of how fraught the issue is, his words drew immediate skepticism from Obama administration officials. “I want to do something for all Americans who pay taxes,” House Minority Leader John Boehner of Ohio said on CBS’ “Face the Nation.” “If the only option I have is to vote for some of those tax reductions, I’ll vote for it. But I’ve been making the point now for months that we need to extend all the current rates for all Americans if we want to get our economy going again, and we want to get jobs in America.”

[The] typical error most countries make coming out of a financial crisis is they shift too quickly to premature restraint. You saw that in the United States in the 30s, you saw that in Japan in the 90s. It is very important for us to avoid that mistake. If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth.

Mr. Geithner, in the interview, rejected the view of many economists that allowing taxes to rise is unwise at this point in the recovery. The White House estimates the one-year cost of extension at $35 billion and the 10-year cost at $700 billion.

“We don’t have unlimited resources,” Mr. Geithner said. “We just don’t think it would be responsible for this country, given the size of our future deficits, and given the substantial burden the middle class has been bearing over the past decade in particular, to go out and borrow $700 billion from our children so we can sustain those Bush tax cuts that only go to the wealthiest 2% of Americans.”

He said the U.S. can no longer rely on consumer spending, which has long powered the economy, to be the growth engine that leads the recovery this time around and said Washington needed to plant the seeds for business investment and exports.

In the mean time here at The Stars Hollow Gazette we’re going to keep teaching Samuelson and not Snake Oil Salesmen.

• Economics 101
• Striking Right at the Capillaries
• The Economic Damage of Republican Obstructionism
• Economics 101: Tonight’s Reading Assignment
• Aggregate Demand
• Goolsbee: Chair Council of Economic Advisors
• Magical Thinking

Monday Business Edition

I seem to be writing a lot about Economics these days.  Starting with The Big Fail (last week’s Monday Business Edition) there are 7 diaries-

• It’s only a Nobel Prize…
• “It’s not that I’m an uncaring person”
• enthusiasm updated
• Pyramid Scheme
• Great Austerian Success Stories!
• Do you validate?

What are my qualifications to do this?  Absolutely none.  I’m a critic, not a reporter Jim; except that as a History major I was required to take Economics 101 (where I got a gentleman’s B).  You might say I’m Neo-classically trained because along with millions of others my principal text was Economics by Paul Samuelson.

But I don’t often rest my hat on my own analysis, I prefer to cite others who have not ‘spent decades unlearning‘ the foundational principles of their “Science” (dismal though it is) in favor of Snake Headed Oil Salesmen hissing from the serpents in the garden (that’s another Stargate joke).

The Real Lesson of Labor Day

By Robert Reich

Friday, September 3, 2010

Welcome to the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor – most of the rest of us – are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, which, when added to the loss of public-sector (mostly temporary Census worker jobs) resulted in a net loss of over 50,000 jobs for the month. But at least 125,000 net new jobs are needed to keep up with the growth of the potential work force.

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(T)he real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.

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(The) Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures – Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage – leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

1938 in 2010

By PAUL KRUGMAN, The New York Times

Published: September 5, 2010

The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible – indeed, necessary – for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.

But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.

I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.

If you still have the stomach for it I’ll also cite this analysis on Open Left brought to my attention by Jay Ackroyd on Eschaton–

When we say “the Dems hate the Left” or they’re beating up on “dirty fucking hippies”, what we’re REALLY saying is that, for the Third-Wayers, neoliberalism vs. social democracy is actually the whole ballgame.  The last vestiges of American social democracy - the New Deal and all its accoutrements - must be wiped out, at all costs.

They haven’t been able to say so – because they need the votes of the “little people”.  But there’s almost no play left in that gambit.  With each [dispiriting] election betrayal (Clinton and NAFTA, Obama and Health Care, Obama and Social Security) the Democratic brand gets weaker and weaker.

We on the Left, the “netroots”, etc., need to understand the centrality of this point more than we do.  The coming fight over Social Security is not one issue among many, it’s the defining issue of this period.  Third Way politics is dependent on the bubble economy.  This has failed.  We can’t go back there.  We have to make this known.

As Jay says- “Eventually you have to consider the possibility they are getting the policies they want to get.”

Monday Business Edition

It’s slowly starting to dawn on Institutional Democrats that they’re going to lose big in November.  The consequences are very real.  Racist Radical Reagan Republicanism is a proven failure.  And Institutional Democrats?  They’re a failure too because they knew what to do and didn’t do it.

I’ll put my policy prescription right up front, the only thing that will save Democrats at this point is massive downsizing- Rahm Emanuel, David Axelrod, Gibbs, Geithner and Summers, Salazar and Duncan.  Do I want heads on pikes?  Figuratively, yes.  These highly paid strikeout kings and clubhouse malcontents have to go for the good of the team.

And if not I hope you’re happy with the crappy offices that come with minority status and one term Presidencies you corporatist whores.  Anyone who claims to care about “electoral victory” is a liar.

