from "Validated Independent News" [http://www.mediafreedominternational.org/2013/01/29/kochworld-to-see-how-the-koch-brothers-free-market-utopia-operates-look-no-further-than-corpus-christi/]:
Hillcrest, a poor neighborhood of Corpus Christi, Texas, is the home of two oil refineries, Citgo and Flint Hills Resources, a subsidiary of Koch Industries, Inc. There has been recent speculation that these refineries, more specifically Flint Hills, are releasing various toxins into the air which can cause serious medical problems.
According to a 2010 study, Flint Hills and Citgo refineries released 26 various pollutants into the air; 25,000 pounds of toluene, 25,000 pounds of hydrogen cyanide, 19,000 pounds of benzene, and 11,000 pounds of sulfuric acid. Many residents blame the pollutants for causing cancer, chronic asthma, birth defects and other cancers. Latricia Jones, a resident of Hillcrest, reports the cause of her son’s asthma is due to the toxins released by the refineries. Jim and Bobi Miller live a quarter mile from the Flint Hills west plant and believe Bobi’s rare lung disease is due to the air she breathes. Recent public health studies show elevated rates of asthma, birth defects and cancer near oil refineries. These residents would like to move father away but they can simply not afford to move since rent and housing is much cheaper near the refineries.
After receiving her Ph.D., Melissa Jarrell decided to move to Corpus Christi in 2005 to study environmental crime. Jarrell is the author of Environmental Crime and the Media and discovered that Koch-owned refineries had the highest number of environmental violations country wide in 2000 to 2001. Koch Industries paid the highest civil environmental fine in American history of $35 million in 2000. Koch Industries caused almost 100,000 gallons of oil to spill into the Corpus Christi bay due to a damaged pipeline and have deceived regulators about their ability to control releases of benzene, which can cause cancers.
Texas has lax environmental regulation and Corpus Christi offers local tax incentives and an industry-friendly city government, making this an ideal location for refineries. The two Koch brothers have profited from this leading to a combined personal fortune of $ 62 billion. Katie Stavinoha, Flint Hills spokesperson, states that there is “no link between refinery pollutants and chronic illness.”
Sources:
* “Kochworld” The Texas Observer, October 24, 2012 [http://www.texasobserver.org/kochworld/]
* “Kochworld” The Investigative Fund, October 25, 2012 [http://www.theinvestigativefund.org/investigations/envirohealth/1716/kochworld/]
* “Kochworld” Association of Alternative Newsmedia, October 29, 2012 [http://www.altweeklies.com/aan/kochworld/Story?oid=6712714]
Student Researchers: Kirsten Bigelow and Hope Jordan
Faculty Instructor: Kevin Howley
Evaluator: James Mills, Professor of Geosciences and Chair of the Geosciences Department, DePauw University
Tuesday, January 29, 2013
Wednesday, January 23, 2013
Tuesday, January 22, 2013
2013-01-22 "4 Bogus Right-Wing Theories About Poverty, and the Real Reason Americans Can’t Make Ends Meet (Hard Times USA)"
[http://www.alternet.org/hard-times-usa/4-bogus-right-wing-theories-about-poverty-and-real-reason-americans-cant-make-ends]:
When is a secret not at all secret? Consider the fact that one in three Americans are poor, if we define it as struggling to cover the basic necessities of life. That's according to a Census Bureau analysis, and it was reported in the New York Times, but I have yet to hear a politician or pundit make reference to this eye-opening reality of our vaunted “new economy.”
In 2011, the Census Bureau took a new look at the “near-poor” – Americans with incomes between 100 and 150 percent of the poverty line. They found that this group, most of whom earn paychecks and pay taxes, represented a whopping one in six U.S. households – a figure that was almost twice as high as had previously been thought.
When those under the poverty line are added, Census found that a stunning 33 percent of the population was struggling to make ends meet in 2010. Analyzing the Census data, the Working Poor Project suggested [3] that the number of near-poor, which they define as those making between 100 and 200 percent of the poverty line, continued to inch up in 2011 as many returning to work in this sluggish recovery have been forced to settle for lower-paying service jobs.
Nearly four years after economists tell us the “recovery” began, almost half of all American households [4] lack enough savings to stay above the poverty line for three months or more if they should find themselves out of work. Another third are living paycheck to paycheck, teetering on the brink with no savings at all.
It would require a lengthy sociological treatise to fully explain why this isn't considered a huge national crisis. But one part of the equation is the existence of a long-standing and ideologically informed project by the right to portray the burden of living in or near poverty as a liberal delusion. In these narratives, which come in a variety of forms, the poor have it pretty darn good – good enough that we really shouldn't spend much time thinking about them.
For these conservative think-tankers, pundits and politicians, obscuring America's grinding poverty and spiraling inequality is an exercise in service of a status quo that works pretty well for them, but not for most families.
1. But the poor have color TVs. -
Consider the boilerplate conservative column [5] about how many wondrous household appliances the average low-income household owns. Back in the 1930s, this argument goes, poor people didn't have running water, but now they have color TVs, so life is good.
As I write this, my local Craigslist [6] offers multiple televisions, a dining set, several treadmills, a mountain bike, an oven (with hood), a blender, a coffeemaker, a slew of couches and beds, a piano, a hot-tub (needs repair) and a complete stereo system, all free to anyone who will pick them up. We live in a consumer economy that creates an abundance of surplus and rapidly obsolete goods, and people who struggle to put food on the table can nonetheless get their hands on all manner of electronics for nothing.
2. The poor have lots of room to enjoy poverty. -
A similar argument holds that in the United States, poor people have more living space, on average, than low-income households in other developed nations. As the Wall Street Journal was eager to point out [7], “The average living space for poor American households is 1,200 square feet. In Europe, the average space for all households, not just the poor, is 1,000 square feet.”
Perhaps that's true, but it's also divorced from context. There is a simple matter of population density at work: in the core states of the European Union, there are 120 people per square kilometer; in the United States, we only have 29 people per kilometer. And the average is a bit misleading as it includes the rural poor – low-income households in tightly packed urban centers don't tend to have 1,200-square-foot apartments.
3. The poor are actually rolling in money. -
A new and equally distorted argument entered the conservative discourse just recently. It holds that poor families receive $168 per day in government benefits – more than the median weekly income in this country. If that were true, low-income households in the United States would enjoy quite comfortable living standards.
But as I noted last month, that number is inflated by around eight-fold [8]. The claim originated with Robert Rector at the Heritage Foundation and then underwent some revisions on its journey to Republican congressional staffers, and finally to the conservative media. It gets to that number by counting things like federal aid to rebuild communities after natural disasters as “welfare,” including programs that assist the middle class and the wealthy and then dividing the costs of all these programs by the number of households under the poverty line, despite the fact that many more families benefit from them.
4. It’s just how they are. -
And then there are the ever-popular cultural explanations for poverty. This is a storyline based on confusing correlation with causation – a rookie mistake in any introductory college class.
The Heritage Foundation, for example (it's Robert Rector again), sees a lot of poor, single-parent households, and would have you believe [9] that “the main causes of child poverty are low levels of parental work and the absence of fathers.”
But this gets the causal relationship wrong. The number of single-parent households exploded between the 1970s and the 1990s, more than doubling, [10] yet the poverty rate remained relatively constant. In fact, before the crash of 2008, the poverty rate was lower than it had been in the 1970s. So, as the rate of single-parent households skyrocketed, poverty declined a little bit. Saying single-parent homes create poverty is like claiming the rooster causes the sun to rise.
As I've noted [11] in the past, this is an essential piece of the “culture of poverty” narrative, and it is nonsense. Jean Hardisty, the author of Marriage as a Cure for Poverty: A Bogus Formula for Women, cited a number of studies showing that poor women have the same dreams as everyone else: they “often aspire to a romantic notion of marriage and family that features a white picket fence in the suburbs.” But low economic status leads to fewer marriages, not the other way around.
In 1998, the Fragile Families Study looked at 3,700 low-income unmarried couples in 20 U.S. cities. The authors found that 90 percent of the couples living together wanted to tie the knot, but only 15 percent had actually done so by the end of the one-year study period. And here’s the key finding: for every dollar that a man’s hourly wages increased, the odds that he’d get hitched by the end of the year rose by 5 percent. Men earning more than $25,000 during the year had twice the marriage rates of those making less than $25,000.
Writing up the findings for the Nation, Sharon Lerner noted that poverty itself “seems to make people feel less entitled to marry.” As one father in the survey put it, marriage means “not living from check to check.”
Why People Are Really Poor -
During a period of less than 20 years beginning in the early 1980s, the American economy underwent dramatic changes. It was a period of policy-driven de-unionization and the offshoring of millions of decent manufacturing jobs. The tax code underwent dramatic changes, as CEO pay sky-rocketed and the financial sector came to represent a much larger share of our economic output than it had during the four decades or so following World War II.
And our distribution of income changed dramatically as well. During the 35 years prior to Ronald Reagan's election, the top one percent of U.S. households had taken in an average of 10 percent of the nation's income. When Reagan left office in 1988, those at the top were grabbing 15.5 percent of the pie, and by the time George W. Bush took office in 2000, they were taking over 20 percent of the nation's income.
We can either believe that this shift was a result of changes in public policy (combined with new technologies), or that in just two decades there was some sort of rapid cultural decline among everyone but those at the top of the economic heap.
All of the false narratives are intended to distract from the structural causes of poverty and inequality, and they ignore two simple and indisputable truths. First, contrary to popular belief, we don't all start out with the same opportunities. The reality is that in the United States today, the best predictor of a newborn baby's economic future is how much money her parents make.
It also ignores the fact that living in an individualistic, capitalist society carries inherent risk. You can do everything right – study hard, work diligently, keep your nose clean – but if you fall victim to a random workplace accident, you can nevertheless end up being disabled in the blink of an eye and find yourself in need of public assistance. You can end up bankrupt under a pile of healthcare bills or you could lose your job if you're forced to take care of an ailing parent. Children – innocents who aren't even old enough to work for themselves – are among the largest groups receiving various forms of public assistance.
The reality, despite the spin from the conservative movement, is that poverty in America is very real, and it's anything but fun.
Links:
[1] http://www.alternet.org
[2] http://www.alternet.org/authors/joshua-holland
[3] http://www.reuters.com/article/2013/01/15/us-usa-economy-workingpoor-idUSBRE90E05520130115
[4] http://www.alternet.org/news-amp-politics/report-nearly-half-americans-have-no-safety-net-keep-them-out-poverty
[5] http://www.heritage.org/research/reports/2007/08/how-poor-are-americas-poor-examining-the-plague-of-poverty-in-america
[6] http://sfbay.craigslist.org/zip/
[7] http://online.wsj.com/article/0,,SB108751426815241018,00.html?mod=opinion_main_review_and_outlooks
[8] http://www.alternet.org/economy/how-astounding-new-right-wing-lie-about-economy-born
[9] http://blog.heritage.org/2011/08/17/one-in-five-children-poor%E2%80%94but-what-does-that-mean/
[10] http://www.edu.pe.ca/southernkings/familysingle.htm
[11] http://www.alternet.org/module/printversion/151830
When is a secret not at all secret? Consider the fact that one in three Americans are poor, if we define it as struggling to cover the basic necessities of life. That's according to a Census Bureau analysis, and it was reported in the New York Times, but I have yet to hear a politician or pundit make reference to this eye-opening reality of our vaunted “new economy.”
In 2011, the Census Bureau took a new look at the “near-poor” – Americans with incomes between 100 and 150 percent of the poverty line. They found that this group, most of whom earn paychecks and pay taxes, represented a whopping one in six U.S. households – a figure that was almost twice as high as had previously been thought.
When those under the poverty line are added, Census found that a stunning 33 percent of the population was struggling to make ends meet in 2010. Analyzing the Census data, the Working Poor Project suggested [3] that the number of near-poor, which they define as those making between 100 and 200 percent of the poverty line, continued to inch up in 2011 as many returning to work in this sluggish recovery have been forced to settle for lower-paying service jobs.
Nearly four years after economists tell us the “recovery” began, almost half of all American households [4] lack enough savings to stay above the poverty line for three months or more if they should find themselves out of work. Another third are living paycheck to paycheck, teetering on the brink with no savings at all.
It would require a lengthy sociological treatise to fully explain why this isn't considered a huge national crisis. But one part of the equation is the existence of a long-standing and ideologically informed project by the right to portray the burden of living in or near poverty as a liberal delusion. In these narratives, which come in a variety of forms, the poor have it pretty darn good – good enough that we really shouldn't spend much time thinking about them.
For these conservative think-tankers, pundits and politicians, obscuring America's grinding poverty and spiraling inequality is an exercise in service of a status quo that works pretty well for them, but not for most families.
1. But the poor have color TVs. -
Consider the boilerplate conservative column [5] about how many wondrous household appliances the average low-income household owns. Back in the 1930s, this argument goes, poor people didn't have running water, but now they have color TVs, so life is good.
As I write this, my local Craigslist [6] offers multiple televisions, a dining set, several treadmills, a mountain bike, an oven (with hood), a blender, a coffeemaker, a slew of couches and beds, a piano, a hot-tub (needs repair) and a complete stereo system, all free to anyone who will pick them up. We live in a consumer economy that creates an abundance of surplus and rapidly obsolete goods, and people who struggle to put food on the table can nonetheless get their hands on all manner of electronics for nothing.
2. The poor have lots of room to enjoy poverty. -
A similar argument holds that in the United States, poor people have more living space, on average, than low-income households in other developed nations. As the Wall Street Journal was eager to point out [7], “The average living space for poor American households is 1,200 square feet. In Europe, the average space for all households, not just the poor, is 1,000 square feet.”
Perhaps that's true, but it's also divorced from context. There is a simple matter of population density at work: in the core states of the European Union, there are 120 people per square kilometer; in the United States, we only have 29 people per kilometer. And the average is a bit misleading as it includes the rural poor – low-income households in tightly packed urban centers don't tend to have 1,200-square-foot apartments.
3. The poor are actually rolling in money. -
A new and equally distorted argument entered the conservative discourse just recently. It holds that poor families receive $168 per day in government benefits – more than the median weekly income in this country. If that were true, low-income households in the United States would enjoy quite comfortable living standards.
But as I noted last month, that number is inflated by around eight-fold [8]. The claim originated with Robert Rector at the Heritage Foundation and then underwent some revisions on its journey to Republican congressional staffers, and finally to the conservative media. It gets to that number by counting things like federal aid to rebuild communities after natural disasters as “welfare,” including programs that assist the middle class and the wealthy and then dividing the costs of all these programs by the number of households under the poverty line, despite the fact that many more families benefit from them.
4. It’s just how they are. -
And then there are the ever-popular cultural explanations for poverty. This is a storyline based on confusing correlation with causation – a rookie mistake in any introductory college class.
The Heritage Foundation, for example (it's Robert Rector again), sees a lot of poor, single-parent households, and would have you believe [9] that “the main causes of child poverty are low levels of parental work and the absence of fathers.”
But this gets the causal relationship wrong. The number of single-parent households exploded between the 1970s and the 1990s, more than doubling, [10] yet the poverty rate remained relatively constant. In fact, before the crash of 2008, the poverty rate was lower than it had been in the 1970s. So, as the rate of single-parent households skyrocketed, poverty declined a little bit. Saying single-parent homes create poverty is like claiming the rooster causes the sun to rise.
As I've noted [11] in the past, this is an essential piece of the “culture of poverty” narrative, and it is nonsense. Jean Hardisty, the author of Marriage as a Cure for Poverty: A Bogus Formula for Women, cited a number of studies showing that poor women have the same dreams as everyone else: they “often aspire to a romantic notion of marriage and family that features a white picket fence in the suburbs.” But low economic status leads to fewer marriages, not the other way around.
In 1998, the Fragile Families Study looked at 3,700 low-income unmarried couples in 20 U.S. cities. The authors found that 90 percent of the couples living together wanted to tie the knot, but only 15 percent had actually done so by the end of the one-year study period. And here’s the key finding: for every dollar that a man’s hourly wages increased, the odds that he’d get hitched by the end of the year rose by 5 percent. Men earning more than $25,000 during the year had twice the marriage rates of those making less than $25,000.
Writing up the findings for the Nation, Sharon Lerner noted that poverty itself “seems to make people feel less entitled to marry.” As one father in the survey put it, marriage means “not living from check to check.”
Why People Are Really Poor -
During a period of less than 20 years beginning in the early 1980s, the American economy underwent dramatic changes. It was a period of policy-driven de-unionization and the offshoring of millions of decent manufacturing jobs. The tax code underwent dramatic changes, as CEO pay sky-rocketed and the financial sector came to represent a much larger share of our economic output than it had during the four decades or so following World War II.
And our distribution of income changed dramatically as well. During the 35 years prior to Ronald Reagan's election, the top one percent of U.S. households had taken in an average of 10 percent of the nation's income. When Reagan left office in 1988, those at the top were grabbing 15.5 percent of the pie, and by the time George W. Bush took office in 2000, they were taking over 20 percent of the nation's income.
We can either believe that this shift was a result of changes in public policy (combined with new technologies), or that in just two decades there was some sort of rapid cultural decline among everyone but those at the top of the economic heap.
All of the false narratives are intended to distract from the structural causes of poverty and inequality, and they ignore two simple and indisputable truths. First, contrary to popular belief, we don't all start out with the same opportunities. The reality is that in the United States today, the best predictor of a newborn baby's economic future is how much money her parents make.
It also ignores the fact that living in an individualistic, capitalist society carries inherent risk. You can do everything right – study hard, work diligently, keep your nose clean – but if you fall victim to a random workplace accident, you can nevertheless end up being disabled in the blink of an eye and find yourself in need of public assistance. You can end up bankrupt under a pile of healthcare bills or you could lose your job if you're forced to take care of an ailing parent. Children – innocents who aren't even old enough to work for themselves – are among the largest groups receiving various forms of public assistance.
The reality, despite the spin from the conservative movement, is that poverty in America is very real, and it's anything but fun.
Links:
[1] http://www.alternet.org
[2] http://www.alternet.org/authors/joshua-holland
[3] http://www.reuters.com/article/2013/01/15/us-usa-economy-workingpoor-idUSBRE90E05520130115
[4] http://www.alternet.org/news-amp-politics/report-nearly-half-americans-have-no-safety-net-keep-them-out-poverty
[5] http://www.heritage.org/research/reports/2007/08/how-poor-are-americas-poor-examining-the-plague-of-poverty-in-america
[6] http://sfbay.craigslist.org/zip/
[7] http://online.wsj.com/article/0,,SB108751426815241018,00.html?mod=opinion_main_review_and_outlooks
[8] http://www.alternet.org/economy/how-astounding-new-right-wing-lie-about-economy-born
[9] http://blog.heritage.org/2011/08/17/one-in-five-children-poor%E2%80%94but-what-does-that-mean/
[10] http://www.edu.pe.ca/southernkings/familysingle.htm
[11] http://www.alternet.org/module/printversion/151830
Monday, January 21, 2013
Pentagon Exam Calls Protests ‘Low-Level Terrorism,’ Angering Activists
[http://thebellnews.com/2013/01/21/pentagon-exam-calls-protests-low-level-terrorism-angering-activists/]:
From Fox News:
A written exam administered by the Pentagon labels “protests” as a form of “low-level terrorism” — enraging civil liberties advocates and activist groups who say it shows blatant disregard of the First Amendment.
