Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Stimulus Page 3 of 4

JPMorgan Illustrates What Banks Do When They Have Money

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On November 19, 2009

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And it isn’t lending it out cheap:

JPMorgan will on Thursday unveil a £1bn deal to buy Cazenove, the UK broker with which it has had a joint venture for the past five years.

The bank is to pay about 535p a share in a deal in which David Mayhew, widely recognised as one of the City’s best-connected corporate advisers, will retain the title of chairman of the Cazenove brand.

Last year myself and Stirling both noted that what would be done by banks if they were bailed out is to horde their money, not lend it out cheap, and save it to buy up competitors, make leveraged plays and so on.  That is EXACTLY what has happened.  Exactly.

During a downturn, if you have money, you don’t want to lend it out for low gains when you can buy up competitors, cheap.  You don’t want to lend it out cheap, when you can make leveraged plays off the bottom of a stock and commodity market which is bound to go up because trillions are being poured into it by central banks.  You want to take that money, and buy things while they are cheap, not lend it out for 4 or 5% returns, when you can make many many times that.

Why, exactly, governments expect banks who have better ways to make money to act like retail banks who don’t have any other way to make money but lend out at prime +3 or 4 percent is beyond me.  They think they’ll do it out of gratitude for being bailed out, or some sort of sense of civic duty?  Most politicians may be stupid, venal and corrupt—but it’s that very greed and venality which means they should understand that banks will do no such thing.

Banks will do it only if they are forced to do it.  Remove retail banking from investment banking, insurance and brokerage services, and disallow any risky games on the markets for retail banks.  Remove all special facilities from non retail banks because Goldman Sachs should not be doing highly leveraged plays with free money from the Federal Reserve.  And reinstitute serious leverage limits, not just for retail banks but for everyone.

As for retail banks, if they don’t lend to the public at rates approved of by the Federal Reserve and Congress, they too should lose their access to special facilities.  Banks are given the valuable right to borrow money for almost nothing, and to, in effect, print money by lending out money they don’t have.  Those are privileges which are given to them in the expectation that they will use them to benefit the economy.  If they refuse to do so, they should lose the privileges.

None of this is rocket science.  Those of us who predicted both the crisis and what the bungling of the crisis would cause, however, are precisely the people who are not listened to by those in power.  Obama is having his jobs summit, and forget nobodies like me, he isn’t even inviting somebodies like Stiglitz and Krugman.

If you’ve been right down the line, then you are precisely the sort of person who isn’t “serious” and shouldn’t be listened to when it comes to what it takes to fix the problem.

Why?  Because everyone knows that fixing the problem will end the gravy train for a lot of very rich people.  A lot of very rich people who give a great deal of money to Democrats in general, and gave a lot of money to Obama in particular.  If the cost of keeping that gravy train and the donations it enables going is tens of millions of unemployed people, well, so be it. Because serious people know that real change isn’t going to happen under Obama or under this Democratic Congress, so there’s no point in even talking to people who might suggest it.

Plus ca change. Plus c’est la même chose.

In Flanders Fields

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On November 11, 2009

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In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved, and were loved, and now we lie
In Flanders fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.

Lt.-Col. John McCrae

Republicans Now More Trusted than Democrats on Every Issue

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On October 27, 2009

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According to Rasmussen polling:

For the first time in recent years, voters trust Republicans more than Democrats on all 10 key electoral issues regularly tracked by Rasmussen Reports. The GOP holds double-digit advantages on five of them.

Granted that this is Rasmussen, not the most credible source.  But as they note, even they haven’t found this much Republican lean in years.

  • 49 to 35% on economic issues
  • 54 to 31% on national security
  • 50 to 31% on Iraq
  • 33 to 29% on government ethics
  • 46% to 40 on health care
  • 50% to 35% on taxes
  • 43% to 38% on eductation
  • 45% to 37% on Social Security?

Etc…  Oh, and on healthcare?

Separate polling released today shows 49% of voters nationwide say that passing no health care reform bill this year would be better than passing the plan currently working its way through Congress.

Trying to pass an unclear dog’s breakfast, easily demonized, instead of something clear, has had its cost.

And it takes real talent to be less trusted on social security, considering Bush tried to privatize it not so long ago.

On the generic Congressional ballot, Republicans are now favored 42% to 37%.  No wonder the Democratic Congress is becoming less and less willing to follow Obama’s lead.  He may not have to face voters till 2012, most of them will be staring down the barrel of voter discontent in 2010.

But the worst number is this: 73% of GOP voters nationwide think Republicans in Congress have lost touch with their voting base.