It’s Witch-Hunt Season

By PAUL KRUGMAN, The New York Times

Published: August 29, 2010

So what will happen if, as expected, Republicans win control of the House? We already know part of the answer: Politico reports that they’re gearing up for a repeat performance of the 1990s, with a “wave of committee investigations” – several of them over supposed scandals that we already know are completely phony. We can expect the G.O.P. to play chicken over the federal budget, too; I’d put even odds on a 1995-type government shutdown sometime over the next couple of years.

It will be an ugly scene, and it will be dangerous, too. The 1990s were a time of peace and prosperity; this is a time of neither. In particular, we’re still suffering the after-effects of the worst economic crisis since the 1930s, and we can’t afford to have a federal government paralyzed by an opposition with no interest in helping the president govern. But that’s what we’re likely to get.

If I were President Obama, I’d be doing all I could to head off this prospect, offering some major new initiatives on the economic front in particular, if only to shake up the political dynamic. But my guess is that the president will continue to play it safe, all the way into catastrophe.

Opposition Pay-offs

by Dave Anderson, 2010 August 29

The stimulus as passed in ARRA was necessary but insufficient.  It was too small at the topline number for the size of the output gap we actually faced (as the recession was deeper than the earlier data showed) and poorly designed with too much money going to AMT fixes and ineffective lump-sum tax-cuts.  The effective parts were pared back to please Sens. Collins, Snowe and Nelson.  And this was because the Republican Party realized they were the opposition and the job of the opposition is to oppose.  It also was because the Obama Administration likes to punch dirty fucking hippies, especially when they are right on the math and the political outcomes.

What Can Obama Really Do?

by Ian Welsh, 2010 August 29

The idea that Obama, or any President, is a powerless shrinking violet, helpless in the face of Congress is just an excuse.  Presidents have immense amounts of power: the question is whether or not they use that power, and if they do, what they use it for.

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If Obama is not using that money and authority, the bottom line is it’s because he doesn’t want to.

Putting aside the question of what Obama could have accomplished already, if he wants to help everyday Americans, turn around Democratic approval ratings in time for the midterm elections, and leave behind him a legacy of achievement, he can still do it. If he wants to.

The Two Stories of This Terrible Economy, Yet Obama and the Dems Won’t Tell Theirs

Robert Reich, Friday, August 27, 2010

If Obama and the Democrats would connect these dots they’d have a story that would make Americans’ hair stand on end. We’re in this mess because of big business and Wall Street. Government is needed to get us out of it.

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So why haven’t Obama and the Dems succeeded yet? Big business and Wall Street have used their money and political clout to stop government from doing as much as needs to be done.

The story is clear, and it has the virtue of being the truth. Why won’t Obama and the Democrats tell it? Is it because big business and Wall Street have the money and political clout even to prevent the story from being told?

Policy Options Dwindle as Economic Fears Grow

By PETER S. GOODMAN, The New York Times

Published: August 28, 2010

“There are many ways in which you can see us almost surely being in a Japan-style malaise,” said the Nobel-laureate economist Joseph Stiglitz, who has accused the Obama administration of underestimating the dangers weighing on the economy. “It’s just really hard to see what will bring us out.”

Japan’s years of pain were made worse by deflation – falling prices – an affliction that assailed the United States during the Great Depression and may be gathering force again. While falling prices can be good news for people in need of cars, housing and other wares, a sustained, broad drop discourages businesses from investing and hiring. Less work and lower wages translates into less spending power, which reinforces a predilection against hiring and investing – a downward spiral.

Deflation is both symptom and cause of an economy whose basic functioning has stalled. It reflects too many goods and services in the marketplace with not enough people able to buy them.

Banks’ Self-Dealing Super-Charged Financial Crisis

by Jake Bernstein  and Jesse Eisinger, ProPublica

Aug. 26, 10:09 p.m.

Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses:

They created fake demand.

More Business News below.

Now That’s Rich

By PAUL KRUGMAN, The New York Times

Published: August 22, 2010

We need to pinch pennies these days. Don’t you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy.

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

What – you haven’t heard about this proposal? Actually, you have: I’m talking about demands that we make all of the Bush tax cuts, not just those for the middle class, permanent.

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And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. … And the average tax break for those lucky few – the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year – would be $3 million over the course of the next decade.

In Striking Shift, Small Investors Flee Stock Market

By GRAHAM BOWLEY, The New York Times

Published: August 21, 2010

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

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The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans’ sense of financial security.

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But then came a grim reassessment of America’s economic prospects as unemployment remained stubbornly high and private sector job growth refused to take off.

Investors’ nerves were also frayed by the “flash crash” on May 6, when the Dow Jones industrial index fell 600 points in a matter of minutes. The authorities still do not know why.

Special BP Blowout Disaster Coverage

1 Gulf claims chief says no-sue rule was his idea

By HARRY R. WEBER, Associated Press Writer

Sun Aug 22, 4:09 pm ET

2 For Gulf tourism, problem is perception – not oil

By NOAKI SCHWARTZ, Associated Press Writer

Sun Aug 22, 1:51 pm ET

Outrageous?  We report…