The written exam, given as part of Department of Defense employees’ routine training, includes a multiple-choice question that asks:
“Which of the following is an example of low-level terrorism?”
— Attacking the Pentagon
— IEDs
— Hate crimes against racial groups
— Protests
The correct answer, according to the exam, is “Protests.”
“Its part of a pattern of equating dissent and protest with terrorism,” said Ann Brick, an attorney with the American Civil Liberties Union, which obtained a copy of the question after a Defense Department employee who was taking the test printed the screen on his or her computer terminal.
“It undermines the core constitutional values the Department of Defense is supposed to be defending,” Brick said, referring to the First Amendment right to peaceably assemble.
She said the ACLU has asked the Defense Department to remove the question and send out a correction to all employees who took the exam.
“There were other employees who were unhappy with it and disturbed by it,” Brick said.
Pentagon spokesman Lt. Col. Les Melnyk said the Defense Department is looking into the matter and expects to provide more information later Wednesday.
From Fox News:
A written exam administered by the Pentagon labels “protests” as a form of “low-level terrorism” — enraging civil liberties advocates and activist groups who say it shows blatant disregard of the First Amendment.
The written exam, given as part of Department of Defense employees’ routine training, includes a multiple-choice question that asks:
“Which of the following is an example of low-level terrorism?”
— Attacking the Pentagon
— IEDs
— Hate crimes against racial groups
— Protests
The correct answer, according to the exam, is “Protests.”
“Its part of a pattern of equating dissent and protest with terrorism,” said Ann Brick, an attorney with the American Civil Liberties Union, which obtained a copy of the question after a Defense Department employee who was taking the test printed the screen on his or her computer terminal.
“It undermines the core constitutional values the Department of Defense is supposed to be defending,” Brick said, referring to the First Amendment right to peaceably assemble.
She said the ACLU has asked the Defense Department to remove the question and send out a correction to all employees who took the exam.
“There were other employees who were unhappy with it and disturbed by it,” Brick said.
Pentagon spokesman Lt. Col. Les Melnyk said the Defense Department is looking into the matter and expects to provide more information later Wednesday.
Saturday, January 19, 2013
2013-01-19 "Exposed! How the Billionaires Class Is Destroying Democracy"
by Thom Hartmann and Sam Sacks, The Daily Take [http://www.thomhartmann.com/], published by "Truth-out.org"
[http://truth-out.org/opinion/item/14011-exposed-how-the-billionaires-class-is-destroying-democracy]:
Out of the guts of the internet, we find an endless stream of misattributed quotes and made-up stories that end up in chain emails that you eventually receive from your loopy uncle in Texas who's trying to justify right-wing economics or anti-Obama conspiracy theories.
It's just one of the headaches of the Internet Age.
But, there's one quote in particular that's always attributed to an obscure Scottish historian, Sir Alexander Frasier Tytler (as if that gave it great credibility), and it seemed to both make sense and prophecy the end of the American Republic.
Tytler was supposed to have said: "A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess of the public treasury. From that time on the majority always votes for the candidates promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship."
Tyltler goes on to talk about the process by which democracies fail as a result of this "voter selfishness."
The average age of the world's greatest civilizations has been two hundred years," he was rumored to have said. "These nations have progressed through this sequence: from bondage to spiritual faith; from spiritual faith to great courage; from great courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to complacency; from complacency to apathy; from apathy to dependence; from dependency back again to bondage."
Now, here's the reality: Tytler never said any of these words. They can all be tracked back to right-wing American businessmen in the early decades of the twentieth century. And why would right-wing businessmen say such things? Because, in actual point of fact, the thing that corrupts democracies is not "the voters" demanding "free stuff" (to paraphrase Romney), but, instead, its businessmen buying off politicians.
It's not the powerless who corrupt democracies, as that viral right-wing quote would suggest; it's the powerful who corrupt democracies. And money is the source of that power.
Yes, over the last hundred years, average American people have voted themselves benefits like Social Security, unemployment insurance, Medicare, and Medicaid. But at the same time, they've also supported tax increases to pay for all of these things. Remember, the Social Security tax only applies to the first $113,000 of wages - earned income. People like Paris Hilton and Mitt Romney, when they get all their money from capital gains, dividends, and carried interest, don't pay a penny of Social Security taxes on their millions of income. And the average top CEO in America, with an income of $13.7 million a year, over a million a month, only pays Social Security taxes on his first few days of income every year - every other day is Social Security tax-free. Quite literally, as Leona Helmsley famously said, only the "little people" pay such taxes. The safety net program for working class people is exclusively paid for by working class people.
On the other hand, when the Billionaire Class extracts benefits from the government for themselves, the generally don't pay higher taxes. The billions in taxpayer subsidies for Big Oil, trillions in bailouts and bonuses for Wall Street banksters, and hundreds of billions for war profiteers are always accompanied by demands for more tax cuts at the top.
And, truth be told, billionaires aren't even receiving these benefits by voting for them. Instead, they always get them through the simple process of buying politicians. For example, Sheldon Adelson spent $150 million in the last election. That's more than any American spent in any election in American history. And he spent all that money to give himself the "benefits" of derailing an Obama Justice Department investigation into his casino in China and to get his taxes cut even further.
Billionaires also corrupt democracy to get their benefits through billionaire-funded think tanks, like the Koch-funded American Legislative Exchange Council that writes legislation to benefit Corporate America, and then has Republicans state lawmakers introduce and pass laws in state after state, across the nation.
But despite this very clear reality of who is demanding largesse from our government, it's still working people and average voters who are targeted by right-wingers and their viral emails as the selfish "takers." That's the reason why the Business Roundtable is saying the best way to fix insurance programs like Social Security and Medicare is to raise the retirement age to 70 and voucherize Medicare.
Of course, the average CEO for an S&P 500 company doesn't need Social Security. But they know that by raising the retirement age, they're shielding themselves from any tax increases that may come with raising that payroll tax cap, so even billionaires pay into Social Security, which will quickly and easily make that insurance program solvent forever.
America's fiscal problems have nothing to do with voters. In fact, the Billionaire Class is trying to make it harder and harder for people to vote by pushing for voter suppression ID laws and restrictions on early voting.
America's fiscal problems are a direct result of the Billionaire Class working behind the scenes of our democracy and syphoning off massive amounts of wealth for themselves while paying lower taxes than they've paid in a half-century. As Senator Bernie Sanders points out, a quarter of all profitable corporations in America pay zero federal taxes. And Mitt Romney and Paris Hilton's income tax rates top out at 20 percent.
Tytler didn't really say those words that the Billionaire Class think-tanks and email shills attribute to him. But, had he said them, he probably would have something more along the lines of this: "A democracy cannot exist as a permanent form of government. It can only exist until the billionaires discover that they can steal for themselves largess of the public treasury through buying politicians. From that time on the billionaires will always buy candidates promising them the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship."
If we are concerned about the future of our American democratic republic, the way to preserve it isn't to protect it from greedy Social Security recipients by pushing the retirement age back to 70. It's to get money out of government, thus neutering the political power of the Billionaire Class. And that means reversing two core doctrines that the US Supreme Court has created out of thin air (at the request of big business and billionaires): that corporations are people, and that money is speech.
The best way to do that is through a constitutional amendment that says corporations are not people, and money is property and not speech.
Go to MoveToAmend.org to join the fight for the survival of our democratic republic.
[http://truth-out.org/opinion/item/14011-exposed-how-the-billionaires-class-is-destroying-democracy]:
Out of the guts of the internet, we find an endless stream of misattributed quotes and made-up stories that end up in chain emails that you eventually receive from your loopy uncle in Texas who's trying to justify right-wing economics or anti-Obama conspiracy theories.
It's just one of the headaches of the Internet Age.
But, there's one quote in particular that's always attributed to an obscure Scottish historian, Sir Alexander Frasier Tytler (as if that gave it great credibility), and it seemed to both make sense and prophecy the end of the American Republic.
Tytler was supposed to have said: "A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess of the public treasury. From that time on the majority always votes for the candidates promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship."
Tyltler goes on to talk about the process by which democracies fail as a result of this "voter selfishness."
The average age of the world's greatest civilizations has been two hundred years," he was rumored to have said. "These nations have progressed through this sequence: from bondage to spiritual faith; from spiritual faith to great courage; from great courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to complacency; from complacency to apathy; from apathy to dependence; from dependency back again to bondage."
Now, here's the reality: Tytler never said any of these words. They can all be tracked back to right-wing American businessmen in the early decades of the twentieth century. And why would right-wing businessmen say such things? Because, in actual point of fact, the thing that corrupts democracies is not "the voters" demanding "free stuff" (to paraphrase Romney), but, instead, its businessmen buying off politicians.
It's not the powerless who corrupt democracies, as that viral right-wing quote would suggest; it's the powerful who corrupt democracies. And money is the source of that power.
Yes, over the last hundred years, average American people have voted themselves benefits like Social Security, unemployment insurance, Medicare, and Medicaid. But at the same time, they've also supported tax increases to pay for all of these things. Remember, the Social Security tax only applies to the first $113,000 of wages - earned income. People like Paris Hilton and Mitt Romney, when they get all their money from capital gains, dividends, and carried interest, don't pay a penny of Social Security taxes on their millions of income. And the average top CEO in America, with an income of $13.7 million a year, over a million a month, only pays Social Security taxes on his first few days of income every year - every other day is Social Security tax-free. Quite literally, as Leona Helmsley famously said, only the "little people" pay such taxes. The safety net program for working class people is exclusively paid for by working class people.
On the other hand, when the Billionaire Class extracts benefits from the government for themselves, the generally don't pay higher taxes. The billions in taxpayer subsidies for Big Oil, trillions in bailouts and bonuses for Wall Street banksters, and hundreds of billions for war profiteers are always accompanied by demands for more tax cuts at the top.
And, truth be told, billionaires aren't even receiving these benefits by voting for them. Instead, they always get them through the simple process of buying politicians. For example, Sheldon Adelson spent $150 million in the last election. That's more than any American spent in any election in American history. And he spent all that money to give himself the "benefits" of derailing an Obama Justice Department investigation into his casino in China and to get his taxes cut even further.
Billionaires also corrupt democracy to get their benefits through billionaire-funded think tanks, like the Koch-funded American Legislative Exchange Council that writes legislation to benefit Corporate America, and then has Republicans state lawmakers introduce and pass laws in state after state, across the nation.
But despite this very clear reality of who is demanding largesse from our government, it's still working people and average voters who are targeted by right-wingers and their viral emails as the selfish "takers." That's the reason why the Business Roundtable is saying the best way to fix insurance programs like Social Security and Medicare is to raise the retirement age to 70 and voucherize Medicare.
Of course, the average CEO for an S&P 500 company doesn't need Social Security. But they know that by raising the retirement age, they're shielding themselves from any tax increases that may come with raising that payroll tax cap, so even billionaires pay into Social Security, which will quickly and easily make that insurance program solvent forever.
America's fiscal problems have nothing to do with voters. In fact, the Billionaire Class is trying to make it harder and harder for people to vote by pushing for voter suppression ID laws and restrictions on early voting.
America's fiscal problems are a direct result of the Billionaire Class working behind the scenes of our democracy and syphoning off massive amounts of wealth for themselves while paying lower taxes than they've paid in a half-century. As Senator Bernie Sanders points out, a quarter of all profitable corporations in America pay zero federal taxes. And Mitt Romney and Paris Hilton's income tax rates top out at 20 percent.
Tytler didn't really say those words that the Billionaire Class think-tanks and email shills attribute to him. But, had he said them, he probably would have something more along the lines of this: "A democracy cannot exist as a permanent form of government. It can only exist until the billionaires discover that they can steal for themselves largess of the public treasury through buying politicians. From that time on the billionaires will always buy candidates promising them the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship."
If we are concerned about the future of our American democratic republic, the way to preserve it isn't to protect it from greedy Social Security recipients by pushing the retirement age back to 70. It's to get money out of government, thus neutering the political power of the Billionaire Class. And that means reversing two core doctrines that the US Supreme Court has created out of thin air (at the request of big business and billionaires): that corporations are people, and that money is speech.
The best way to do that is through a constitutional amendment that says corporations are not people, and money is property and not speech.
Go to MoveToAmend.org to join the fight for the survival of our democratic republic.
Thursday, January 17, 2013
2013-01-17 "“Elections Confidential” Report Reveals Role of Dark-Money Nonprofits and Shell Corporations in 2012"
"Nearly one-fifth of all business gifts to Super PACs were contributed by shell corporations" by Blair Bowie, and Brendan Fischer, from "Public Interest Research Groups
(PIRGs)"
[http://www.commondreams.org/newswire/2013/01/17-3]:
U.S. PIRG, the federation of state Public Interest Research Groups (PIRGs), stands up to powerful special interests on behalf of the American public, working to win concrete results for our health and our well-being. With a strong network of researchers, advocates, organizers and students in state capitols across the country, we take on the special interests on issues, such as product safety,political corruption, prescription drugs and voting rights,where these interests stand in the way of reform and progress.
---
WASHINGTON - January 17 - Mystery donors poured hundreds of millions of dollars into the 2012 elections via nonprofits and shell corporations, despite widespread public support for disclosure and decades of legal precedent supporting the public’s right to know the sources of election-related spending. A new report from the U.S. PIRG Education Fund and the Center for Media and Democracy found that contributions from phony for-profit corporations accounted for nearly 17 percent of all business donations to Super PACs.
“We know that a handful of wealthy donors attempted to exert extraordinary influence on the 2012 election, but we don’t know who—or what—actually provided much of the funding, or even if those funds came from American individuals or corporations,” said Brendan Fischer, Staff Counsel at the Center for Media and Democracy.
“When voters can’t track money in elections, they can’t make informed decisions at the ballot box. When billionaires and corporations are able to sneak money in our elections through shady back channels, it conceals the undue influence of big money and prevents citizens from taking action to correct this distortion of our democracy,” added report co-author Blair Bowie, Democracy Advocate for the U.S. PIRG Education Fund.
Thanks in large part to the U.S. Supreme Court’s 2010 decision in Citizens United v FEC, the 2012 election was the most expensive in the history of the world. While the Citizens United decision did open the door for increased campaign spending, the majority of justices in the Citizens Unitedcase also strongly reaffirmed the long-standing notion that the identity of campaign donors must be disclosed. Despite this agreement that transparency was important, voters could only learn the source of two-thirds of all reported outside spending in the 2012 election. And when non-reported spending is added, the level of secrecy becomes even more extreme.
“Dark money” nonprofits that do not disclose their funders reported spending over $299 million in the 2012 election. In addition, because these groups largely ran “issue ads” that need only be reported when aired directly before primaries or on Election Day, the actual spending by nonprofits was certainly much higher.
“Electoral intervention is not supposed to be a non-profit’s main activity, but these dark money groups are abusing their tax-exempt status by existing primarily as vehicles for corporations and wealthy donors to secretly influence elections,” Fischer noted, adding, "Some dark money non-profits might now use lobbying as an accounting trick to balance their books between electoral and non-electoral spending, leading to a spiraling cycle of non-stop campaigning and special interest influence, but with zero transparency or public accountability.”
Unlike political nonprofits, Super PACs must disclose the identities of their funders, but some donors sidestepped these transparency rules by forming “shell corporations” and using them to funnel close to $17 million to Super PACs. Of all Super PAC donations from business corporations, nearly seventeen percent came from shell corporations that appear to have been formed for no reason other than to filter money into elections and keep the true sources of the funds secret.
”These shell corporations undermine the integrity of our elections with their opacity, which, at best, circumvents campaign finance law to shield donors from accountability and, at worst, may launder foreign, criminal, even terrorist funds into U.S. elections,” noted Bowie.
The authors conclude with recommendations for every level of government to increase transparency and accountability in our elections.
The full report can be viewed here: (http://www.uspirg.org/reports/usp/elections-confidential)
[http://www.commondreams.org/newswire/2013/01/17-3]:
U.S. PIRG, the federation of state Public Interest Research Groups (PIRGs), stands up to powerful special interests on behalf of the American public, working to win concrete results for our health and our well-being. With a strong network of researchers, advocates, organizers and students in state capitols across the country, we take on the special interests on issues, such as product safety,political corruption, prescription drugs and voting rights,where these interests stand in the way of reform and progress.
---
WASHINGTON - January 17 - Mystery donors poured hundreds of millions of dollars into the 2012 elections via nonprofits and shell corporations, despite widespread public support for disclosure and decades of legal precedent supporting the public’s right to know the sources of election-related spending. A new report from the U.S. PIRG Education Fund and the Center for Media and Democracy found that contributions from phony for-profit corporations accounted for nearly 17 percent of all business donations to Super PACs.
“We know that a handful of wealthy donors attempted to exert extraordinary influence on the 2012 election, but we don’t know who—or what—actually provided much of the funding, or even if those funds came from American individuals or corporations,” said Brendan Fischer, Staff Counsel at the Center for Media and Democracy.
“When voters can’t track money in elections, they can’t make informed decisions at the ballot box. When billionaires and corporations are able to sneak money in our elections through shady back channels, it conceals the undue influence of big money and prevents citizens from taking action to correct this distortion of our democracy,” added report co-author Blair Bowie, Democracy Advocate for the U.S. PIRG Education Fund.
Thanks in large part to the U.S. Supreme Court’s 2010 decision in Citizens United v FEC, the 2012 election was the most expensive in the history of the world. While the Citizens United decision did open the door for increased campaign spending, the majority of justices in the Citizens Unitedcase also strongly reaffirmed the long-standing notion that the identity of campaign donors must be disclosed. Despite this agreement that transparency was important, voters could only learn the source of two-thirds of all reported outside spending in the 2012 election. And when non-reported spending is added, the level of secrecy becomes even more extreme.
“Dark money” nonprofits that do not disclose their funders reported spending over $299 million in the 2012 election. In addition, because these groups largely ran “issue ads” that need only be reported when aired directly before primaries or on Election Day, the actual spending by nonprofits was certainly much higher.
“Electoral intervention is not supposed to be a non-profit’s main activity, but these dark money groups are abusing their tax-exempt status by existing primarily as vehicles for corporations and wealthy donors to secretly influence elections,” Fischer noted, adding, "Some dark money non-profits might now use lobbying as an accounting trick to balance their books between electoral and non-electoral spending, leading to a spiraling cycle of non-stop campaigning and special interest influence, but with zero transparency or public accountability.”
