How the Oligarchs Took America-Part 2 of 4

By Andy Kroll Thu Dec. 2, 2010 2:45 PM PST

"The Thirty-Year War"

How did we get here? How did a middle-class-heavy nation transform itself into an oligarchy? You'll find answers to these questions in Winner-Take-All Politics [11], a revelatory new book by political scientists Jacob Hacker and Paul Pierson. The authors treat the present figures we have on American wealth and poverty as a crime scene littered with clues and suspects, dead-ends and alibis.

Unlike so many pundits, politicians, and academics, Hacker and Pierson resist blaming the usual suspects: globalization, the rise of an information-based economy, and the demise of manufacturing. The culprit in their crime drama is American politics itself over the last three decades. The clues to understanding the rise of an American oligarchy, they believe, won't be found in New York or New Delhi, but on Capitol Hill, along Pennsylvania Avenue, and around K Street, that haven in a heartless world for Washington's lobbyists.

"Step by step and debate by debate," they write, "America's public officials have rewritten the rules of American politics and the American economy in ways that have benefitted the few at the expense of the many."

[12]Most accounts of American income inequality begin in the 1980s with the reign of President Ronald Reagan, the anti-government icon whose "Reaganomics" are commonly fingered as the catalyst for today's problems. Wrong, say Hacker and Pierson. The origins of oligarchy lay in the late 1970s and in the unlikely figure of Jimmy Carter, a Democratic president presiding over a Congress controlled by Democrats. It was Carter's successes and failures, they argue, that kicked off what economist Paul Krugman has labeled "the Great Divergence." [13]

In 1978, the Carter administration and Congress took a red pen to the tax code, slashing the top rate of the capital gains tax from 48% to 28%—an enormous boon for wealthy Americans. At the same time, the most ambitious effort in decades to reform American labor law in order to make it easer to unionize died in the Senate, despite a 61-vote Democratic supermajority. Likewise, a proposed Office of Consumer Representation, a $15 million advocacy agency that was to work on behalf of average Americans, was defeated by an increasingly powerful business lobby.

Ronald Reagan, you could say, simply took the baton passed to him by Carter. His 1981 Economic Recovery and Tax Act (ERTA) bundled a medley of goodies any oligarch would love, including tax cuts for corporations, ample reductions in the capital gains and estate taxes, and a 10% income tax exclusion for married couples in two-earner families. "ERTA was Ronald Reagan's greatest legislative triumph, a fundamental rewriting of the nation's tax laws in favor of winner-take-all outcomes," Hacker and Pierson conclude.

The groundwork had by then been laid for the rich to pull definitively and staggering ahead of everyone else. The momentum of the tax-cut fervor carried through the presidencies of George H.W. Bush and Bill Clinton, and in 2000 became the campaign trail rallying cry of George W. Bush. It was Bush II, after all, who told [14] a room full of wealthy donors at an $800-a-plate dinner, "Some people call you the elites; I call you my base," and who pledged that his 2001 tax cuts would be a boon for all Americans. They weren't: according to Hacker and Pierson, 51% of their benefits go to the top 1% of earners.

Those cuts will be around a lot longer if the GOP has its way. Take Republican Congressman Dave Camp's word for it. On November 16th, Camp, a Republican from Michigan, said [15] the only acceptable solution when it came to the Bush-era tax cuts was not just upholding them for all earners, rich and poor, but passing more such cuts. Anything in between, any form of compromise, including President Obama's proposal to extend the Bush cuts for the working and middle classes but not the wealthy, was [15] "a terrible idea and a total non-starter."

Why should you care what Dave Camp says? Here's the answer: in January, he's set to inherit the chairman's gavel on the powerful House Ways and Means Committee, the body tasked with writing the nation's tax laws. And though most Americans wouldn't even recognize his name, Camp's message surely left America's wealthy elites breathing a long sigh of relief. You could sum it up like this: Fear not, wealthy Americans, your money is safe. The policies that made you rich aren't going anywhere.