In other words, Democrats are right.  Republicans aren’t trusted.  It’s just that Democrats are trusted even less.

Trust is earned.  By making the economy work for banks and not for Americans; by refusing to put through a clean health care bill; by repeatedly not coming through on campaign promises and by not providing a clear alternative to Republicans, Democrats have lost the trust of Americans.

If Democrats want to turn this around they should simply start doing what they should have always done.  Break up the big banks, institute real bankruptcy reform and other help for real Americans, pass a medicare-for-all bill, get out of Afghanistan and push through a real and effective stimulus bill immediately paid  for it with a tax on America’s rich.

If not, as I’ve been saying for some time, they will pay a heavy price in 2010.  Americans expect results for them, not mealy mouthed platitudes, trillions for the rich and broken promises.

Meet the New Boss

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On September 15, 2009

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Obama supports extending Patriot Act provisions.

I assume, by this point, no one expected anything else?

If not, forgive me, but you’re the living definition of denial.

The fundamental truth about the Obama administration is that it is the Bush administration run by slightly less incompetent, marginally less evil people:

  • The Iraq occupation will end when Bush wanted it to.
  • The Bush administration’s campaign of eradication of fundamental civil liberties, including the gutting of the 4th amendment and holding people without trial, continues.
  • The Afghan war continues, and is even being escalated.
  • The signature issue of “health care reform” is a scheme which will force citizens to buy private insurance which, because of lack of effective controls, will increase in price faster than wages or inflation.
  • Obama and Geithner have followed the Bush/Paulson financial policies, virtually to the letter, spending trillions bailing out Wall Street and creating a financial sector which has fewer, larger actors with more political power than before.
  • Obama continues to exert pressure primarily on Progressives rather than on Blue Dogs in order to obtain relatively more conservative rather than liberal bills. (This is not an accident.)  The most liberal bill always comes from the House, the conference committee bill is inevitably closer to the more conservative Senate bill.  (This is not an accident.)
  • Unlike Bush Jr, Bush Sr., Clinton, and Reagan, Obama has not replaced the prior administration’s district attorneys wholesale, instead leaving in place the majority of the Bush administration DA’s who had survived Rove’s purges intended to make sure they were loyal Republican apparatchiks.
  • Obama has not cleaned out the administration in general of Bush-era appointees and plants; indeed he has filled less spots than either Clinton or Bush II had by this point in their terms—and no, it’s not because the Senate won’t confirm them.
  • Obama appointees will be forced to resign if the right wing (aka Beck) goes after them hard, but if progressives don’t like them, tough luck.
  • Obama’s economic team is filled with people who created the framework which allowed the financial meltdown to occur, who didn’t see it coming, and whose solution to it is to give money to their friends and colleagues and try and get another bubble started.
  • Etc.

In most meaningful ways, Obama is running a slightly kinder, gentler and very moderately less-stupid version of the Bush constitutional framework.

Plus ça change plus c’est la meme chose.

Memory Lane on the Paulson/Goldman Stickup: What I wrote Sept 20, 2008 and why it matters today

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On July 17, 2009

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Because sometimes, I told you so is necessary, in the hope that next time people might listen.  This is what I wrote September 20th, 2008:

This is a stickup. Paulson is trying to stampede the Congressional herd into giving him powers and money that he knows they would never give if they had time to think it through carefully. It worked with the Patriot Act. It worked with the AUMF. He’s betting it’ll work again. Create a crisis (or lie one into existence) then demand dictatorial powers and unlimited spending authority to deal with it.

Congress needs to not succumb to fear or to explicit or implicit blackmail. If the crisis was as severe as Paulson makes it out to be, virtually the end of market capitalism, he wouldn’t be quibbling over whether or not CEOs get to keep their golden parachutes.

In effect, that quibble is like you walking into your local bank and saying “I need you to loan me a million bucks. Here are the conditions I must insist are met before I let you lend me the money. First…”

Say what?

He’s given his tell, that he’s a liar, a thief and a scam artist.

Time for Congress to call his bluff, and to see that the financial crisis is dealt with on their terms, with strict oversight by people they can trust, not by a scam artist and liar like Paulson.

Of course, Congress didn’t call his bluff and Congress did fall for it.  But let’s remember our history.  The House voted against.  Nancy Pelosi indicated that she would not pass TARP unless Republicans voted for it in the same proportion as Democrats.  They weren’t going to do that, so TARP was dead.

Then Barack Obama stepped in and started twisting arms.  TARP is Obama’s baby.  If you like it, or don’t like it, remember, without Barack Obama it would have died.