Unlike political nonprofits, Super PACs must disclose the identities of their funders, but some donors sidestepped these transparency rules by forming “shell corporations” and using them to funnel close to $17 million to Super PACs. Of all Super PAC donations from business corporations, nearly seventeen percent came from shell corporations that appear to have been formed for no reason other than to filter money into elections and keep the true sources of the funds secret.
”These shell corporations undermine the integrity of our elections with their opacity, which, at best, circumvents campaign finance law to shield donors from accountability and, at worst, may launder foreign, criminal, even terrorist funds into U.S. elections,” noted Bowie.
The authors conclude with recommendations for every level of government to increase transparency and accountability in our elections.
The full report can be viewed here: (http://www.uspirg.org/reports/usp/elections-confidential)
Tuesday, January 15, 2013
USA declared "war" against a radical political party
2013-01-15 "Fighting for Correct Standards; Disturbing Turn in Anti-Repression Battle Addressed in Letter from Raymond Lotta" from "Revcom.us" [http://revcom.us/a/292/disturbing-turn-in-anti-repression-battle-addressed-in-letter-from-raymond-lotta-en.html]:
The following letter by Raymond Lotta was sent in early January to signers of the “Call To Stand Together to Resist the Obama Administration’s Assault on Fundamental Rights.” (The Call is available online at opposerepressionndaa.net. It can also be found in Revolution#278, August 19, 2012.) The letter concerns the battle against the National Defense Authorization Act (NDAA). This law, signed by President Obama at the end of December 2011, allows for the indefinite military detention, without charge or trial, of a broad and vague category of people. It is a dangerous development.
On January 2 of this year, President Obama signed into law the NDAA of 2013. Not only does it contain the same detention provisions; it also effectively keeps the Guantánamo Bay prison-torture center open for another year, along with the continuation of illegal military commission trials.
Once again, Barack Obama has proven, despite the rhetoric and promises that the government is committed to “due process” and constitutional law, to be a world-class champion and enabler of heightened repression and the trampling of all kinds of basic rights.
The NDAA, along with other repressive moves, must be fought. But as this letter emphasizes, this battle must be waged in a way that strengthens people’s unity and determination, rather than dividing people from each other—and must be fought in a way that does not aid the government in its efforts to single out and target particular political forces and individuals.
****
Dear Signers of the Call to Stand Together to Oppose the Obama Administration’s Dangerous Assault on Fundamental Rights,
I am writing to inform you of a quite disturbing development in the lawsuit against the National Defense Authorization Act (NDAA). I write as one of the main initiators of the Call but am speaking only for myself and not for other signatories or their organizational/institutional affiliations.
The journalist Chris Hedges and the legal team in the case have decided to incorporate into a recent appeal the same erroneous and harmful characterization of the Revolutionary Communist Party, USA and its Chairman Bob Avakian that was brought to public attention in our Call. This mischaracterization could be used as a pretext to put the RCP in a category of terrorist-like organizations—and could expose the Party and Avakian to government investigation and persecution, as well as to broader harassment.
The decision to make this mischaracterization a pivot point of the continuing challenge to the NDAA amounts to throwing the RCP and Bob Avakian under the bus. It goes against the important principle of “standing together” that our Call is fighting for, and is highly detrimental to the movements of resistance and for social change.
This commentary is aimed at raising awareness of the situation. While I feel there is a need for a response, I am not proposing any particular course of action; and I do want to hear from the signers.
By way of background:
As some of you may know, the Obama administration succeeded in overturning the injunction ordered by Judge Katherine Forrest against section 1021 of the NDAA. This is the provision that allows for indefinite military detention, without charge or trial, of a broad and vague category of people. In carrying the lawsuit forward, the lawyers for Hedges et al. v Obama et al. filed a “Brief for Plaintiffs-Appellees” to the U.S. Court of Appeals 2nd District on December 10.
In the “Brief for Plaintiffs-Appellees,” earlier testimony from Hedges is reproduced in which he ill-informedly describes the RCP as an “advocate of violence” and an organization that “embrace[s] acts that could be construed as terrorist.” He argues that the NDAA has “injured”his activity as a journalist, because he is now reluctant to interview figures from groups (like the RCP with whom he has had past associations) that “advocate violence” given the implications of the NDAA and its threat of incarceration. Thus, he complains, the NDAA is impeding his journalistic work and causing him “injury.” Never mind the dangers, impediments, and possible injury that he is bringing to others!
This is politically and morally unconscionable.
To go back a little further. The mischaracterization of the RCP and Avakian originally appeared in Judge Katherine Forrest’s May 16 ruling on the case, but was actually drawn from testimony given by Hedges. It was bad that Hedges dragged the party and Avakian into this case in the first place. Still, it was the court ruling that put the RCP and Avakian in the crosshairs of possible repression. And it was this problematic aspect of Judge Forrest’s mainly positive ruling that was the focus of concern in our Call.
In response to the fallacious description of the RCP and Avakian in that ruling, an amicus [friend of the court] brief was filed to set the record straight about the actual political outlook and strategic perspective of the RCP and Bob Avakian. The amicus brief made very clear the RCP’s and Avakian’s philosophical-political opposition to terrorism. (See "Brief Filed Objecting to Dangerous Mischaracterization of RCP,USA" in Revolution #275, July 22, 2012 [http://www.revcom.us/a/275/brief-filed-objecting-to-dangerous-mischaracterization-of-RCPUSA-en.html]) I had also written Hedges and the other plaintiffs about the mischaracterization.
Following the ruling, our Call to Stand Together to Oppose the Obama Administration’s Dangerous Assault on Fundamental Rights was issued. It summons resistance to the NDAA, unites with the overall positive thrust of the Hedges et al. lawsuit, but also, with regard to the dangers posed to the RCP and its Chairman, popularizes the self-critical reflections of Pastor Niemöller, reflecting on his experience in Germany in the early 1930s: we must not allow the powers-that-be to determine what organizations are politically acceptable or unacceptable, and we must stand against attempts to divide progressive, radical, and revolutionary forces along any such lines. Our Call was signed by over 750 people, including a wide range of social activists, academics, artists, and prominent voices including Cornel West and Daniel Ellsberg, and was published as a paid ad in the November 5 issue of The Nation.
Yet in the face of and in total disregard of the amicus brief filed, the overtures I have made to meet and discuss these matters with Hedges, and (not least) the publication of the Call, Chris Hedges and the legal team are now actively invoking the toxic mischaracterization, as expressed in the December 10 appeal to the 2nd District Court.
I believe it is very important to mount a response to this.
There is the potential harm that this December 10 appeal filing and the whole mischaracterization in the court record might cause the RCP and Bob Avakian.
At the same time, this situation underscores the need to affirm and struggle for standards in the movements against repression and for social change. There’s plenty of room to disagree on issues of analysis, strategy, and goals; and we can and must engage in sharp, substantive, and principled debate and polemic. But it is not acceptable for a Chris Hedges a) to propagate a distorted account of what the RCP and its Chairman stand for, including in legal proceedings, that can only aid the government; and b) to put the winning of this case (important as that is) above the larger interests of progressive, radical, and revolutionary movements. This really crosses the line.
I plan to reach out to various prominent voices of conscience about this situation. I also plan to do a webcast presentation about these issues some time this month. It would be important for signers of the Call to weigh in and write back on the situation. For those who agree with the broad outlines of the assessment that I am making, it would be good to share your ideas on how to register protest with Hedges. We must apply the principles of our Call to this recent disturbing turn in the lawsuit and forge greater determination and unity.
In solidarity, Raymond Lotta
The following letter by Raymond Lotta was sent in early January to signers of the “Call To Stand Together to Resist the Obama Administration’s Assault on Fundamental Rights.” (The Call is available online at opposerepressionndaa.net. It can also be found in Revolution#278, August 19, 2012.) The letter concerns the battle against the National Defense Authorization Act (NDAA). This law, signed by President Obama at the end of December 2011, allows for the indefinite military detention, without charge or trial, of a broad and vague category of people. It is a dangerous development.
On January 2 of this year, President Obama signed into law the NDAA of 2013. Not only does it contain the same detention provisions; it also effectively keeps the Guantánamo Bay prison-torture center open for another year, along with the continuation of illegal military commission trials.
Once again, Barack Obama has proven, despite the rhetoric and promises that the government is committed to “due process” and constitutional law, to be a world-class champion and enabler of heightened repression and the trampling of all kinds of basic rights.
The NDAA, along with other repressive moves, must be fought. But as this letter emphasizes, this battle must be waged in a way that strengthens people’s unity and determination, rather than dividing people from each other—and must be fought in a way that does not aid the government in its efforts to single out and target particular political forces and individuals.
****
Dear Signers of the Call to Stand Together to Oppose the Obama Administration’s Dangerous Assault on Fundamental Rights,
I am writing to inform you of a quite disturbing development in the lawsuit against the National Defense Authorization Act (NDAA). I write as one of the main initiators of the Call but am speaking only for myself and not for other signatories or their organizational/institutional affiliations.
The journalist Chris Hedges and the legal team in the case have decided to incorporate into a recent appeal the same erroneous and harmful characterization of the Revolutionary Communist Party, USA and its Chairman Bob Avakian that was brought to public attention in our Call. This mischaracterization could be used as a pretext to put the RCP in a category of terrorist-like organizations—and could expose the Party and Avakian to government investigation and persecution, as well as to broader harassment.
The decision to make this mischaracterization a pivot point of the continuing challenge to the NDAA amounts to throwing the RCP and Bob Avakian under the bus. It goes against the important principle of “standing together” that our Call is fighting for, and is highly detrimental to the movements of resistance and for social change.
This commentary is aimed at raising awareness of the situation. While I feel there is a need for a response, I am not proposing any particular course of action; and I do want to hear from the signers.
By way of background:
As some of you may know, the Obama administration succeeded in overturning the injunction ordered by Judge Katherine Forrest against section 1021 of the NDAA. This is the provision that allows for indefinite military detention, without charge or trial, of a broad and vague category of people. In carrying the lawsuit forward, the lawyers for Hedges et al. v Obama et al. filed a “Brief for Plaintiffs-Appellees” to the U.S. Court of Appeals 2nd District on December 10.
In the “Brief for Plaintiffs-Appellees,” earlier testimony from Hedges is reproduced in which he ill-informedly describes the RCP as an “advocate of violence” and an organization that “embrace[s] acts that could be construed as terrorist.” He argues that the NDAA has “injured”his activity as a journalist, because he is now reluctant to interview figures from groups (like the RCP with whom he has had past associations) that “advocate violence” given the implications of the NDAA and its threat of incarceration. Thus, he complains, the NDAA is impeding his journalistic work and causing him “injury.” Never mind the dangers, impediments, and possible injury that he is bringing to others!
This is politically and morally unconscionable.
To go back a little further. The mischaracterization of the RCP and Avakian originally appeared in Judge Katherine Forrest’s May 16 ruling on the case, but was actually drawn from testimony given by Hedges. It was bad that Hedges dragged the party and Avakian into this case in the first place. Still, it was the court ruling that put the RCP and Avakian in the crosshairs of possible repression. And it was this problematic aspect of Judge Forrest’s mainly positive ruling that was the focus of concern in our Call.
In response to the fallacious description of the RCP and Avakian in that ruling, an amicus [friend of the court] brief was filed to set the record straight about the actual political outlook and strategic perspective of the RCP and Bob Avakian. The amicus brief made very clear the RCP’s and Avakian’s philosophical-political opposition to terrorism. (See "Brief Filed Objecting to Dangerous Mischaracterization of RCP,USA" in Revolution #275, July 22, 2012 [http://www.revcom.us/a/275/brief-filed-objecting-to-dangerous-mischaracterization-of-RCPUSA-en.html]) I had also written Hedges and the other plaintiffs about the mischaracterization.
Following the ruling, our Call to Stand Together to Oppose the Obama Administration’s Dangerous Assault on Fundamental Rights was issued. It summons resistance to the NDAA, unites with the overall positive thrust of the Hedges et al. lawsuit, but also, with regard to the dangers posed to the RCP and its Chairman, popularizes the self-critical reflections of Pastor Niemöller, reflecting on his experience in Germany in the early 1930s: we must not allow the powers-that-be to determine what organizations are politically acceptable or unacceptable, and we must stand against attempts to divide progressive, radical, and revolutionary forces along any such lines. Our Call was signed by over 750 people, including a wide range of social activists, academics, artists, and prominent voices including Cornel West and Daniel Ellsberg, and was published as a paid ad in the November 5 issue of The Nation.
Yet in the face of and in total disregard of the amicus brief filed, the overtures I have made to meet and discuss these matters with Hedges, and (not least) the publication of the Call, Chris Hedges and the legal team are now actively invoking the toxic mischaracterization, as expressed in the December 10 appeal to the 2nd District Court.
I believe it is very important to mount a response to this.
There is the potential harm that this December 10 appeal filing and the whole mischaracterization in the court record might cause the RCP and Bob Avakian.
At the same time, this situation underscores the need to affirm and struggle for standards in the movements against repression and for social change. There’s plenty of room to disagree on issues of analysis, strategy, and goals; and we can and must engage in sharp, substantive, and principled debate and polemic. But it is not acceptable for a Chris Hedges a) to propagate a distorted account of what the RCP and its Chairman stand for, including in legal proceedings, that can only aid the government; and b) to put the winning of this case (important as that is) above the larger interests of progressive, radical, and revolutionary movements. This really crosses the line.
I plan to reach out to various prominent voices of conscience about this situation. I also plan to do a webcast presentation about these issues some time this month. It would be important for signers of the Call to weigh in and write back on the situation. For those who agree with the broad outlines of the assessment that I am making, it would be good to share your ideas on how to register protest with Hedges. We must apply the principles of our Call to this recent disturbing turn in the lawsuit and forge greater determination and unity.
In solidarity, Raymond Lotta
Monday, January 14, 2013
2013-01-14 "FreedomWorks Putting Its War Chest to Work for ALEC’s Anti-Union Agenda in the States"
by Brendan Fischer from "Center for Media & Democracy / PR Watch", posted at [http://www.commondreams.org/headline/2013/01/14-0]:
The Tea Party-affiliated group FreedomWorks -- the right-wing organization that helps connect “Tea Party” groups with talking points, rallies, and more -- is gearing up to direct its sizeable war chest towards advancing anti-union initiatives in the states, supporting an agenda set by groups like David Koch's Americans for Prosperity and the Koch-funded American Legislative Exchange Council (ALEC). This strongly suggests that the battle for the future of private and public sector unions in America is beginning a new phase of combat.This month, FreedomWorks announced "an aggressive grassroots, state-based campaign" for 2013 to "push back against domineering unions," among other plans [http://www.prwatch.org/files/Jan_6_FW_email.png]. The group has been in the midst of turmoil in recent months with former House Majority Leader Dick Armey abruptly resigning after the 2012 elections, in part because of concerns about the ethics of FreedomWorks President Matt Kibbe. In the aftermath of President Barack Obama’s strong showing in battleground states where union members turned out in large numbers against Mitt Romney, Kibbe is apparently prioritizing anti-union advocacy.
Unions have been under attack since the 2010 elections swept new Republican majorities into statehouses across the country. Starting in early 2011, states like Wisconsin and Ohio passed legislation to restrict collective bargaining rights for public sector employees (although Ohio citizens were able to reverse one of the most pernicious bills via referendum), and in late 2012, the Michigan legislature rushed a "right to work" bill into law during the lame duck session.
So-called right to work laws undermine collective bargaining by allowing some employees to free ride when the union uses the collective power of workers to negotiate wages, raises, and other benefits with managers. Under right to work laws, employees can get these benefits while opting-out of paying the costs, which groups like FreedomWorks have spun as "workplace freedom" [http://www.freedomworks.org/issues/card-check]. Much of the anti-union legislation introduced since the 2010 elections can be traced to "model" bills from ALEC, after legislators who attended the December 2010 ALEC meeting embraced the right to work agenda that had stalled decades earlier.
CMD identified how Michigan's right to work measure, for example, was almost identical to the ALEC model [http://www.prwatch.org/news/2012/12/11903/michigan-passes-right-work-containing-verbatim-language-alec-model-bill]. More recently, Progress Missouri identified how ALEC legislators in that state have introduced another right to work proposal that closely resembles the ALEC "model" Right to Work Act [http://www.progressmissouri.org/house-leaderships-anti-worker-proposal-comes-straight-alec-corporate-bill-mill].
ALEC legislators have also been buoyed by support for these measures from groups like David Koch's Americans for Prosperity. After a number of Republicans were defeated in federal races, FreedomWorks now appears to have made anti-union legislation in the states a priority for 2013.
Leaked Documents Show Record Fundraising, Internal Coordination -
As details about the power struggle within FreedomWorks emerged in December -- with a wealthy donor who secretly gave $12 million to the Freedomworks Super PAC buying Armey's silence about Kibbe's ethical issues until after the election via an $8 million "consulting" contract [http://www.prwatch.org/news/2013/01/11930/12m-donation-freedomworks-laundered-through-shell-corporation-may-have-violated-f] - internal board documents leaked to Mother Jones showed that $33 million of the $41 million raised by the group through mid-December came in the form of five-and six-figure checks, contradicting the notion that FreedomWorks is at its core a "grassroots" organization (even though it has been increasing its small-donor base) [http://s3.documentcloud.org/documents/550014/freedomworks-board-book-winter-2012.pdf].
According to the leaked documents, FreedomWorks' fundraising surged in 2012, largely thanks to the group's Super PAC, FreedomWorks for America, which raised $23 million [http://www.opensecrets.org/pacs/lookup2.php?strID=C00499020&cycle=2012].
Federal law requires a group like FreedomWorks to have segregated accounting for its Super PAC, charitable, and nonprofit wings. But Kibbe reported to the board a single $42 million in "consolidated" revenue for 2012, combining funds raised by the FreedomWorks for America Super PAC, the 501(c)(3) charity Freedomworks Foundation, and the 501(c)(4) Freedomworks, Inc. (The group has also shifted millions between its 501(c)(4) and Super PAC in 2012, effectively hiding the identity of the true donor).
"The difference between us and other Super PACs is our commitment to building a machine that outlives any election, won or lost," wrote Kibbe in a "President's Report" to the FreedomWorks Board of Directors.
FreedomWorks to Use Funds to Attack Unions -
FreedomWorks now intends to direct that war chest -- and that "machine" -- towards anti-union battles in the states.
Since the election, FreedomWorks has promoted a petition to "support Michigan Governor Rick Snyder" in his anti-union push, published multiple blogs attacking unions, and released a study purporting to show the benefits of "paycheck protection" legislation to defund unions in Pennsylvania [http://www.freedomworks.org/files/PCP_Issue_Analysis_0.pdf].