Corrupt nursing home in Wisconsin? Now go Scott-Free

New Wisconsin law that apparently was hurried in under the radar by Scott Walker makes it harder to make a case against an abusive or negligent nursing home, and puts a cap on damages in such cases.

The author of this note calls it the "Kill Granny and Get Away With It Act."

Wouldn't it be more accurate to call it the "Kill Granny and Go Scott-Free Act"?

For whatever it's worth

I have no hard evidence to back this up, but I have a very strong belief that if you gave them a rigorous test, it would turn out that American Jews know far more about the history and theology of Christianity than Evangelical American Christians.

Sent to Siberia

This reminds me a good deal of the good old days, when the Soviet Union sent everyone that disagreed with the gov. to Siberia. When I read the op ed the other day, I said to myself, this guy won't be in that job for long.

Where's the economic recovery?

By Harold Meyerson
Wednesday, March 9, 2011; Washington Post

Suppose the economy recovers but everyone still feels lousy.

It could happen. In fact, it's happening right now.

Our current recovery, alas, is different from all previous recoveries that America has experienced since the end of World War II. The earlier ones were marked by wage increases. As the economy picked up and more revenue started flowing to business, those businesses shared the revenue with their employees. Mark Whitehouse of the Wall Street Journal looked at how businesses were dividing up the pie 18 months into every previous recovery since 1947 and found that 58 percent of their increases in productivity trickled down to their workers in increased wages.

This time around, the numbers are starkly different. Productivity increased 5.2 percent from the recovery's start in mid-2009 to the end of 2010, he found, but wages rose by a minuscule 0.3 percent. That means just 6 percent of productivity gains have gone to our newly more-productive workers.

Where is the other 94 percent going? To profits, which have been increasing at a record clip for the past three quarters. To funds on the corporations' balance sheets, which the Federal Reserve calculates at nearly $2 trillion. To shareholders. To the companies' stock buybacks.

Indeed, many of the nation's leading corporations have been spending more money buying their own shares than they have on job-creating investments, research and development, or higher wages. In the first three quarters of 2010, according to Standard & Poor's, companies' purchases of their own shares came to $212 billion - an increase of 80 percent, 221 percent and 128 percent for each of those quarters over the corresponding three-month periods in 2009.

The jobs that businesses have been creating, moreover, aren't anything to write home about. They pay significantly less than the jobs that have been lost. According to research from the National Employment Law Project, as of January, 40 percent of the jobs lost in the recession came from higher-wage industries but just 14 percent of the jobs created during the recovery were in those industries. Lower-wage industries, where jobs paid on average less than $15 an hour, accounted for 23 percent of the jobs lost but fully 49 percent of newly created ones. Among the industries that grew in 2010, the top three occupations were retail sales clerks, cashiers and food preparers; each has a median hourly wage of less than $10.

It's one thing for a nation to be downwardly mobile during a recession. It's quite another to be downwardly mobile during a recovery - but that looks to be precisely what's happening.

Why the difference between this recovery and its predecessors? For one thing, it's happening at a time when almost the entire private-sector workforce is nonunion - 93.1 percent, according to the Bureau of Labor Statistics, the highest level of nonunion employment since some time in the 19th century, before such record-keeping began. Absent unions, workers are dependent entirely on management's willingness to share their increased revenue with their employees. And absent unions, apparently, no such willingness exists.

We didn't arrive at this predicament accidentally. Since the early 1980s, when General Electric's widely admired chief executive, Jack Welch, declared that the primary goal of the corporation was to increase shareholder value, America's corporate managers have been faithfully rewarded for treating their employees as necessary - or unnecessary - evils, to be shed whenever possible, or replaced by foreign or temporary workers, and most certainly not allowed to form unions or receive wage increases. Thirty years later, this form of shareholder capitalism has swept the field of nearly all opposition, with results - chiefly, the eclipse of the decent-paying job - that grow more glaring with each passing day.

The decline in good jobs may well be a factor in the sentiment toward worker rights that's emerged since Wisconsin Gov. Scott Walker declared war on his state's public employees. A number of polls conducted since the conflict emerged have shown that, by a two-to-one margin, the American people support public employees' right to bargain collectively - a response that pleasantly surprised many longtime union supporters and that has emboldened them to plan recall campaigns against Walker and kindred union-bashers.