This is the fundamental problem right now with Democrats.  They passed a lousy stimulus, they made TARP Democratic policy by passing it with majority Democratic votes and they are on their way to passing a lousy healthcare bill which won’t even kick in till 2013.

Bad policy leads to bad outcomes.  Bad outcomes get blamed on the incumbents (as they should).  TARP, the Stimulus, healthcare and the economy become less and less the Republican’s problem every month that passed.  Even if they screwed it up, Democrats control the House, Congress and the Presidency.  It’s up to them to fix George Bush’s mess, and if they don’t they will be judged as failures, and that judgment will be accurate and deserved.

And the outcomes are going to be bad.  The stimulus bill was both badly put together (too many tax cuts, not properly targeted) and too small.  The healthcare bill should be single payor, because single payor is proven to work and the witch’s brew that Congress has put together isn’t proven to work and they can’t afford to fail.  And TARP was, and is, a piece of crap, but the differences between Bush/Paulson financial policy and Obama/Geithner are so thin as to be largely cosmetic.

Policy has consequences.  The “compromise” position between “doing it right” and “doing it wrong” may work sometimes, but it doesn’t work when a nation is in crisis and has spent 30 years digging itself into a hole.

By the time Obama comes up for reelection, Americans won’t have better healthcare and they will have less jobs than before the recession and the stimulus.

That’s what he’ll be judged on, and all because he signed on for Paulson/Bush financial policies, and compromised his key domestic and economic policies to the point where they wouldn’t work.

Anti-Abortion Terrorism Chalks Up Another Success

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On June 9, 2009

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The measure of terrorism's success

The measure of terrorism's success

The Tiller family has announced that it is closing Dr. Tiller’s clinic. The terrorists have won, and that assassination has succeeded in doing what it was meant to do. I’m sure the murderer is very happy tonight.

The bottom line on right wing terrorism against abortion rights is that it’s succeeding and has been for some time. Take a good hard look at the chart at the top and try and tell me otherwise. And when it comes to late term abortions, well, Tiller was one of the very few who still provided the service. According to Tiller, speaking in March before his assassination, he was one of only three doctors left in the US doing such abortions. Now there are two. If those numbers are right, one third of all abortion doctors doing these abortions were just killed.

In the aftermath of Tiller’s death, I heard a lot of progressives talking about how the anti-abortion folks were losing. The bottom line is that they’re winning. It is harder to get abortions than it was 5 years ago, or 10 years ago, or 25 years ago. Abortion access peaked in 1982 and has been declining ever since. Consider that the US population has increased by approximately 30% since 1982.  At the same time the number of providers has dropped by over a third.

Now, most types of abortion violence had been in a slow, long term decline (the exception is burglary) so there’s certainly some reason for optimism. At the same time I strongly suspect that anti-abortion violence will rise, along with other types of right wing terrorism, during Obama’s administration.

The larger point is simpler. It’s harder to get an abortion than it has ever been since Roe vs. Wade, because there are just less doctors who perform abortions. Until more doctors step up and start providing abortions, especially late term abortions, this will continue. It’s hard to blame doctors for not being willing to provide abortions. Not only could you be killed for doing so, your family will be stalked and perhaps harmed, your clinic will be burglarized, you will be subject to constant legal harassment and your life will, in general, be made a living hell along with the lives of your family, friends and associates.

It’s a lot to ask of someone. But this comes back to the truth of rights. You have no rights that people aren’t willing to suffer and die for. Rights that someone won’t put their life on the line for will be taken away by people who are willing to resort to intimidation, violence and to push for laws which take those rights away.

So the questions, then are these:

1) Where are the doctors who are willing to risk their lives, the lives of their families, and to endure constant harassment to ensure that women keep this right, not just in theory, but in practice?

2) Where are the mass of people who will provide money, aid, and physical protection to the doctors who put their lives on the line? Yes, they exist even now, but obviously there aren’t enough of them, because the number of abortion providers keeps going down.

Is this a right you’re willing to risk your life to keep? If enough people don’t answer that question yes, then you will continue to lose it.

Chart Source

Cross posted at Crooks and Liars.

The Next Bailout: Guaranteeing Municipal Bonds

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On May 29, 2009

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Barney Frank, chairman of the House Financial Services Committee is apparently putting together a bill to guarantee municipal bonds. In particular, variable rate demand obligations (VRDOs), which make up a little under one-seventh of the muni-bond market, have been imploding, with their interest rates jumping to higher rates, costing municipalities a great deal of money when they can least afford it.

Debt guarantees are one of the main ways the Feds have dealt with the crisis.  The Feds have promised that if a raft of banks default on their loans, the Feds will make it up.  With such promises, the banks (among others) have been able to borrow money at lower rates than they otherwise could have, and in some cases borrow money when they normally couldn’t have at all.