In a January 6 message to the FreedomWorks email list [http://www.prwatch.org/files/Jan_6_FW_email.png], Kibbe announced a new "Save the States" campaign and linked to a website where users could rank the issues FreedomWorks has identified as priorities -- like Right to Work, Paycheck Protection, "school choice" (which is presented as an anti-union initiative), and reforming the supposedly "extravagant" pensions promised to unionized public sector employees.
Four out of the five issues in the FreedomWorks "Save the States" campaign are tied to weakening unions, either directly or indirectly.
As CMD has reported [http://www.prwatch.org/news/2012/12/11902/alecs-so-called-right-work-bill-political-revenge-michigan], attacks on unions are not only about expanding corporate profit margins at the expense of workers, but also about cutting-off a key funding stream for Democrats and progressive causes (even though the dues workers pay are separate from the funds provided for political activity). These efforts also limit the capacity of unions to get out the vote in support of candidates who protect worker's rights or against candidates who want to strip them away. By weakening a political opponent FreedomWorks can expand its own influence over elections.
FreedomWorks does not appear to be alone in its push. David Koch's Americans for Prosperity also appears to be publicly prioritizing anti-union advocacy [http://americansforprosperity.org/legislativealerts/three-things-2012-taught-us-about-unions/], for example calling for right to work in Wisconsin. AFP reported spending $39 million on the 2012 elections (and at least $10 million defending Wisconsin Governor Scott Walker during his recall), but as a nonprofit its primary purpose cannot be electoral. Its lobbying and advocacy on anti-union initiatives could be one way to try and justify its nonprofit "social welfare" status [http://www.prwatch.org/news/2012/08/11722/how-americans-prosperity-will-keep-hiding-donors-shifting-election-landscape-reta].
FreedomWorks and Americans for Prosperity both grew out of Citizens for a Strong Economy, a non-profit group founded by David Koch in the early 1980s. Koch Industries and philanthropies have been key funders of ALEC -- which has been instrumental in advancing anti-union laws around the country -- and AFP is an ALEC member along with Koch Industries and other groups funded by the Koch family fortune. The degree to which FreedomWorks is formally associated with ALEC is not known but its leaders have presented at ALEC meetings, and ALEC's Director of External Relations, Caitlyn Korb (who started her career as a Koch Summer Fellow [http://americasfuture.org/freethefuture/2012/03/21/profiles-in-liberty-caitlyn-korb/]) has recently moved over to FreedomWorks.
This means there may be even bigger battles over labor rights in coming years than we have seen during the turmoil of 2011 and 2012 -- and the right-wing is backing the ALEC agenda big time, with big money.
The Tea Party-affiliated group FreedomWorks -- the right-wing organization that helps connect “Tea Party” groups with talking points, rallies, and more -- is gearing up to direct its sizeable war chest towards advancing anti-union initiatives in the states, supporting an agenda set by groups like David Koch's Americans for Prosperity and the Koch-funded American Legislative Exchange Council (ALEC). This strongly suggests that the battle for the future of private and public sector unions in America is beginning a new phase of combat.This month, FreedomWorks announced "an aggressive grassroots, state-based campaign" for 2013 to "push back against domineering unions," among other plans [http://www.prwatch.org/files/Jan_6_FW_email.png]. The group has been in the midst of turmoil in recent months with former House Majority Leader Dick Armey abruptly resigning after the 2012 elections, in part because of concerns about the ethics of FreedomWorks President Matt Kibbe. In the aftermath of President Barack Obama’s strong showing in battleground states where union members turned out in large numbers against Mitt Romney, Kibbe is apparently prioritizing anti-union advocacy.
Unions have been under attack since the 2010 elections swept new Republican majorities into statehouses across the country. Starting in early 2011, states like Wisconsin and Ohio passed legislation to restrict collective bargaining rights for public sector employees (although Ohio citizens were able to reverse one of the most pernicious bills via referendum), and in late 2012, the Michigan legislature rushed a "right to work" bill into law during the lame duck session.
So-called right to work laws undermine collective bargaining by allowing some employees to free ride when the union uses the collective power of workers to negotiate wages, raises, and other benefits with managers. Under right to work laws, employees can get these benefits while opting-out of paying the costs, which groups like FreedomWorks have spun as "workplace freedom" [http://www.freedomworks.org/issues/card-check]. Much of the anti-union legislation introduced since the 2010 elections can be traced to "model" bills from ALEC, after legislators who attended the December 2010 ALEC meeting embraced the right to work agenda that had stalled decades earlier.
CMD identified how Michigan's right to work measure, for example, was almost identical to the ALEC model [http://www.prwatch.org/news/2012/12/11903/michigan-passes-right-work-containing-verbatim-language-alec-model-bill]. More recently, Progress Missouri identified how ALEC legislators in that state have introduced another right to work proposal that closely resembles the ALEC "model" Right to Work Act [http://www.progressmissouri.org/house-leaderships-anti-worker-proposal-comes-straight-alec-corporate-bill-mill].
ALEC legislators have also been buoyed by support for these measures from groups like David Koch's Americans for Prosperity. After a number of Republicans were defeated in federal races, FreedomWorks now appears to have made anti-union legislation in the states a priority for 2013.
Leaked Documents Show Record Fundraising, Internal Coordination -
As details about the power struggle within FreedomWorks emerged in December -- with a wealthy donor who secretly gave $12 million to the Freedomworks Super PAC buying Armey's silence about Kibbe's ethical issues until after the election via an $8 million "consulting" contract [http://www.prwatch.org/news/2013/01/11930/12m-donation-freedomworks-laundered-through-shell-corporation-may-have-violated-f] - internal board documents leaked to Mother Jones showed that $33 million of the $41 million raised by the group through mid-December came in the form of five-and six-figure checks, contradicting the notion that FreedomWorks is at its core a "grassroots" organization (even though it has been increasing its small-donor base) [http://s3.documentcloud.org/documents/550014/freedomworks-board-book-winter-2012.pdf].
According to the leaked documents, FreedomWorks' fundraising surged in 2012, largely thanks to the group's Super PAC, FreedomWorks for America, which raised $23 million [http://www.opensecrets.org/pacs/lookup2.php?strID=C00499020&cycle=2012].
Federal law requires a group like FreedomWorks to have segregated accounting for its Super PAC, charitable, and nonprofit wings. But Kibbe reported to the board a single $42 million in "consolidated" revenue for 2012, combining funds raised by the FreedomWorks for America Super PAC, the 501(c)(3) charity Freedomworks Foundation, and the 501(c)(4) Freedomworks, Inc. (The group has also shifted millions between its 501(c)(4) and Super PAC in 2012, effectively hiding the identity of the true donor).
"The difference between us and other Super PACs is our commitment to building a machine that outlives any election, won or lost," wrote Kibbe in a "President's Report" to the FreedomWorks Board of Directors.
FreedomWorks to Use Funds to Attack Unions -
FreedomWorks now intends to direct that war chest -- and that "machine" -- towards anti-union battles in the states.
Since the election, FreedomWorks has promoted a petition to "support Michigan Governor Rick Snyder" in his anti-union push, published multiple blogs attacking unions, and released a study purporting to show the benefits of "paycheck protection" legislation to defund unions in Pennsylvania [http://www.freedomworks.org/files/PCP_Issue_Analysis_0.pdf].
In a January 6 message to the FreedomWorks email list [http://www.prwatch.org/files/Jan_6_FW_email.png], Kibbe announced a new "Save the States" campaign and linked to a website where users could rank the issues FreedomWorks has identified as priorities -- like Right to Work, Paycheck Protection, "school choice" (which is presented as an anti-union initiative), and reforming the supposedly "extravagant" pensions promised to unionized public sector employees.
Four out of the five issues in the FreedomWorks "Save the States" campaign are tied to weakening unions, either directly or indirectly.
As CMD has reported [http://www.prwatch.org/news/2012/12/11902/alecs-so-called-right-work-bill-political-revenge-michigan], attacks on unions are not only about expanding corporate profit margins at the expense of workers, but also about cutting-off a key funding stream for Democrats and progressive causes (even though the dues workers pay are separate from the funds provided for political activity). These efforts also limit the capacity of unions to get out the vote in support of candidates who protect worker's rights or against candidates who want to strip them away. By weakening a political opponent FreedomWorks can expand its own influence over elections.
FreedomWorks does not appear to be alone in its push. David Koch's Americans for Prosperity also appears to be publicly prioritizing anti-union advocacy [http://americansforprosperity.org/legislativealerts/three-things-2012-taught-us-about-unions/], for example calling for right to work in Wisconsin. AFP reported spending $39 million on the 2012 elections (and at least $10 million defending Wisconsin Governor Scott Walker during his recall), but as a nonprofit its primary purpose cannot be electoral. Its lobbying and advocacy on anti-union initiatives could be one way to try and justify its nonprofit "social welfare" status [http://www.prwatch.org/news/2012/08/11722/how-americans-prosperity-will-keep-hiding-donors-shifting-election-landscape-reta].
FreedomWorks and Americans for Prosperity both grew out of Citizens for a Strong Economy, a non-profit group founded by David Koch in the early 1980s. Koch Industries and philanthropies have been key funders of ALEC -- which has been instrumental in advancing anti-union laws around the country -- and AFP is an ALEC member along with Koch Industries and other groups funded by the Koch family fortune. The degree to which FreedomWorks is formally associated with ALEC is not known but its leaders have presented at ALEC meetings, and ALEC's Director of External Relations, Caitlyn Korb (who started her career as a Koch Summer Fellow [http://americasfuture.org/freethefuture/2012/03/21/profiles-in-liberty-caitlyn-korb/]) has recently moved over to FreedomWorks.
This means there may be even bigger battles over labor rights in coming years than we have seen during the turmoil of 2011 and 2012 -- and the right-wing is backing the ALEC agenda big time, with big money.
Sunday, January 13, 2013
2013-01-13 "Inequality Rages as Dwindling Wages Lock Millions in Poverty"
"New study shows just how hard 'working poor' got hit in wake of 2008 crisis" by Jon Queally from "CommonDreams.org" [http://www.commondreams.org/headline/2013/01/15-2]:
The official unemployment rate in the US may be slowly ticking down, but the rank of those who classify as 'the working poor' has continued to skyrocket, according to a new report.Along with overall income inequality growth in the US, a new report by Working Poor Families Project [http://www.workingpoorfamilies.org/] says that over 200,000 families fell into poverty in 2011 even with both parents working.
National job growth saw a recovery from the worst days following the 2008 housing crash and subsequent financial crisis, but even as the recession ebbed in some areas or for some groups, many middle class or lower-middle class workers who returned to employment did so with much reduced wages.
As lead author of the report, Brandon Roberts, points out in an op-ed at Reuters on Tuesday [http://blogs.reuters.com/great-debate/2013/01/15/we-must-focus-on-the-working-poor/]:
[begin excerpt]
These are not just the unemployed. Rather they are families that, despite having a working adult in the home, earn less than twice the federal poverty income threshold – a widely recognized measure of family self-sufficiency. They are working, but making too little to build economically secure lives. And their number has grown steadily over the past five years.
They are cashiers and clerks, nursing assistants and lab technicians, truck drivers and waiters. Either they are unable to find good, full-time jobs, or their incomes are inadequate and their prospects for advancement are poor.
[end excerpt]
The report, which analyzed figures from the US Census in 2011, determined that nearly 10.4 million such families - or 47.5 million Americans - now live near poverty, defined as earning less than $45,622 for a family of four.
Statistics also showed that roughly 23.5 million, or 37 percent, of U.S. children lived in working poor families compared with about 21 million, or 33 percent, in 2007, the report said.
"Although many people are returning to work, they are often taking jobs with lower wages and less job security, compared with the middle-class jobs they held before the economic downturn," the report said. "This means that nearly a third of all working families ... may not have enough money to meet basic needs."
“We’re not on a good trajectory,” Brandon Roberts, who manages the privately-funded Working Poor Families Project, told The Washington Post. “The overall number of low-income working families is increasing despite the recovery.”
And Reuters reports [http://www.reuters.com/article/2013/01/15/usa-economy-workingpoor-idUSL2N0AJ3WR20130115]:
[begin excerpt]
The group's analysis adds to the body of data focused on the slipping U.S. middle class even as there are signs of the nation's economy slowly coming back to life with improvements in the housing sector and lower unemployment rate.
For some Americans, the comeback has yet to begin.
Data showed that the top 20 percent of Americans received 48 percent of all income while those in the bottom 20 percent got less than 5 percent, the report said.
The analysis also found regional differences.
States in the South, such as Georgia and South Carolina, and those in the West, such as Arizona and Nevada, had the greatest increase in the number of working poor. The increase was slower in the Mid-Atlantic and Northeast.
"It's important to draw attention to the fact that there are real families behind those statistics," said Alan Essig, who heads the Georgia Budget and Policy Institute, adding that his state is still struggling with housing and unemployment.
[end excerpt]
And the Washington Post adds [http://www.washingtonpost.com/business/economy/ranks-of-working-poor-increasing/2013/01/15/8d1f51e2-59b9-11e2-88d0-c4cf65c3ad15_story.html]:
[begin excerpt]
The growth in the ranks of the working poor coincides with continued growth in income inequality. Many of the occupations experiencing the fastest job growth during the recovery also pay poorly. Among them are retail jobs, food preparation, clerical work and customer assistance.
[end excerpt]
The official unemployment rate in the US may be slowly ticking down, but the rank of those who classify as 'the working poor' has continued to skyrocket, according to a new report.Along with overall income inequality growth in the US, a new report by Working Poor Families Project [http://www.workingpoorfamilies.org/] says that over 200,000 families fell into poverty in 2011 even with both parents working.
National job growth saw a recovery from the worst days following the 2008 housing crash and subsequent financial crisis, but even as the recession ebbed in some areas or for some groups, many middle class or lower-middle class workers who returned to employment did so with much reduced wages.
As lead author of the report, Brandon Roberts, points out in an op-ed at Reuters on Tuesday [http://blogs.reuters.com/great-debate/2013/01/15/we-must-focus-on-the-working-poor/]:
[begin excerpt]
These are not just the unemployed. Rather they are families that, despite having a working adult in the home, earn less than twice the federal poverty income threshold – a widely recognized measure of family self-sufficiency. They are working, but making too little to build economically secure lives. And their number has grown steadily over the past five years.
They are cashiers and clerks, nursing assistants and lab technicians, truck drivers and waiters. Either they are unable to find good, full-time jobs, or their incomes are inadequate and their prospects for advancement are poor.
[end excerpt]
The report, which analyzed figures from the US Census in 2011, determined that nearly 10.4 million such families - or 47.5 million Americans - now live near poverty, defined as earning less than $45,622 for a family of four.
Statistics also showed that roughly 23.5 million, or 37 percent, of U.S. children lived in working poor families compared with about 21 million, or 33 percent, in 2007, the report said.
"Although many people are returning to work, they are often taking jobs with lower wages and less job security, compared with the middle-class jobs they held before the economic downturn," the report said. "This means that nearly a third of all working families ... may not have enough money to meet basic needs."
“We’re not on a good trajectory,” Brandon Roberts, who manages the privately-funded Working Poor Families Project, told The Washington Post. “The overall number of low-income working families is increasing despite the recovery.”
And Reuters reports [http://www.reuters.com/article/2013/01/15/usa-economy-workingpoor-idUSL2N0AJ3WR20130115]:
[begin excerpt]
The group's analysis adds to the body of data focused on the slipping U.S. middle class even as there are signs of the nation's economy slowly coming back to life with improvements in the housing sector and lower unemployment rate.
For some Americans, the comeback has yet to begin.
Data showed that the top 20 percent of Americans received 48 percent of all income while those in the bottom 20 percent got less than 5 percent, the report said.
The analysis also found regional differences.
States in the South, such as Georgia and South Carolina, and those in the West, such as Arizona and Nevada, had the greatest increase in the number of working poor. The increase was slower in the Mid-Atlantic and Northeast.
"It's important to draw attention to the fact that there are real families behind those statistics," said Alan Essig, who heads the Georgia Budget and Policy Institute, adding that his state is still struggling with housing and unemployment.
[end excerpt]
And the Washington Post adds [http://www.washingtonpost.com/business/economy/ranks-of-working-poor-increasing/2013/01/15/8d1f51e2-59b9-11e2-88d0-c4cf65c3ad15_story.html]:
[begin excerpt]
The growth in the ranks of the working poor coincides with continued growth in income inequality. Many of the occupations experiencing the fastest job growth during the recovery also pay poorly. Among them are retail jobs, food preparation, clerical work and customer assistance.
[end excerpt]
2013-01-13 "Health Insurance Is Not Healthcare"
by JP Sottile [http://my.firedoglake.com/jpsottile/2013/01/13/health-insurance-is-not-healthcare/]:
Insurance companies make a simple wager with you each time you sign a policy. They are betting that, over the life of the policy, they will pay out less to you and your beneficiaries than you will pay them.
Insurance companies of all kinds make tidy profits on this simple wager. If they don’t, sometimes the government will bail them out [http://www.huffingtonpost.com/2013/01/09/aig-lawsuit_n_2441618.html].
Either way, insurance is still just a bet. And in America, we do not have a healthcare system. We have a health insurance industry.
That industry has been one of the most profitable sectors of the economy for well over a decade. But costs skyrocketed and care suffered. We heard horror stories about rationed care, denied procedures and corporate bureaucracies run amok. Ironically, these were the horror stories we were supposed to hear if the government took the reigns of the “best healthcare system in the world.” [http://prospect.org/article/lessons-94]
So, instead of a single-payer healthcare system, we got The Affordable Care Act—aka Obamacare. Instead of retiring the health insurance industry and its actuarial tables and profit margins and wagers, Obama “saved” the health insurance industry and enshrined it in perpetuity as the “Health Insurance-Industrial Complex.” [http://newsvandal.com/2012/07/welcome-to-the-health-insurance-industrial-complex/]
As the Affordable Care Act’s provisions begin to take effect, the folks in the Complex are wasting no time doing what they can to keep their profits tidy. Leading insurers in California are seeking increases in premiums ranging from 20% to 26% [http://www.nytimes.com/2013/01/06/business/despite-new-health-law-some-see-sharp-rise-in-premiums.html]. Regulators in Florida and Ohio have already approved increasing premiums as much as 20%, and, since the ACA doesn’t set federal standards, insurance companies are moving in a number of states to force these spikes in premiums [http://reason.com/blog/2013/01/08/is-obamacare-causing-health-insurance-pr].
Remember, if you can “afford” health insurance, you have to buy it. If you refuse, you’ll pay a penalty to the government at tax time. Some are exempt from this mandate [http://www.cleveland.com/healthfit/index.ssf/2012/06/affordable_care_acts_mandate_d.html]. But, in effect, the ACA has guaranteed the health insurance industry a captive market.
Meanwhile, they continue to change the terms of all those bets they’ve placed against millions of Americans and the cost of the “best healthcare in the world” continues to rise. When compared to other nations with some form of single-payer system, the difference is so stark that it’s almost obscene. It’s not just the $800 difference between an MRI in France versus the U.S. [http://www.washingtonpost.com/blogs/wonkblog/post/why-an-mri-costs-1080-in-america-and-280-in-france/2011/08/25/gIQAVHztoR_blog.html], it’s almost every part of a system that has at its heart the relentless desire to turn a profit [http://www.ritholtz.com/blog/2013/01/chart-of-the-day-health-care-spending-by-age-and-country/].
Even worse, a much-ballyhooed part of the promised “21st Century transformation” into greater “affordability” has turned out be little more than a profiteering scheme.
Remember the “streamlining” and “cost savings” guaranteed from the conversion to electronic medical records? Well, it hasn’t quite panned out [http://www.nytimes.com/2013/01/11/business/electronic-records-systems-have-not-reduced-health-costs-report-says.html]. In fact, the only real beneficiaries of the conversion are companies like General Electric that sell electronic medical records systems. Not coincidentally, GE and other interested parties funded the key RAND study in 2005 that both predicted $81 billion in savings for America’s health care system and also became the driving rationale for the profitable conversion [http://www.bloomberg.com/news/2011-01-21/obama-taps-ge-s-immelt-for-economy-panel-replace-volcker.html].
This type of closed system is par for the course in Washington, D.C.
Every door revolves in the nation’s only recession-proof city [http://www.nytimes.com/2013/01/13/magazine/washingtons-economic-boom-financed-by-you.html]. Is it any surprise that the woman who wrote the Affordable Care Act is now leaving the White House for a job with health care giant Johnson & Johnson? Liz Fowler worked for Senator Max Baucus (D-MT) during the drafting of the ACA and had the primary responsibility for authoring the legislation [http://www.allgov.com/news/appointments-and-resignations/author-of-obamacare-blueprint-rewarded-with-job-at-johnson--johnson-121221?news=846548]. After its passage, she migrated to the White House to help with implementation. Seems reasonable enough. However, it is important to note where she was before joining the staff of Senator Baucus. Yup, you guessed it…she was a bigwig at WellPoint, the nation’s second leading health insurance company with nearly 54 million policyholders [http://www.lowcosthealthinsurance.com/who-are-the-top-10-health-insurance-companies-by-market-share/].
All of this makes you wonder who knew whom in the breast milk-pump industry, which is seeing a huge spike in its profits thanks to a new coverage requirement written into the ACA [http://www.allgov.com/news/where-is-the-money-going/big-winner-in-obamacarebreast-pump-industry-130107?news=846676].
It may be too early to render judgment on a law that hasn’t yet been fully implemented, but it is not too early to determine that the profit motive might simply be incompatible with the equitable delivery of healthcare [http://www.nytimes.com/2013/01/09/business/health-care-and-pursuit-of-profit-make-a-poor-mix.html]. As matter of course, businesses try to lower costs and increase revenue. That may be okay when they sell scissors or candlesticks, but it seems ill-suited to deliver labor-intensive care for those who are most vulnerable.
And as far as the health of the insurance industry, it’s a safe bet that they’ll keep coming out on top as the Affordable Care Act is fully implemented [http://www.marketplace.org/topics/business/health-care/health-insurance-industry-healthier-predicted].
Insurance companies make a simple wager with you each time you sign a policy. They are betting that, over the life of the policy, they will pay out less to you and your beneficiaries than you will pay them.
Insurance companies of all kinds make tidy profits on this simple wager. If they don’t, sometimes the government will bail them out [http://www.huffingtonpost.com/2013/01/09/aig-lawsuit_n_2441618.html].
Either way, insurance is still just a bet. And in America, we do not have a healthcare system. We have a health insurance industry.
That industry has been one of the most profitable sectors of the economy for well over a decade. But costs skyrocketed and care suffered. We heard horror stories about rationed care, denied procedures and corporate bureaucracies run amok. Ironically, these were the horror stories we were supposed to hear if the government took the reigns of the “best healthcare system in the world.” [http://prospect.org/article/lessons-94]
So, instead of a single-payer healthcare system, we got The Affordable Care Act—aka Obamacare. Instead of retiring the health insurance industry and its actuarial tables and profit margins and wagers, Obama “saved” the health insurance industry and enshrined it in perpetuity as the “Health Insurance-Industrial Complex.” [http://newsvandal.com/2012/07/welcome-to-the-health-insurance-industrial-complex/]
As the Affordable Care Act’s provisions begin to take effect, the folks in the Complex are wasting no time doing what they can to keep their profits tidy. Leading insurers in California are seeking increases in premiums ranging from 20% to 26% [http://www.nytimes.com/2013/01/06/business/despite-new-health-law-some-see-sharp-rise-in-premiums.html]. Regulators in Florida and Ohio have already approved increasing premiums as much as 20%, and, since the ACA doesn’t set federal standards, insurance companies are moving in a number of states to force these spikes in premiums [http://reason.com/blog/2013/01/08/is-obamacare-causing-health-insurance-pr].
Remember, if you can “afford” health insurance, you have to buy it. If you refuse, you’ll pay a penalty to the government at tax time. Some are exempt from this mandate [http://www.cleveland.com/healthfit/index.ssf/2012/06/affordable_care_acts_mandate_d.html]. But, in effect, the ACA has guaranteed the health insurance industry a captive market.
Meanwhile, they continue to change the terms of all those bets they’ve placed against millions of Americans and the cost of the “best healthcare in the world” continues to rise. When compared to other nations with some form of single-payer system, the difference is so stark that it’s almost obscene. It’s not just the $800 difference between an MRI in France versus the U.S. [http://www.washingtonpost.com/blogs/wonkblog/post/why-an-mri-costs-1080-in-america-and-280-in-france/2011/08/25/gIQAVHztoR_blog.html], it’s almost every part of a system that has at its heart the relentless desire to turn a profit [http://www.ritholtz.com/blog/2013/01/chart-of-the-day-health-care-spending-by-age-and-country/].
Even worse, a much-ballyhooed part of the promised “21st Century transformation” into greater “affordability” has turned out be little more than a profiteering scheme.
Remember the “streamlining” and “cost savings” guaranteed from the conversion to electronic medical records? Well, it hasn’t quite panned out [http://www.nytimes.com/2013/01/11/business/electronic-records-systems-have-not-reduced-health-costs-report-says.html]. In fact, the only real beneficiaries of the conversion are companies like General Electric that sell electronic medical records systems. Not coincidentally, GE and other interested parties funded the key RAND study in 2005 that both predicted $81 billion in savings for America’s health care system and also became the driving rationale for the profitable conversion [http://www.bloomberg.com/news/2011-01-21/obama-taps-ge-s-immelt-for-economy-panel-replace-volcker.html].
This type of closed system is par for the course in Washington, D.C.
Every door revolves in the nation’s only recession-proof city [http://www.nytimes.com/2013/01/13/magazine/washingtons-economic-boom-financed-by-you.html]. Is it any surprise that the woman who wrote the Affordable Care Act is now leaving the White House for a job with health care giant Johnson & Johnson? Liz Fowler worked for Senator Max Baucus (D-MT) during the drafting of the ACA and had the primary responsibility for authoring the legislation [http://www.allgov.com/news/appointments-and-resignations/author-of-obamacare-blueprint-rewarded-with-job-at-johnson--johnson-121221?news=846548]. After its passage, she migrated to the White House to help with implementation. Seems reasonable enough. However, it is important to note where she was before joining the staff of Senator Baucus. Yup, you guessed it…she was a bigwig at WellPoint, the nation’s second leading health insurance company with nearly 54 million policyholders [http://www.lowcosthealthinsurance.com/who-are-the-top-10-health-insurance-companies-by-market-share/].
All of this makes you wonder who knew whom in the breast milk-pump industry, which is seeing a huge spike in its profits thanks to a new coverage requirement written into the ACA [http://www.allgov.com/news/where-is-the-money-going/big-winner-in-obamacarebreast-pump-industry-130107?news=846676].
It may be too early to render judgment on a law that hasn’t yet been fully implemented, but it is not too early to determine that the profit motive might simply be incompatible with the equitable delivery of healthcare [http://www.nytimes.com/2013/01/09/business/health-care-and-pursuit-of-profit-make-a-poor-mix.html]. As matter of course, businesses try to lower costs and increase revenue. That may be okay when they sell scissors or candlesticks, but it seems ill-suited to deliver labor-intensive care for those who are most vulnerable.
And as far as the health of the insurance industry, it’s a safe bet that they’ll keep coming out on top as the Affordable Care Act is fully implemented [http://www.marketplace.org/topics/business/health-care/health-insurance-industry-healthier-predicted].
Tuesday, January 8, 2013
2013-01-08 "Secrets and Lies of the Wall Street Bailout"
"The federal rescue of Wall Street didn’t fix the economy – it created a permanent bailout state based on a Ponzi-like confidence scheme. And the worst may be yet to come" by Matt Taibbi from "Rolling Stone" [http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104]:
As Rolling Stone’s chief political reporter, Matt Taibbi's predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O'Rourke. Taibbi's 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His books include Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History, The Great Derangement: A Terrifying True Story of War, Politics, and Religion, Smells Like Dead Elephants: Dispatches from a Rotting Empire.
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It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you'd think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we've been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?(Illustration by Victor Juhasz)
Wrong.
It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.
How Wall Street Killed Financial Reform -
But the most appalling part is the lying. The public has been lied to so shamelessly and so often in the course of the past four years that the failure to tell the truth to the general populace has become a kind of baked-in, official feature of the financial rescue. Money wasn't the only thing the government gave Wall Street – it also conferred the right to hide the truth from the rest of us. And it was all done in the name of helping regular people and creating jobs. "It is," says former bailout Inspector General Neil Barofsky, "the ultimate bait-and-switch."
The bailout deceptions came early, late and in between. There were lies told in the first moments of their inception, and others still being told four years later. The lies, in fact, were the most important mechanisms of the bailout. The only reason investors haven't run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 have been fixed. Investors may not actually believe the lie, but they are impressed by how totally committed the government has been, from the very beginning, to selling it.
They Lied to Pass the Bailout -
Today what few remember about the bailouts is that we had to approve them. It wasn't like Paulson could just go out and unilaterally commit trillions of public dollars to rescue Goldman Sachs and Citigroup from their own stupidity and bad management (although the government ended up doing just that, later on). Much as with a declaration of war, a similarly extreme and expensive commitment of public resources, Paulson needed at least a film of congressional approval. And much like the Iraq War resolution, which was only secured after George W. Bush ludicrously warned that Saddam was planning to send drones to spray poison over New York City, the bailouts were pushed through Congress with a series of threats and promises that ranged from the merely ridiculous to the outright deceptive. At one meeting to discuss the original bailout bill – at 11 a.m. on September 18th, 2008 – Paulson actually told members of Congress that $5.5 trillion in wealth would disappear by 2 p.m. that day unless the government took immediate action, and that the world economy would collapse "within 24 hours."
To be fair, Paulson started out by trying to tell the truth in his own ham-headed, narcissistic way. His first TARP proposal was a three-page absurdity pulled straight from a Beavis and Butt-Head episode – it was basically Paulson saying, "Can you, like, give me some money?" Sen. Sherrod Brown, a Democrat from Ohio, remembers a call with Paulson and Federal Reserve chairman Ben Bernanke. "We need $700 billion," they told Brown, "and we need it in three days." What's more, the plan stipulated, Paulson could spend the money however he pleased, without review "by any court of law or any administrative agency."
The White House and leaders of both parties actually agreed to this preposterous document, but it died in the House when 95 Democrats lined up against it. For an all-too-rare moment during the Bush administration, something resembling sanity prevailed in Washington.
So Paulson came up with a more convincing lie. On paper, the Emergency Economic Stabilization Act of 2008 was simple: Treasury would buy $700 billion of troubled mortgages from the banks and then modify them to help struggling homeowners. Section 109 of the act, in fact, specifically empowered the Treasury secretary to "facilitate loan modifications to prevent avoidable foreclosures." With that promise on the table, wary Democrats finally approved the bailout on October 3rd, 2008. "That provision," says Barofsky, "is what got the bill passed."
But within days of passage, the Fed and the Treasury unilaterally decided to abandon the planned purchase of toxic assets in favor of direct injections of billions in cash into companies like Goldman and Citigroup. Overnight, Section 109 was unceremoniously ditched, and what was pitched as a bailout of both banks and homeowners instantly became a bank-only operation – marking the first in a long series of moves in which bailout officials either casually ignored or openly defied their own promises with regard to TARP.
Congress was furious. "We've been lied to," fumed Rep. David Scott, a Democrat from Georgia. Rep. Elijah Cummings, a Democrat from Maryland, raged at transparently douchey TARP administrator (and Goldman banker) Neel Kashkari, calling him a "chump" for the banks. And the anger was bipartisan: Republican senators David Vitter of Louisiana and James Inhofe of Oklahoma were so mad about the unilateral changes and lack of oversight that they sponsored a bill in January 2009 to cancel the remaining $350 billion of TARP.
So what did bailout officials do? They put together a proposal full of even bigger deceptions to get it past Congress a second time. That process began almost exactly four years ago – on January 12th and 15th, 2009 – when Larry Summers, the senior economic adviser to President-elect Barack Obama, sent a pair of letters to Congress. The pudgy, stubbyfingered former World Bank economist, who had been forced out as Harvard president for suggesting that women lack a natural aptitude for math and science, begged legislators to reject Vitter's bill and leave TARP alone.
In the letters, Summers laid out a five-point plan in which the bailout was pitched as a kind of giant populist program to help ordinary Americans. Obama, Summers vowed, would use the money to stimulate bank lending to put people back to work. He even went so far as to say that banks would be denied funding unless they agreed to "increase lending above baseline levels." He promised that "tough and transparent conditions" would be imposed on bailout recipients, who would not be allowed to use bailout funds toward "enriching shareholders or executives." As in the original TARP bill, he pledged that bailout money would be used to aid homeowners in foreclosure. And lastly, he promised that the bailouts would be temporary – with a "plan for exit of government intervention" implemented "as quickly as possible."
The reassurances worked. Once again, TARP survived in Congress – and once again, the bailouts were greenlighted with the aid of Democrats who fell for the old "it'll help ordinary people" sales pitch. "I feel like they've given me a lot of commitment on the housing front," explained Sen. Mark Begich, a Democrat from Alaska.
But in the end, almost nothing Summers promised actually materialized. A small slice of TARP was earmarked for foreclosure relief, but the resultant aid programs for homeowners turned out to be riddled with problems, for the perfectly logical reason that none of the bailout's architects gave a shit about them. They were drawn up practically overnight and rushed out the door for purely political reasons – to trick Congress into handing over tons of instant cash for Wall Street, with no strings attached. "Without those assurances, the level of opposition would have remained the same," says Rep. Raúl Grijalva, a leading progressive who voted against TARP. The promise of housing aid, in particular, turned out to be a "paper tiger."
HAMP, the signature program to aid poor homeowners, was announced by President Obama on February 18th, 2009. The move inspired CNBC commentator Rick Santelli to go berserk the next day – the infamous viral rant that essentially birthed the Tea Party. Reacting to the news that Obama was planning to use bailout funds to help poor and (presumably) minority homeowners facing foreclosure, Santelli fumed that the president wanted to "subsidize the losers' mortgages" when he should "reward people that could carry the water, instead of drink the water." The tirade against "water drinkers" led to the sort of spontaneous nationwide protests one might have expected months before, when we essentially gave a taxpayer-funded blank check to Gamblers Anonymous addicts, the millionaire and billionaire class.
In fact, the amount of money that eventually got spent on homeowner aid now stands as a kind of grotesque joke compared to the Himalayan mountain range of cash that got moved onto the balance sheets of the big banks more or less instantly in the first months of the bailouts. At the start, $50 billion of TARP funds were earmarked for HAMP. In 2010, the size of the program was cut to $30 billion. As of November of last year, a mere $4 billion total has been spent for loan modifications and other homeowner aid.
In short, the bailout program designed to help those lazy, job-averse, "water-drinking" minority homeowners – the one that gave birth to the Tea Party – turns out to have comprised about one percent of total TARP spending. "It's amazing," says Paul Kiel, who monitors bailout spending for ProPublica. "It's probably one of the biggest failures of the Obama administration."
The failure of HAMP underscores another damning truth – that the Bush-Obama bailout was as purely bipartisan a program as we've had. Imagine Obama retaining Don Rumsfeld as defense secretary and still digging for WMDs in the Iraqi desert four years after his election: That's what it was like when he left Tim Geithner, one of the chief architects of Bush's bailout, in command of the no-stringsattached rescue four years after Bush left office.
Yet Obama's HAMP program, as lame as it turned out to be, still stands out as one of the few pre-bailout promises that was even partially fulfilled. Virtually every other promise Summers made in his letters turned out to be total bullshit. And that includes maybe the most important promise of all – the pledge to use the bailout money to put people back to work.
They Lied About Lending -
Once TARP passed, the government quickly began loaning out billions to some 500 banks that it deemed "healthy" and "viable." A few were cash loans, repayable at five percent within the first five years; other deals came due when a bank stock hit a predetermined price. As long as banks held TARP money, they were barred from paying out big cash bonuses to top executives.
But even before Summers promised Congress that banks would be required to increase lending as a condition for receiving bailout funds, officials had already decided not to even ask the banks to use the money to increase lending. In fact, they'd decided not to even ask banks to monitor what they did with the bailout money. Barofsky, the TARP inspector, asked Treasury to include a requirement forcing recipients to explain what they did with the taxpayer money. He was stunned when TARP administrator Kashkari rejected his proposal, telling him lenders would walk away from the program if they had to deal with too many conditions. "The banks won't participate," Kashkari said.
Barofsky, a former high-level drug prosecutor who was one of the only bailout officials who didn't come from Wall Street, didn't buy that cash-desperate banks would somehow turn down billions in aid. "It was like they were trembling with fear that the banks wouldn't take the money," he says. "I never found that terribly convincing."
In the end, there was no lending requirement attached to any aspect of the bailout, and there never would be. Banks used their hundreds of billions for almost every purpose under the sun – everything, that is, but lending to the homeowners and small businesses and cities they had destroyed. And one of the most disgusting uses they found for all their billions in free government money was to help them earn even more free government money.
To guarantee their soundness, all major banks are required to keep a certain amount of reserve cash at the Fed. In years past, that money didn't earn interest, for the logical reason that banks shouldn't get paid to stay solvent. But in 2006 – arguing that banks were losing profits on cash parked at the Fed – regulators agreed to make small interest payments on the money. The move wasn't set to go into effect until 2011, but when the crash hit, a section was written into TARP that launched the interest payments in October 2008.
In theory, there should never be much money in such reserve accounts, because any halfway-competent bank could make far more money lending the cash out than parking it at the Fed, where it earns a measly quarter of a percent. In August 2008, before the bailout began, there were just $2 billion in excess reserves at the Fed. But by that October, the number had ballooned to $267 billion – and by January 2009, it had grown to $843 billion. That means there was suddenly more money sitting uselessly in Fed accounts than Congress had approved for either the TARP bailout or the much-loathed Obama stimulus. Instead of lending their new cash to struggling homeowners and small businesses, as Summers had promised, the banks were literally sitting on it.