The problem with debt guarantees is that the Fed is on the hook.  That is to say, you, the taxpayer, is on the hook for what are essentially no different than credit default swaps (CDS), in which a private entity promises to pay up if a loan or bond defaults.  CDSs are the business which destroyed AIG.

Moreover, as with CDSs, rather than decreasing risk, debt guarantees increase them.  If you know that you’re going to get paid whether the borrower defaults or not, you’ll be willing to lend money even to folks who probably will default.  Heads you get the money, tails the taxpayer will give you the money.  This sort of systemic risk transfer is one of the major causes of the current financial crisis.

So if the government goes ahead and guarantees muni-bonds, expect defaults to increase, not decrease, as municipalities borrow even more money they can’t afford to pay back and investors lend it to them knowing they’re covered no matter what.  Then you, personally, as a taxpayer, will eventually pay for it.

Now that’s not to say that guarantees are necessarily always a bad idea.  The advantages of not having municipalities go bankrupt right now may outweigh the disadvantages.  But at the least some protections need to be added in.

First: New issues of VRDOs need to not be guaranteed.  Perhaps guarantee the old ones, on the condition that once guaranteed interest rates drop, since default chances have dropped, but not new ones.  Such bonds are inherently risky, and municipalities shouldn’t be playing in that market.

Second: new bonds guaranteed must be vanilla bonds.  Fixed rate, fixed curation, no fancy features.

Third: the municipality must have a reasonable shot at repaying its debt load.  The worst of the housing crash is not over, there is a wave of defaults yet to move through the system.  Housing prices, and thus housing taxes, will not recover to pre-crash levels for many years, probably not for over a decade, at best.  Municipal revenue projections and budgets which assume otherwise are unrealistic, and guarantees made to such municipalities will default.  That’s not insurance, that’s giving municipalities money.  So just give them the money if you want to, instead of making guarantees you know will fail.

In general, just giving municipalities the money they need is the smarter way to go.  There is going to have to be a new round of stimulus, since the last one wasn’t large enough.  One of the focuses will have to be local government.  Debt guarantees are much more problematic, due to the way they actually increase systematic risk, because of how they encourage municipalites to borrow money they may not have the capacity to pay back, and because they increase rather than decrease certainty about the final cost of the intervention.

Virginia Republicans Reject Stimulus UI Money

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On April 9, 2009

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Image by Ookami Dou

Image by Ookami Dou

The poor will always be with us, or at least as long as Republicans are also with us:

Virginia’s Republican-run House of Delegates rejected a proposed expansion of unemployment benefits Wednesday, along with $125 million in federal stimulus cash to pay for it.

On a mostly party-line 46-53 vote, the House turned down amendments by Democratic Gov. Timothy M. Kaine that were necessary to make Virginia eligible for the federal aid.

Modern Republicanism laid bare: never help anyone who really needs help.  But that’s not the worst of it, the abysmal economic illiteracy is:

“It is not stimulus. Paying workers not to work does not promote economic growth,“ Byron said.

Actually, Delegate Kathy Byron, paying workers not to work does promote economic growth.  This is economics 101, people who have money (unless they’re useless rich) spend that money.  When they spend that money they spend it on products and services made by people who work.  The more of those products and services which are bought, the more economic growth there is, since you can’t have economic growth if there’s no demand for products and services.

In times when there is insufficient demand, like in a massive recession or depression, the best thing to do is for the government to spend.  And since there are people losing their houses, who are going without food, clothes and medical services, the best way to spend is to give those people money so you kill two birds with one stone: you get demand through spending, and you help people who need it so they don’t wind up starving or on the street.

But let’s extend this even further—when you have a demand problem and you also have very high income inequality (money pooling with the rich, who tend not to spend it) an even better way to increase demand is to increase tax rates on the rich, and then spend that money.  You could even give it to the poor and middle class, who haven’t had a raise in 30 years.

And yes, Byron, that would create economic growth, though I’m sure you aren’t capable of understanding that.  But it worked for FDR, Truman, Eisenhower and so on, and it would work now, while the Reaganesque policies of the last thirty years haven’t worked and have led to this disaster.

So, if you actually care about economic growth (we won’t pretend you care about unemployed people) you should both accept the UI money and push for highly progressive taxation.

I won’t be holding my breath for you to understand any of this, Byron, but I will hope that eventually enough politicians will decide to stop trying the same failed Reaganite policies over and over again, and do something that  works.

Eventually, after most of the current crop of legislators are unemployed themselves.

(h/t Not Larry Sabato)

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