Today, excess reserves at the Fed total an astonishing $1.4 trillion."The money is just doing nothing," says Nomi Prins, a former Goldman executive who has spent years monitoring the distribution of bailout money.
Nothing, that is, except earning a few crumbs of risk-free interest for the banks. Prins estimates that the annual haul in interest on Fed reserves is about $3.6 billion – a relatively tiny subsidy in the scheme of things, but one that, ironically, just about matches the total amount of bailout money spent on aid to homeowners. Put another way, banks are getting paid about as much every year for not lending money as 1 million Americans received for mortgage modifications and other housing aid in the whole of the past four years.
Moreover, instead of using the bailout money as promised – to jump-start the economy – Wall Street used the funds to make the economy more dangerous. From the start, taxpayer money was used to subsidize a string of finance mergers, from the Chase-Bear Stearns deal to the Wells FargoWachovia merger to Bank of America's acquisition of Merrill Lynch. Aided by bailout funds, being Too Big to Fail was suddenly Too Good to Pass Up.
Other banks found more creative uses for bailout money. In October 2010, Obama signed a new bailout bill creating a program called the Small Business Lending Fund, in which firms with fewer than $10 billion in assets could apply to share in a pool of $4 billion in public money. As it turned out, however, about a third of the 332 companies that took part in the program used at least some of the money to repay their original TARP loans. Small banks that still owed TARP money essentially took out cheaper loans from the government to repay their more expensive TARP loans – a move that conveniently exempted them from the limits on executive bonuses mandated by the bailout. All told, studies show, $2.2 billion of the $4 billion ended up being spent not on small-business loans, but on TARP repayment. "It's a bit of a shell game," admitted John Schmidt, chief operating officer of Iowa-based Heartland Financial, which took $81.7 million from the SBLF and used every penny of it to repay TARP.
Using small-business funds to pay down their own debts, parking huge amounts of cash at the Fed in the midst of a stalled economy – it's all just evidence of what most Americans know instinctively: that the bailouts didn't result in much new business lending. If anything, the bailouts actually hindered lending, as banks became more like house pets that grow fat and lazy on two guaranteed meals a day than wild animals that have to go out into the jungle and hunt for opportunities in order to eat. The Fed's own analysis bears this out: In the first three months of the bailout, as taxpayer billions poured in, TARP recipients slowed down lending at a rate more than double that of banks that didn't receive TARP funds. The biggest drop in lending – 3.1 percent – came from the biggest bailout recipient, Citigroup. A year later, the inspector general for the bailout found that lending among the nine biggest TARP recipients "did not, in fact, increase." The bailout didn't flood the banking system with billions in loans for small businesses, as promised. It just flooded the banking system with billions for the banks.
They Lied About the Health of the Banks -
The main reason banks didn't lend out bailout funds is actually pretty simple: Many of them needed the money just to survive. Which leads to another of the bailout's broken promises – that taxpayer money would only be handed out to "viable" banks.
Soon after TARP passed, Paulson and other officials announced the guidelines for their unilaterally changed bailout plan. Congress had approved $700 billion to buy up toxic mortgages, but $250 billion of the money was now shifted to direct capital injections for banks. (Although Paulson claimed at the time that handing money directly to the banks was a faster way to restore market confidence than lending it to homeowners, he later confessed that he had been contemplating the direct-cash-injection plan even before the vote.) This new let's-just-fork-over-cash portion of the bailout was called the Capital Purchase Program. Under the CPP, nine of America's largest banks – including Citi, Wells Fargo, Goldman, Morgan Stanley, Bank of America, State Street and Bank of New York Mellon – received $125 billion, or half of the funds being doled out. Since those nine firms accounted for 75 percent of all assets held in America's banks – $11 trillion – it made sense they would get the lion's share of the money. But in announcing the CPP, Paulson and Co. promised that they would only be stuffing cash into "healthy and viable" banks. This, at the core, was the entire justification for the bailout: That the huge infusion of taxpayer cash would not be used to rescue individual banks, but to kick-start the economy as a whole by helping healthy banks start lending again.
This announcement marked the beginning of the legend that certain Wall Street banks only took the bailout money because they were forced to – they didn't need all those billions, you understand, they just did it for the good of the country. "We did not, at that point, need TARP," Chase chief Jamie Dimon later claimed, insisting that he only took the money "because we were asked to by the secretary of Treasury." Goldman chief Lloyd Blankfein similarly claimed that his bank never needed the money, and that he wouldn't have taken it if he'd known it was "this pregnant with potential for backlash." A joint statement by Paulson, Bernanke and FDIC chief Sheila Bair praised the nine leading banks as "healthy institutions" that were taking the cash only to "enhance the overall performance of the U.S. economy."
But right after the bailouts began, soon-to-be Treasury Secretary Tim Geithner admitted to Barofsky, the inspector general, that he and his cohorts had picked the first nine bailout recipients because of their size, without bothering to assess their health and viability. Paulson, meanwhile, later admitted that he had serious concerns about at least one of the nine firms he had publicly pronounced healthy. And in November 2009, Bernanke gave a closed-door interview to the Financial Crisis Inquiry Commission, the body charged with investigating the causes of the economic meltdown, in which he admitted that 12 of the 13 most prominent financial companies in America were on the brink of failure during the time of the initial bailouts.
On the inside, at least, almost everyone connected with the bailout knew that the top banks were in deep trouble. "It became obvious pretty much as soon as I took the job that these companies weren't really healthy and viable," says Barofsky, who stepped down as TARP inspector in 2011.
This early episode would prove to be a crucial moment in the history of the bailout. It set the precedent of the government allowing unhealthy banks to not only call themselves healthy, but to get the government to endorse their claims. Projecting an image of soundness was, to the government, more important than disclosing the truth. Officials like Geithner and Paulson seemed to genuinely believe that the market's fears about corruption in the banking system was a bigger problem than the corruption itself. Time and again, they justified TARP as a move needed to "bolster confidence" in the system – and a key to that effort was keeping the banks' insolvency a secret. In doing so, they created a bizarre new two-tiered financial market, divided between those who knew the truth about how bad things were and those who did not.
A month or so after the bailout team called the top nine banks "healthy," it became clear that the biggest recipient, Citigroup, had actually flat-lined on the ER table. Only weeks after Paulson and Co. gave the firm $25 billion in TARP funds, Citi – which was in the midst of posting a quarterly loss of more than $17 billion – came back begging for more. In November 2008, Citi received another $20 billion in cash and more than $300 billion in guarantees.
What's most amazing about this isn't that Citi got so much money, but that government-endorsed, fraudulent health ratings magically became part of its bailout. The chief financial regulators – the Fed, the FDIC and the Office of the Comptroller of the Currency – use a ratings system called CAMELS to measure the fitness of institutions. CAMELS stands for Capital, Assets, Management, Earnings, Liquidity and Sensitivity to risk, and it rates firms from one to five, with one being the best and five the crappiest. In the heat of the crisis, just as Citi was receiving the second of what would turn out to be three massive federal bailouts, the bank inexplicably enjoyed a three rating – the financial equivalent of a passing grade. In her book, Bull by the Horns, then-FDIC chief Sheila Bair recounts expressing astonishment to OCC head John Dugan as to why "Citi rated as a CAMELS 3 when it was on the brink of failure." Dugan essentially answered that "since the government planned on bailing Citi out, the OCC did not plan to change its supervisory rating." Similarly, the FDIC ended up granting a "systemic risk exception" to Citi, allowing it access to FDIC-bailout help even though the agency knew the bank was on the verge of collapse.
The sweeping impact of these crucial decisions has never been fully appreciated. In the years preceding the bailouts, banks like Citi had been perpetuating a kind of fraud upon the public by pretending to be far healthier than they really were. In some cases, the fraud was outright, as in the case of Lehman Brothers, which was using an arcane accounting trick to book tens of billions of loans as revenues each quarter, making it look like it had more cash than it really did. In other cases, the fraud was more indirect, as in the case of Citi, which in 2007 paid out the third-highest dividend in America – $10.7 billion – despite the fact that it had lost $9.8 billion in the fourth quarter of that year alone. The whole financial sector, in fact, had taken on Ponzi-like characteristics, as many banks were hugely dependent on a continual influx of new money from things like sales of subprime mortgages to cover up massive future liabilities from toxic investments that, sooner or later, were going to come to the surface.
Now, instead of using the bailouts as a clear-the-air moment, the government decided to double down on such fraud, awarding healthy ratings to these failing banks and even twisting its numerical audits and assessments to fit the cooked-up narrative. A major component of the original TARP bailout was a promise to ensure "full and accurate accounting" by conducting regular "stress tests" of the bailout recipients. When Geithner announced his stress-test plan in February 2009, a reporter instantly blasted him with an obvious and damning question: Doesn't the fact that you have to conduct these tests prove that bank regulators, who should already know plenty about banks' solvency, actually have no idea who is solvent and who isn't?
The government did wind up conducting regular stress tests of all the major bailout recipients, but the methodology proved to be such an obvious joke that it was even lampooned on Saturday Night Live. (In the skit, Geithner abandons a planned numerical score system because it would unfairly penalize bankers who were "not good at banking.") In 2009, just after the first round of tests was released, it came out that the Fed had allowed banks to literally rejigger the numbers to make their bottom lines look better. When the Fed found Bank of America had a $50 billion capital hole, for instance, the bank persuaded examiners to cut that number by more than $15 billion because of what it said were "errors made by examiners in the analysis." Citigroup got its number slashed from $35 billion to $5.5 billion when the bank pleaded with the Fed to give it credit for "pending transactions."
Such meaningless parodies of oversight continue to this day. Earlier this year, Regions Financial Corp. – a company that had failed to pay back $3.5 billion in TARP loans – passed its stress test. A subsequent analysis by Bloomberg View found that Regions was effectively $525 million in the red. Nonetheless, the bank's CEO proclaimed that the stress test "demonstrates the strength of our company." Shortly after the test was concluded, the bank issued $900 million in stock and said it planned on using the cash to pay back some of the money it had borrowed under TARP.
This episode underscores a key feature of the bailout: the government's decision to use lies as a form of monetary aid. State hands over taxpayer money to functionally insolvent bank; state gives regulatory thumbs up to said bank; bank uses that thumbs up to sell stock; bank pays cash back to state. What's critical here is not that investors actually buy the Fed's bullshit accounting – all they have to do is believe the government will backstop Regions either way, healthy or not. "Clearly, the Fed wanted it to attract new investors," observed Bloomberg, "and those who put fresh capital into Regions this week believe the government won't let it die."
Through behavior like this, the government has turned the entire financial system into a kind of vast confidence game – a Ponzi-like scam in which the value of just about everything in the system is inflated because of the widespread belief that the government will step in to prevent losses. Clearly, a government that's already in debt over its eyes for the next million years does not have enough capital on hand to rescue every Citigroup or Regions Bank in the land should they all go bust tomorrow. But the market is behaving as if Daddy will step in to once again pay the rent the next time any or all of these kids sets the couch on fire and skips out on his security deposit. Just like an actual Ponzi scheme, it works only as long as they don't have to make good on all the promises they've made. They're building an economy based not on real accounting and real numbers, but on belief. And while the signs of growth and recovery in this new faith-based economy may be fake, one aspect of the bailout has been consistently concrete: the broken promises over executive pay.
They Lied About Bonuses!
hat executive bonuses on Wall Street were a political hot potato for the bailout's architects was obvious from the start. That's why Summers, in saving the bailout from the ire of Congress, vowed to "limit executive compensation" and devote public money to prevent another financial crisis. And it's true, TARP did bar recipients from a whole range of exorbitant pay practices, which is one reason the biggest banks, like Goldman Sachs, worked so quickly to repay their TARP loans.
But there were all sorts of ways around the restrictions. Banks could apply to the Fed and other regulators for waivers, which were often approved (one senior FDIC official tells me he recommended denying "golden parachute" payments to Citigroup officials, only to see them approved by superiors). They could get bailouts through programs other than TARP that did not place limits on bonuses. Or they could simply pay bonuses not prohibited under TARP. In one of the worst episodes, the notorious lenders Fannie Mae and Freddie Mac paid out more than $200 million in bonuses between 2008 and 2010, even though the firms (a) lost more than $100 billion in 2008 alone, and (b) required nearly $400 billion in federal assistance during the bailout period.
Even worse was the incredible episode in which bailout recipient AIG paid more than $1 million each to 73 employees of AIG Financial Products, the tiny unit widely blamed for having destroyed the insurance giant (and perhaps even triggered the whole crisis) with its reckless issuance of nearly half a trillion dollars in toxic credit-default swaps. The "retention bonuses," paid after the bailout, went to 11 employees who no longer worked for AIG.
But all of these "exceptions" to the bonus restrictions are far less infuriating, it turns out, than the rule itself. TARP did indeed bar big cash-bonus payouts by firms that still owed money to the government. But those firms were allowed to issue extra compensation to executives in the form of long-term restricted stock. An independent research firm asked to analyze the stock options for The New York Times found that the top five executives at each of the 18 biggest bailout recipients received a total of $142 million in stocks and options. That's plenty of money all by itself – but thanks in large part to the government's overt display of support for those firms, the value of those options has soared to $457 million, an average of $4 million per executive.
In other words, we didn't just allow banks theoretically barred from paying bonuses to pay bonuses. We actually allowed them to pay bigger bonuses than they otherwise could have. Instead of forcing the firms to reward top executives in cash, we allowed them to pay in depressed stock, the value of which we then inflated due to the government's implicit endorsement of those firms.
All of which leads us to the last and most important deception of the bailouts:
They Lied About the Bailout Being Temporary!
The bailout ended up being much bigger than anyone expected, expanded far beyond TARP to include more obscure (and in some cases far larger) programs with names like TALF, TAF, PPIP and TLGP. What's more, some parts of the bailout were designed to extend far into the future. Companies like AIG, GM and Citigroup, for instance, were given tens of billions of deferred tax assets – allowing them to carry losses from 2008 forward to offset future profits and keep future tax bills down. Official estimates of the bailout's costs do not include such ongoing giveaways. "This is stuff that's never going to appear on any report," says Barofsky.
Citigroup, all by itself, boasts more than $50 billion in deferred tax credits – which is how the firm managed to pay less in taxes in 2011 (it actually received a $144 million credit) than it paid in compensation that year to its since-ousted dingbat CEO, Vikram Pandit (who pocketed $14.9 million). The bailout, in short, enabled the very banks and financial institutions that cratered the global economy to write off the losses from their toxic deals for years to come – further depriving the government of much-needed tax revenues it could have used to help homeowners and small businesses who were screwed over by the banks in the first place.
Even worse, the $700 billion in TARP loans ended up being dwarfed by more than $7.7 trillion in secret emergency lending that the Fed awarded to Wall Street – loans that were only disclosed to the public after Congress forced an extraordinary one-time audit of the Federal Reserve. The extent of this "secret bailout" didn't come out until November 2011, when Bloomberg Markets, which went to court to win the right to publish the data, detailed how the country's biggest firms secretly received trillions in near-free money throughout the crisis.
Goldman Sachs, which had made such a big show of being reluctant about accepting $10 billion in TARP money, was quick to cash in on the secret loans being offered by the Fed. By the end of 2008, Goldman had snarfed up $34 billion in federal loans – and it was paying an interest rate of as low as just 0.01 percent for the huge cash infusion. Yet that funding was never disclosed to shareholders or taxpayers, a fact Goldman confirms. "We did not disclose the amount of our participation in the two programs you identify," says Goldman spokesman Michael Duvally.
Goldman CEO Blankfein later dismissed the importance of the loans, telling the Financial Crisis Inquiry Commission that the bank wasn't "relying on those mechanisms." But in his book, Bailout, Barofsky says that Paulson told him that he believed Morgan Stanley was "just days" from collapse before government intervention, while Bernanke later admitted that Goldman would have been the next to fall.
Meanwhile, at the same moment that leading banks were taking trillions in secret loans from the Fed, top officials at those firms were buying up stock in their companies, privy to insider info that was not available to the public at large. Stephen Friedman, a Goldman director who was also chairman of the New York Fed, bought more than $4 million of Goldman stock over a five-week period in December 2008 and January 2009 – years before the extent of the firm's lifeline from the Fed was made public. Citigroup CEO Vikram Pandit bought nearly $7 million in Citi stock in November 2008, just as his firm was secretly taking out $99.5 billion in Fed loans. Jamie Dimon bought more than $11 million in Chase stock in early 2009, at a time when his firm was receiving as much as $60 billion in secret Fed loans. When asked by Rolling Stone, Chase could not point to any disclosure of the bank's borrowing from the Fed until more than a year later, when Dimon wrote about it in a letter to shareholders in March 2010.
The stock purchases by America's top bankers raise serious questions of insider trading. Two former high-ranking financial regulators tell Rolling Stone that the secret loans were likely subject to a 1989 guideline, issued by the Securities and Exchange Commission in the heat of the savings and loan crisis, which said that financial institutions should disclose the "nature, amounts and effects" of any government aid. At the end of 2011, in fact, the SEC sent letters to Citigroup, Chase, Goldman Sachs, Bank of America and Wells Fargo asking them why they hadn't fully disclosed their secret borrowing. All five megabanks essentially replied, to varying degrees of absurdity, that their massive borrowing from the Fed was not "material," or that the piecemeal disclosure they had engaged in was adequate. Never mind that the law says investors have to be informed right away if CEOs like Dimon and Pandit decide to give themselves a $10,000 raise. According to the banks, it's none of your business if those same CEOs are making use of a secret $50 billion charge card from the Fed.
The implications here go far beyond the question of whether Dimon and Co. committed insider trading by buying and selling stock while they had access to material nonpublic information about the bailouts. The broader and more pressing concern is the clear implication that by failing to act, federal regulators have tacitly approved the nondisclosure. Instead of trusting the markets to do the right thing when provided with accurate information, the government has instead channeled Jack Nicholson – and decided that the public just can't handle the truth.
All of this – the willingness to call dying banks healthy, the sham stress tests, the failure to enforce bonus rules, the seeming indifference to public disclosure, not to mention the shocking lack of criminal investigations into fraud committed by bailout recipients before the crash – comprised the largest and most valuable bailout of all. Brick by brick, statement by reassuring statement, bailout officials have spent years building the government's great Implicit Guarantee to the biggest companies on Wall Street: We will be there for you, always, no matter how much you screw up. We will lie for you and let you get away with just about anything. We will make this ongoing bailout a pervasive and permanent part of the financial system. And most important of all, we will publicly commit to this policy, being so obvious about it that the markets will be able to put an exact price tag on the value of our preferential treatment.
The first independent study that attempted to put a numerical value on the Implicit Guarantee popped up about a year after the crash, in September 2009, when Dean Baker and Travis McArthur of the Center for Economic and Policy Research published a paper called "The Value of the 'Too Big to Fail' Big Bank Subsidy." Baker and McArthur found that prior to the last quarter of 2007, just before the start of the crisis, financial firms with $100 billion or more in assets were paying on average about 0.29 percent less to borrow money than smaller firms.
By the second quarter of 2009, however, once the bailouts were in full swing, that spread had widened to 0.78 percent. The conclusion was simple: Lenders were about a half a point more willing to lend to a bank with implied government backing – even a proven-stupid bank – than they were to lend to companies who "must borrow based on their own credit worthiness." The economists estimated that the lending gap amounted to an annual subsidy of $34 billion a year to the nation's 18 biggest banks.
Today the borrowing advantage of a big bank remains almost exactly what it was three years ago – about 50 basis points, or half a percent. "These megabanks still receive subsidies in the sense that they can borrow on the capital markets at a discount rate of 50 or 70 points because of the implicit view that these banks are Too Big to Fail," says Sen. Brown.
Why does the market believe that? Because the officials who administered the bailouts made that point explicitly, over and over again. When Geithner announced the implementation of the stress tests in 2009, for instance, he declared that banks who didn't have enough money to pass the test could get it from the government. "We're going to help this process by providing a new program of capital support for those institutions that need it," Geithner said. The message, says Barofsky, was clear: "If the banks cannot raise capital, we will do it for them." It was an Implicit Guarantee that the banks would not be allowed to fail – a point that Geithner and other officials repeatedly stressed over the years. "The markets took all those little comments by Geithner as a clue that the government is looking out for them," says Baker. That psychological signaling, he concludes, is responsible for the crucial half-point borrowing spread.
The inherent advantage of bigger banks – the permanent, ongoing bailout they are still receiving from the government – has led to a host of gruesome consequences. All the big banks have paid back their TARP loans, while more than 300 smaller firms are still struggling to repay their bailout debts. Even worse, the big banks, instead of breaking down into manageable parts and becoming more efficient, have grown even bigger and more unmanageable, making the economy far more concentrated and dangerous than it was before. America's six largest banks – Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley – now have a combined 14,420 subsidiaries, making them so big as to be effectively beyond regulation. A recent study by the Kansas City Fed found that it would take 70,000 examiners to inspect such trillion-dollar banks with the same level of attention normally given to a community bank. "The complexity is so overwhelming that no regulator can follow it well enough to regulate the way we need to," says Sen. Brown, who is drafting a bill to break up the megabanks.
Worst of all, the Implicit Guarantee has led to a dangerous shift in banking behavior. With an apparently endless stream of free or almost-free money available to banks – coupled with a well-founded feeling among bankers that the government will back them up if anything goes wrong – banks have made a dramatic move into riskier and more speculative investments, including everything from high-risk corporate bonds to mortgagebacked securities to payday loans, the sleaziest and most disreputable end of the financial system. In 2011, banks increased their investments in junk-rated companies by 74 percent, and began systematically easing their lending standards in search of more high-yield customers to lend to.
This is a virtual repeat of the financial crisis, in which a wave of greed caused bankers to recklessly chase yield everywhere, to the point where lowering lending standards became the norm. Now the government, with its Implicit Guarantee, is causing exactly the same behavior – meaning the bailouts have brought us right back to where we started. "Government intervention," says Klaus Schaeck, an expert on bailouts who has served as a World Bank consultant, "has definitely resulted in increased risk."
And while the economy still mostly sucks overall, there's never been a better time to be a Too Big to Fail bank. Wells Fargo reported a third-quarter profit of nearly $5 billion last year, while JP Morgan Chase pocketed $5.3 billion – roughly double what both banks earned in the third quarter of 2006, at the height of the mortgage bubble. As the driver of their success, both banks cite strong performance in – you guessed it – the mortgage market.
So what exactly did the bailout accomplish? It built a banking system that discriminates against community banks, makes Too Big to Fail banks even Too Bigger to Failier, increases risk, discourages sound business lending and punishes savings by making it even easier and more profitable to chase high-yield investments than to compete for small depositors. The bailout has also made lying on behalf of our biggest and most corrupt banks the official policy of the United States government. And if any one of those banks fails, it will cause another financial crisis, meaning we're essentially wedded to that policy for the rest of eternity – or at least until the markets call our bluff, which could happen any minute now.
Other than that, the bailout was a smashing success.
As Rolling Stone’s chief political reporter, Matt Taibbi's predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O'Rourke. Taibbi's 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His books include Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History, The Great Derangement: A Terrifying True Story of War, Politics, and Religion, Smells Like Dead Elephants: Dispatches from a Rotting Empire.
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It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you'd think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we've been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?(Illustration by Victor Juhasz)
Wrong.
It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.
How Wall Street Killed Financial Reform -
But the most appalling part is the lying. The public has been lied to so shamelessly and so often in the course of the past four years that the failure to tell the truth to the general populace has become a kind of baked-in, official feature of the financial rescue. Money wasn't the only thing the government gave Wall Street – it also conferred the right to hide the truth from the rest of us. And it was all done in the name of helping regular people and creating jobs. "It is," says former bailout Inspector General Neil Barofsky, "the ultimate bait-and-switch."
The bailout deceptions came early, late and in between. There were lies told in the first moments of their inception, and others still being told four years later. The lies, in fact, were the most important mechanisms of the bailout. The only reason investors haven't run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 have been fixed. Investors may not actually believe the lie, but they are impressed by how totally committed the government has been, from the very beginning, to selling it.
They Lied to Pass the Bailout -
Today what few remember about the bailouts is that we had to approve them. It wasn't like Paulson could just go out and unilaterally commit trillions of public dollars to rescue Goldman Sachs and Citigroup from their own stupidity and bad management (although the government ended up doing just that, later on). Much as with a declaration of war, a similarly extreme and expensive commitment of public resources, Paulson needed at least a film of congressional approval. And much like the Iraq War resolution, which was only secured after George W. Bush ludicrously warned that Saddam was planning to send drones to spray poison over New York City, the bailouts were pushed through Congress with a series of threats and promises that ranged from the merely ridiculous to the outright deceptive. At one meeting to discuss the original bailout bill – at 11 a.m. on September 18th, 2008 – Paulson actually told members of Congress that $5.5 trillion in wealth would disappear by 2 p.m. that day unless the government took immediate action, and that the world economy would collapse "within 24 hours."
To be fair, Paulson started out by trying to tell the truth in his own ham-headed, narcissistic way. His first TARP proposal was a three-page absurdity pulled straight from a Beavis and Butt-Head episode – it was basically Paulson saying, "Can you, like, give me some money?" Sen. Sherrod Brown, a Democrat from Ohio, remembers a call with Paulson and Federal Reserve chairman Ben Bernanke. "We need $700 billion," they told Brown, "and we need it in three days." What's more, the plan stipulated, Paulson could spend the money however he pleased, without review "by any court of law or any administrative agency."
The White House and leaders of both parties actually agreed to this preposterous document, but it died in the House when 95 Democrats lined up against it. For an all-too-rare moment during the Bush administration, something resembling sanity prevailed in Washington.
So Paulson came up with a more convincing lie. On paper, the Emergency Economic Stabilization Act of 2008 was simple: Treasury would buy $700 billion of troubled mortgages from the banks and then modify them to help struggling homeowners. Section 109 of the act, in fact, specifically empowered the Treasury secretary to "facilitate loan modifications to prevent avoidable foreclosures." With that promise on the table, wary Democrats finally approved the bailout on October 3rd, 2008. "That provision," says Barofsky, "is what got the bill passed."
But within days of passage, the Fed and the Treasury unilaterally decided to abandon the planned purchase of toxic assets in favor of direct injections of billions in cash into companies like Goldman and Citigroup. Overnight, Section 109 was unceremoniously ditched, and what was pitched as a bailout of both banks and homeowners instantly became a bank-only operation – marking the first in a long series of moves in which bailout officials either casually ignored or openly defied their own promises with regard to TARP.
Congress was furious. "We've been lied to," fumed Rep. David Scott, a Democrat from Georgia. Rep. Elijah Cummings, a Democrat from Maryland, raged at transparently douchey TARP administrator (and Goldman banker) Neel Kashkari, calling him a "chump" for the banks. And the anger was bipartisan: Republican senators David Vitter of Louisiana and James Inhofe of Oklahoma were so mad about the unilateral changes and lack of oversight that they sponsored a bill in January 2009 to cancel the remaining $350 billion of TARP.
So what did bailout officials do? They put together a proposal full of even bigger deceptions to get it past Congress a second time. That process began almost exactly four years ago – on January 12th and 15th, 2009 – when Larry Summers, the senior economic adviser to President-elect Barack Obama, sent a pair of letters to Congress. The pudgy, stubbyfingered former World Bank economist, who had been forced out as Harvard president for suggesting that women lack a natural aptitude for math and science, begged legislators to reject Vitter's bill and leave TARP alone.
In the letters, Summers laid out a five-point plan in which the bailout was pitched as a kind of giant populist program to help ordinary Americans. Obama, Summers vowed, would use the money to stimulate bank lending to put people back to work. He even went so far as to say that banks would be denied funding unless they agreed to "increase lending above baseline levels." He promised that "tough and transparent conditions" would be imposed on bailout recipients, who would not be allowed to use bailout funds toward "enriching shareholders or executives." As in the original TARP bill, he pledged that bailout money would be used to aid homeowners in foreclosure. And lastly, he promised that the bailouts would be temporary – with a "plan for exit of government intervention" implemented "as quickly as possible."
The reassurances worked. Once again, TARP survived in Congress – and once again, the bailouts were greenlighted with the aid of Democrats who fell for the old "it'll help ordinary people" sales pitch. "I feel like they've given me a lot of commitment on the housing front," explained Sen. Mark Begich, a Democrat from Alaska.
But in the end, almost nothing Summers promised actually materialized. A small slice of TARP was earmarked for foreclosure relief, but the resultant aid programs for homeowners turned out to be riddled with problems, for the perfectly logical reason that none of the bailout's architects gave a shit about them. They were drawn up practically overnight and rushed out the door for purely political reasons – to trick Congress into handing over tons of instant cash for Wall Street, with no strings attached. "Without those assurances, the level of opposition would have remained the same," says Rep. Raúl Grijalva, a leading progressive who voted against TARP. The promise of housing aid, in particular, turned out to be a "paper tiger."
HAMP, the signature program to aid poor homeowners, was announced by President Obama on February 18th, 2009. The move inspired CNBC commentator Rick Santelli to go berserk the next day – the infamous viral rant that essentially birthed the Tea Party. Reacting to the news that Obama was planning to use bailout funds to help poor and (presumably) minority homeowners facing foreclosure, Santelli fumed that the president wanted to "subsidize the losers' mortgages" when he should "reward people that could carry the water, instead of drink the water." The tirade against "water drinkers" led to the sort of spontaneous nationwide protests one might have expected months before, when we essentially gave a taxpayer-funded blank check to Gamblers Anonymous addicts, the millionaire and billionaire class.
In fact, the amount of money that eventually got spent on homeowner aid now stands as a kind of grotesque joke compared to the Himalayan mountain range of cash that got moved onto the balance sheets of the big banks more or less instantly in the first months of the bailouts. At the start, $50 billion of TARP funds were earmarked for HAMP. In 2010, the size of the program was cut to $30 billion. As of November of last year, a mere $4 billion total has been spent for loan modifications and other homeowner aid.
In short, the bailout program designed to help those lazy, job-averse, "water-drinking" minority homeowners – the one that gave birth to the Tea Party – turns out to have comprised about one percent of total TARP spending. "It's amazing," says Paul Kiel, who monitors bailout spending for ProPublica. "It's probably one of the biggest failures of the Obama administration."
The failure of HAMP underscores another damning truth – that the Bush-Obama bailout was as purely bipartisan a program as we've had. Imagine Obama retaining Don Rumsfeld as defense secretary and still digging for WMDs in the Iraqi desert four years after his election: That's what it was like when he left Tim Geithner, one of the chief architects of Bush's bailout, in command of the no-stringsattached rescue four years after Bush left office.
Yet Obama's HAMP program, as lame as it turned out to be, still stands out as one of the few pre-bailout promises that was even partially fulfilled. Virtually every other promise Summers made in his letters turned out to be total bullshit. And that includes maybe the most important promise of all – the pledge to use the bailout money to put people back to work.
They Lied About Lending -
Once TARP passed, the government quickly began loaning out billions to some 500 banks that it deemed "healthy" and "viable." A few were cash loans, repayable at five percent within the first five years; other deals came due when a bank stock hit a predetermined price. As long as banks held TARP money, they were barred from paying out big cash bonuses to top executives.
But even before Summers promised Congress that banks would be required to increase lending as a condition for receiving bailout funds, officials had already decided not to even ask the banks to use the money to increase lending. In fact, they'd decided not to even ask banks to monitor what they did with the bailout money. Barofsky, the TARP inspector, asked Treasury to include a requirement forcing recipients to explain what they did with the taxpayer money. He was stunned when TARP administrator Kashkari rejected his proposal, telling him lenders would walk away from the program if they had to deal with too many conditions. "The banks won't participate," Kashkari said.
Barofsky, a former high-level drug prosecutor who was one of the only bailout officials who didn't come from Wall Street, didn't buy that cash-desperate banks would somehow turn down billions in aid. "It was like they were trembling with fear that the banks wouldn't take the money," he says. "I never found that terribly convincing."
In the end, there was no lending requirement attached to any aspect of the bailout, and there never would be. Banks used their hundreds of billions for almost every purpose under the sun – everything, that is, but lending to the homeowners and small businesses and cities they had destroyed. And one of the most disgusting uses they found for all their billions in free government money was to help them earn even more free government money.
To guarantee their soundness, all major banks are required to keep a certain amount of reserve cash at the Fed. In years past, that money didn't earn interest, for the logical reason that banks shouldn't get paid to stay solvent. But in 2006 – arguing that banks were losing profits on cash parked at the Fed – regulators agreed to make small interest payments on the money. The move wasn't set to go into effect until 2011, but when the crash hit, a section was written into TARP that launched the interest payments in October 2008.
In theory, there should never be much money in such reserve accounts, because any halfway-competent bank could make far more money lending the cash out than parking it at the Fed, where it earns a measly quarter of a percent. In August 2008, before the bailout began, there were just $2 billion in excess reserves at the Fed. But by that October, the number had ballooned to $267 billion – and by January 2009, it had grown to $843 billion. That means there was suddenly more money sitting uselessly in Fed accounts than Congress had approved for either the TARP bailout or the much-loathed Obama stimulus. Instead of lending their new cash to struggling homeowners and small businesses, as Summers had promised, the banks were literally sitting on it.
Today, excess reserves at the Fed total an astonishing $1.4 trillion."The money is just doing nothing," says Nomi Prins, a former Goldman executive who has spent years monitoring the distribution of bailout money.
Nothing, that is, except earning a few crumbs of risk-free interest for the banks. Prins estimates that the annual haul in interest on Fed reserves is about $3.6 billion – a relatively tiny subsidy in the scheme of things, but one that, ironically, just about matches the total amount of bailout money spent on aid to homeowners. Put another way, banks are getting paid about as much every year for not lending money as 1 million Americans received for mortgage modifications and other housing aid in the whole of the past four years.
Moreover, instead of using the bailout money as promised – to jump-start the economy – Wall Street used the funds to make the economy more dangerous. From the start, taxpayer money was used to subsidize a string of finance mergers, from the Chase-Bear Stearns deal to the Wells FargoWachovia merger to Bank of America's acquisition of Merrill Lynch. Aided by bailout funds, being Too Big to Fail was suddenly Too Good to Pass Up.
Other banks found more creative uses for bailout money. In October 2010, Obama signed a new bailout bill creating a program called the Small Business Lending Fund, in which firms with fewer than $10 billion in assets could apply to share in a pool of $4 billion in public money. As it turned out, however, about a third of the 332 companies that took part in the program used at least some of the money to repay their original TARP loans. Small banks that still owed TARP money essentially took out cheaper loans from the government to repay their more expensive TARP loans – a move that conveniently exempted them from the limits on executive bonuses mandated by the bailout. All told, studies show, $2.2 billion of the $4 billion ended up being spent not on small-business loans, but on TARP repayment. "It's a bit of a shell game," admitted John Schmidt, chief operating officer of Iowa-based Heartland Financial, which took $81.7 million from the SBLF and used every penny of it to repay TARP.
Using small-business funds to pay down their own debts, parking huge amounts of cash at the Fed in the midst of a stalled economy – it's all just evidence of what most Americans know instinctively: that the bailouts didn't result in much new business lending. If anything, the bailouts actually hindered lending, as banks became more like house pets that grow fat and lazy on two guaranteed meals a day than wild animals that have to go out into the jungle and hunt for opportunities in order to eat. The Fed's own analysis bears this out: In the first three months of the bailout, as taxpayer billions poured in, TARP recipients slowed down lending at a rate more than double that of banks that didn't receive TARP funds. The biggest drop in lending – 3.1 percent – came from the biggest bailout recipient, Citigroup. A year later, the inspector general for the bailout found that lending among the nine biggest TARP recipients "did not, in fact, increase." The bailout didn't flood the banking system with billions in loans for small businesses, as promised. It just flooded the banking system with billions for the banks.
They Lied About the Health of the Banks -
The main reason banks didn't lend out bailout funds is actually pretty simple: Many of them needed the money just to survive. Which leads to another of the bailout's broken promises – that taxpayer money would only be handed out to "viable" banks.
Soon after TARP passed, Paulson and other officials announced the guidelines for their unilaterally changed bailout plan. Congress had approved $700 billion to buy up toxic mortgages, but $250 billion of the money was now shifted to direct capital injections for banks. (Although Paulson claimed at the time that handing money directly to the banks was a faster way to restore market confidence than lending it to homeowners, he later confessed that he had been contemplating the direct-cash-injection plan even before the vote.) This new let's-just-fork-over-cash portion of the bailout was called the Capital Purchase Program. Under the CPP, nine of America's largest banks – including Citi, Wells Fargo, Goldman, Morgan Stanley, Bank of America, State Street and Bank of New York Mellon – received $125 billion, or half of the funds being doled out. Since those nine firms accounted for 75 percent of all assets held in America's banks – $11 trillion – it made sense they would get the lion's share of the money. But in announcing the CPP, Paulson and Co. promised that they would only be stuffing cash into "healthy and viable" banks. This, at the core, was the entire justification for the bailout: That the huge infusion of taxpayer cash would not be used to rescue individual banks, but to kick-start the economy as a whole by helping healthy banks start lending again.
This announcement marked the beginning of the legend that certain Wall Street banks only took the bailout money because they were forced to – they didn't need all those billions, you understand, they just did it for the good of the country. "We did not, at that point, need TARP," Chase chief Jamie Dimon later claimed, insisting that he only took the money "because we were asked to by the secretary of Treasury." Goldman chief Lloyd Blankfein similarly claimed that his bank never needed the money, and that he wouldn't have taken it if he'd known it was "this pregnant with potential for backlash." A joint statement by Paulson, Bernanke and FDIC chief Sheila Bair praised the nine leading banks as "healthy institutions" that were taking the cash only to "enhance the overall performance of the U.S. economy."
But right after the bailouts began, soon-to-be Treasury Secretary Tim Geithner admitted to Barofsky, the inspector general, that he and his cohorts had picked the first nine bailout recipients because of their size, without bothering to assess their health and viability. Paulson, meanwhile, later admitted that he had serious concerns about at least one of the nine firms he had publicly pronounced healthy. And in November 2009, Bernanke gave a closed-door interview to the Financial Crisis Inquiry Commission, the body charged with investigating the causes of the economic meltdown, in which he admitted that 12 of the 13 most prominent financial companies in America were on the brink of failure during the time of the initial bailouts.
On the inside, at least, almost everyone connected with the bailout knew that the top banks were in deep trouble. "It became obvious pretty much as soon as I took the job that these companies weren't really healthy and viable," says Barofsky, who stepped down as TARP inspector in 2011.
This early episode would prove to be a crucial moment in the history of the bailout. It set the precedent of the government allowing unhealthy banks to not only call themselves healthy, but to get the government to endorse their claims. Projecting an image of soundness was, to the government, more important than disclosing the truth. Officials like Geithner and Paulson seemed to genuinely believe that the market's fears about corruption in the banking system was a bigger problem than the corruption itself. Time and again, they justified TARP as a move needed to "bolster confidence" in the system – and a key to that effort was keeping the banks' insolvency a secret. In doing so, they created a bizarre new two-tiered financial market, divided between those who knew the truth about how bad things were and those who did not.
A month or so after the bailout team called the top nine banks "healthy," it became clear that the biggest recipient, Citigroup, had actually flat-lined on the ER table. Only weeks after Paulson and Co. gave the firm $25 billion in TARP funds, Citi – which was in the midst of posting a quarterly loss of more than $17 billion – came back begging for more. In November 2008, Citi received another $20 billion in cash and more than $300 billion in guarantees.
What's most amazing about this isn't that Citi got so much money, but that government-endorsed, fraudulent health ratings magically became part of its bailout. The chief financial regulators – the Fed, the FDIC and the Office of the Comptroller of the Currency – use a ratings system called CAMELS to measure the fitness of institutions. CAMELS stands for Capital, Assets, Management, Earnings, Liquidity and Sensitivity to risk, and it rates firms from one to five, with one being the best and five the crappiest. In the heat of the crisis, just as Citi was receiving the second of what would turn out to be three massive federal bailouts, the bank inexplicably enjoyed a three rating – the financial equivalent of a passing grade. In her book, Bull by the Horns, then-FDIC chief Sheila Bair recounts expressing astonishment to OCC head John Dugan as to why "Citi rated as a CAMELS 3 when it was on the brink of failure." Dugan essentially answered that "since the government planned on bailing Citi out, the OCC did not plan to change its supervisory rating." Similarly, the FDIC ended up granting a "systemic risk exception" to Citi, allowing it access to FDIC-bailout help even though the agency knew the bank was on the verge of collapse.
The sweeping impact of these crucial decisions has never been fully appreciated. In the years preceding the bailouts, banks like Citi had been perpetuating a kind of fraud upon the public by pretending to be far healthier than they really were. In some cases, the fraud was outright, as in the case of Lehman Brothers, which was using an arcane accounting trick to book tens of billions of loans as revenues each quarter, making it look like it had more cash than it really did. In other cases, the fraud was more indirect, as in the case of Citi, which in 2007 paid out the third-highest dividend in America – $10.7 billion – despite the fact that it had lost $9.8 billion in the fourth quarter of that year alone. The whole financial sector, in fact, had taken on Ponzi-like characteristics, as many banks were hugely dependent on a continual influx of new money from things like sales of subprime mortgages to cover up massive future liabilities from toxic investments that, sooner or later, were going to come to the surface.
Now, instead of using the bailouts as a clear-the-air moment, the government decided to double down on such fraud, awarding healthy ratings to these failing banks and even twisting its numerical audits and assessments to fit the cooked-up narrative. A major component of the original TARP bailout was a promise to ensure "full and accurate accounting" by conducting regular "stress tests" of the bailout recipients. When Geithner announced his stress-test plan in February 2009, a reporter instantly blasted him with an obvious and damning question: Doesn't the fact that you have to conduct these tests prove that bank regulators, who should already know plenty about banks' solvency, actually have no idea who is solvent and who isn't?
The government did wind up conducting regular stress tests of all the major bailout recipients, but the methodology proved to be such an obvious joke that it was even lampooned on Saturday Night Live. (In the skit, Geithner abandons a planned numerical score system because it would unfairly penalize bankers who were "not good at banking.") In 2009, just after the first round of tests was released, it came out that the Fed had allowed banks to literally rejigger the numbers to make their bottom lines look better. When the Fed found Bank of America had a $50 billion capital hole, for instance, the bank persuaded examiners to cut that number by more than $15 billion because of what it said were "errors made by examiners in the analysis." Citigroup got its number slashed from $35 billion to $5.5 billion when the bank pleaded with the Fed to give it credit for "pending transactions."
Such meaningless parodies of oversight continue to this day. Earlier this year, Regions Financial Corp. – a company that had failed to pay back $3.5 billion in TARP loans – passed its stress test. A subsequent analysis by Bloomberg View found that Regions was effectively $525 million in the red. Nonetheless, the bank's CEO proclaimed that the stress test "demonstrates the strength of our company." Shortly after the test was concluded, the bank issued $900 million in stock and said it planned on using the cash to pay back some of the money it had borrowed under TARP.
This episode underscores a key feature of the bailout: the government's decision to use lies as a form of monetary aid. State hands over taxpayer money to functionally insolvent bank; state gives regulatory thumbs up to said bank; bank uses that thumbs up to sell stock; bank pays cash back to state. What's critical here is not that investors actually buy the Fed's bullshit accounting – all they have to do is believe the government will backstop Regions either way, healthy or not. "Clearly, the Fed wanted it to attract new investors," observed Bloomberg, "and those who put fresh capital into Regions this week believe the government won't let it die."
Through behavior like this, the government has turned the entire financial system into a kind of vast confidence game – a Ponzi-like scam in which the value of just about everything in the system is inflated because of the widespread belief that the government will step in to prevent losses. Clearly, a government that's already in debt over its eyes for the next million years does not have enough capital on hand to rescue every Citigroup or Regions Bank in the land should they all go bust tomorrow. But the market is behaving as if Daddy will step in to once again pay the rent the next time any or all of these kids sets the couch on fire and skips out on his security deposit. Just like an actual Ponzi scheme, it works only as long as they don't have to make good on all the promises they've made. They're building an economy based not on real accounting and real numbers, but on belief. And while the signs of growth and recovery in this new faith-based economy may be fake, one aspect of the bailout has been consistently concrete: the broken promises over executive pay.
They Lied About Bonuses!
hat executive bonuses on Wall Street were a political hot potato for the bailout's architects was obvious from the start. That's why Summers, in saving the bailout from the ire of Congress, vowed to "limit executive compensation" and devote public money to prevent another financial crisis. And it's true, TARP did bar recipients from a whole range of exorbitant pay practices, which is one reason the biggest banks, like Goldman Sachs, worked so quickly to repay their TARP loans.
But there were all sorts of ways around the restrictions. Banks could apply to the Fed and other regulators for waivers, which were often approved (one senior FDIC official tells me he recommended denying "golden parachute" payments to Citigroup officials, only to see them approved by superiors). They could get bailouts through programs other than TARP that did not place limits on bonuses. Or they could simply pay bonuses not prohibited under TARP. In one of the worst episodes, the notorious lenders Fannie Mae and Freddie Mac paid out more than $200 million in bonuses between 2008 and 2010, even though the firms (a) lost more than $100 billion in 2008 alone, and (b) required nearly $400 billion in federal assistance during the bailout period.
Even worse was the incredible episode in which bailout recipient AIG paid more than $1 million each to 73 employees of AIG Financial Products, the tiny unit widely blamed for having destroyed the insurance giant (and perhaps even triggered the whole crisis) with its reckless issuance of nearly half a trillion dollars in toxic credit-default swaps. The "retention bonuses," paid after the bailout, went to 11 employees who no longer worked for AIG.
But all of these "exceptions" to the bonus restrictions are far less infuriating, it turns out, than the rule itself. TARP did indeed bar big cash-bonus payouts by firms that still owed money to the government. But those firms were allowed to issue extra compensation to executives in the form of long-term restricted stock. An independent research firm asked to analyze the stock options for The New York Times found that the top five executives at each of the 18 biggest bailout recipients received a total of $142 million in stocks and options. That's plenty of money all by itself – but thanks in large part to the government's overt display of support for those firms, the value of those options has soared to $457 million, an average of $4 million per executive.
In other words, we didn't just allow banks theoretically barred from paying bonuses to pay bonuses. We actually allowed them to pay bigger bonuses than they otherwise could have. Instead of forcing the firms to reward top executives in cash, we allowed them to pay in depressed stock, the value of which we then inflated due to the government's implicit endorsement of those firms.
All of which leads us to the last and most important deception of the bailouts:
They Lied About the Bailout Being Temporary!
The bailout ended up being much bigger than anyone expected, expanded far beyond TARP to include more obscure (and in some cases far larger) programs with names like TALF, TAF, PPIP and TLGP. What's more, some parts of the bailout were designed to extend far into the future. Companies like AIG, GM and Citigroup, for instance, were given tens of billions of deferred tax assets – allowing them to carry losses from 2008 forward to offset future profits and keep future tax bills down. Official estimates of the bailout's costs do not include such ongoing giveaways. "This is stuff that's never going to appear on any report," says Barofsky.
Citigroup, all by itself, boasts more than $50 billion in deferred tax credits – which is how the firm managed to pay less in taxes in 2011 (it actually received a $144 million credit) than it paid in compensation that year to its since-ousted dingbat CEO, Vikram Pandit (who pocketed $14.9 million). The bailout, in short, enabled the very banks and financial institutions that cratered the global economy to write off the losses from their toxic deals for years to come – further depriving the government of much-needed tax revenues it could have used to help homeowners and small businesses who were screwed over by the banks in the first place.
Even worse, the $700 billion in TARP loans ended up being dwarfed by more than $7.7 trillion in secret emergency lending that the Fed awarded to Wall Street – loans that were only disclosed to the public after Congress forced an extraordinary one-time audit of the Federal Reserve. The extent of this "secret bailout" didn't come out until November 2011, when Bloomberg Markets, which went to court to win the right to publish the data, detailed how the country's biggest firms secretly received trillions in near-free money throughout the crisis.
Goldman Sachs, which had made such a big show of being reluctant about accepting $10 billion in TARP money, was quick to cash in on the secret loans being offered by the Fed. By the end of 2008, Goldman had snarfed up $34 billion in federal loans – and it was paying an interest rate of as low as just 0.01 percent for the huge cash infusion. Yet that funding was never disclosed to shareholders or taxpayers, a fact Goldman confirms. "We did not disclose the amount of our participation in the two programs you identify," says Goldman spokesman Michael Duvally.
Goldman CEO Blankfein later dismissed the importance of the loans, telling the Financial Crisis Inquiry Commission that the bank wasn't "relying on those mechanisms." But in his book, Bailout, Barofsky says that Paulson told him that he believed Morgan Stanley was "just days" from collapse before government intervention, while Bernanke later admitted that Goldman would have been the next to fall.
Meanwhile, at the same moment that leading banks were taking trillions in secret loans from the Fed, top officials at those firms were buying up stock in their companies, privy to insider info that was not available to the public at large. Stephen Friedman, a Goldman director who was also chairman of the New York Fed, bought more than $4 million of Goldman stock over a five-week period in December 2008 and January 2009 – years before the extent of the firm's lifeline from the Fed was made public. Citigroup CEO Vikram Pandit bought nearly $7 million in Citi stock in November 2008, just as his firm was secretly taking out $99.5 billion in Fed loans. Jamie Dimon bought more than $11 million in Chase stock in early 2009, at a time when his firm was receiving as much as $60 billion in secret Fed loans. When asked by Rolling Stone, Chase could not point to any disclosure of the bank's borrowing from the Fed until more than a year later, when Dimon wrote about it in a letter to shareholders in March 2010.
The stock purchases by America's top bankers raise serious questions of insider trading. Two former high-ranking financial regulators tell Rolling Stone that the secret loans were likely subject to a 1989 guideline, issued by the Securities and Exchange Commission in the heat of the savings and loan crisis, which said that financial institutions should disclose the "nature, amounts and effects" of any government aid. At the end of 2011, in fact, the SEC sent letters to Citigroup, Chase, Goldman Sachs, Bank of America and Wells Fargo asking them why they hadn't fully disclosed their secret borrowing. All five megabanks essentially replied, to varying degrees of absurdity, that their massive borrowing from the Fed was not "material," or that the piecemeal disclosure they had engaged in was adequate. Never mind that the law says investors have to be informed right away if CEOs like Dimon and Pandit decide to give themselves a $10,000 raise. According to the banks, it's none of your business if those same CEOs are making use of a secret $50 billion charge card from the Fed.
The implications here go far beyond the question of whether Dimon and Co. committed insider trading by buying and selling stock while they had access to material nonpublic information about the bailouts. The broader and more pressing concern is the clear implication that by failing to act, federal regulators have tacitly approved the nondisclosure. Instead of trusting the markets to do the right thing when provided with accurate information, the government has instead channeled Jack Nicholson – and decided that the public just can't handle the truth.
All of this – the willingness to call dying banks healthy, the sham stress tests, the failure to enforce bonus rules, the seeming indifference to public disclosure, not to mention the shocking lack of criminal investigations into fraud committed by bailout recipients before the crash – comprised the largest and most valuable bailout of all. Brick by brick, statement by reassuring statement, bailout officials have spent years building the government's great Implicit Guarantee to the biggest companies on Wall Street: We will be there for you, always, no matter how much you screw up. We will lie for you and let you get away with just about anything. We will make this ongoing bailout a pervasive and permanent part of the financial system. And most important of all, we will publicly commit to this policy, being so obvious about it that the markets will be able to put an exact price tag on the value of our preferential treatment.
The first independent study that attempted to put a numerical value on the Implicit Guarantee popped up about a year after the crash, in September 2009, when Dean Baker and Travis McArthur of the Center for Economic and Policy Research published a paper called "The Value of the 'Too Big to Fail' Big Bank Subsidy." Baker and McArthur found that prior to the last quarter of 2007, just before the start of the crisis, financial firms with $100 billion or more in assets were paying on average about 0.29 percent less to borrow money than smaller firms.
By the second quarter of 2009, however, once the bailouts were in full swing, that spread had widened to 0.78 percent. The conclusion was simple: Lenders were about a half a point more willing to lend to a bank with implied government backing – even a proven-stupid bank – than they were to lend to companies who "must borrow based on their own credit worthiness." The economists estimated that the lending gap amounted to an annual subsidy of $34 billion a year to the nation's 18 biggest banks.
Today the borrowing advantage of a big bank remains almost exactly what it was three years ago – about 50 basis points, or half a percent. "These megabanks still receive subsidies in the sense that they can borrow on the capital markets at a discount rate of 50 or 70 points because of the implicit view that these banks are Too Big to Fail," says Sen. Brown.
Why does the market believe that? Because the officials who administered the bailouts made that point explicitly, over and over again. When Geithner announced the implementation of the stress tests in 2009, for instance, he declared that banks who didn't have enough money to pass the test could get it from the government. "We're going to help this process by providing a new program of capital support for those institutions that need it," Geithner said. The message, says Barofsky, was clear: "If the banks cannot raise capital, we will do it for them." It was an Implicit Guarantee that the banks would not be allowed to fail – a point that Geithner and other officials repeatedly stressed over the years. "The markets took all those little comments by Geithner as a clue that the government is looking out for them," says Baker. That psychological signaling, he concludes, is responsible for the crucial half-point borrowing spread.
The inherent advantage of bigger banks – the permanent, ongoing bailout they are still receiving from the government – has led to a host of gruesome consequences. All the big banks have paid back their TARP loans, while more than 300 smaller firms are still struggling to repay their bailout debts. Even worse, the big banks, instead of breaking down into manageable parts and becoming more efficient, have grown even bigger and more unmanageable, making the economy far more concentrated and dangerous than it was before. America's six largest banks – Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley – now have a combined 14,420 subsidiaries, making them so big as to be effectively beyond regulation. A recent study by the Kansas City Fed found that it would take 70,000 examiners to inspect such trillion-dollar banks with the same level of attention normally given to a community bank. "The complexity is so overwhelming that no regulator can follow it well enough to regulate the way we need to," says Sen. Brown, who is drafting a bill to break up the megabanks.
Worst of all, the Implicit Guarantee has led to a dangerous shift in banking behavior. With an apparently endless stream of free or almost-free money available to banks – coupled with a well-founded feeling among bankers that the government will back them up if anything goes wrong – banks have made a dramatic move into riskier and more speculative investments, including everything from high-risk corporate bonds to mortgagebacked securities to payday loans, the sleaziest and most disreputable end of the financial system. In 2011, banks increased their investments in junk-rated companies by 74 percent, and began systematically easing their lending standards in search of more high-yield customers to lend to.
This is a virtual repeat of the financial crisis, in which a wave of greed caused bankers to recklessly chase yield everywhere, to the point where lowering lending standards became the norm. Now the government, with its Implicit Guarantee, is causing exactly the same behavior – meaning the bailouts have brought us right back to where we started. "Government intervention," says Klaus Schaeck, an expert on bailouts who has served as a World Bank consultant, "has definitely resulted in increased risk."
And while the economy still mostly sucks overall, there's never been a better time to be a Too Big to Fail bank. Wells Fargo reported a third-quarter profit of nearly $5 billion last year, while JP Morgan Chase pocketed $5.3 billion – roughly double what both banks earned in the third quarter of 2006, at the height of the mortgage bubble. As the driver of their success, both banks cite strong performance in – you guessed it – the mortgage market.
So what exactly did the bailout accomplish? It built a banking system that discriminates against community banks, makes Too Big to Fail banks even Too Bigger to Failier, increases risk, discourages sound business lending and punishes savings by making it even easier and more profitable to chase high-yield investments than to compete for small depositors. The bailout has also made lying on behalf of our biggest and most corrupt banks the official policy of the United States government. And if any one of those banks fails, it will cause another financial crisis, meaning we're essentially wedded to that policy for the rest of eternity – or at least until the markets call our bluff, which could happen any minute now.
Other than that, the bailout was a smashing success.
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