But the decline in good jobs also complicates President Obama's reelection prospects. Economic recoveries have always been good news for presidents seeking another term. But a recovery in which relatively few Americans share in the bounty is something new under the electoral sun. When shareholder capitalism triumphs, neither workers nor voters feel notably upbeat. Incumbents - the president most especially - beware.

meyersonh@washpost.com

Think Thousand Year Reich. This is what Hot Tub Tom Delay and Newt and all the K Street and C Street boys were up to and they haven't given up on their American dream of unilimited power.

How the Oligarchs Took America:Creating a country of the rich, by the rich, and for the rich.

Part 1 of 4 parts

Like biting into a triple decker, this is digested best in parts. Meanwhile, prepare to pass the amunition.

By Andy Kroll Thu Dec. 2, 2010 2:45 PM PST of Mother Jones.

There is a war underway. I'm not talking about Washington's bloody misadventures in Afghanistan and Iraq, but a war within our own borders. It's a war fought on the airwaves, on television and radio and over the Internet, a war of words and images, of half-truth, innuendo, and raging lies. I'm talking about a political war, pitting liberals against conservatives, Democrats against Republicans. I'm talking about a spending war, fueled by stealthy front groups and deep-pocketed anonymous donors. It's a war that's poised to topple what's left of American democracy.

The right wing won the opening battle. In the 2010 midterm elections, shadowy outside organizations (who didn't have to disclose their donors until well after Election Day, if at all) backing Republican candidates doled out [4] $190 million, outspending their adversaries by a more than two-to-one margin [4], according to the Center for Responsive Politics. American Action Network, operated by Republican consultant Fred Malek and former Republican Senator Norm Coleman, spent $26 million; the US Chamber of Commerce plunked down $33 million; and Karl Rove's American Crossroads and Crossroads GPS shelled out a combined $38.6 million. Their investments in conservative candidates across the country paid off: the 62 House seats [5] and six Senate seats [6] claimed by Republicans were the most in the postwar era—literally, a historic victory.

Knocked out of their complacency, no longer basking in the glow of Barack Obama's 2008 victory, wealthy Democrats are now plotting their response. Left-wing media mogul David Brock plans to create an outside group dubbed American Bridge in response to Rove's Crossroads outfits that will fight in the trenches of 2012 campaign spending. Many more outfits like Brock's will surely follow, as liberal and centrist Democrats brace for a promised $500 million onslaught by the Chamber of Commerce and others of its ilk.

Even the Obama administration, which shunned outside groups in 2008, has opened the door to a covert spending war. The Democrats will now fight fire with fire. "Is small money better? You bet. But we're in a fucking fight," Democratic strategist and fundraiser Harold Ickes told me [7] recently. "And if you're in a fistfight, then you're in a fistfight, and you use all legal means available."

The endgame here, of course, is non-stop war. No longer will outside groups come and go every two years. Now, such groups will be running attack ads, sending out mailers, and deploying robo-calls year-round in what is going to become a perpetual campaign to sway voters and elect friendly lawmakers. "We're definitely building a foundation," was how American Crossroads president Steven Law put it [8].

This is what nowadays passes for the heart and soul of American democracy. It used to be that citizens in large numbers, mobilized by labor unions or political parties or a single uniting cause, determined the course of American politics. After World War II, a swelling middle class was the most powerful voting bloc, while, in those same decades, the working and middle classes enjoyed comparatively greater economic prosperity than their wealthy counterparts. Kiss all that goodbye. We're now a country run by rich people.

Not surprisingly, political power has a way of following wealth. What that means is: you can't understand how the rich seized control of American politics, and arguably American society, without understanding how a small group of Americans got so much money in the first place.

That story begins in the late 1970s and continues through the Obama years, a period in which American policy has been so skewed toward the rich that we're now living through the worst period of income inequality in modern history. Consider the statistics: 50 years ago, the wealthiest 1% of Americans accounted for one of every 10 dollars of the nation's income; today, it's nearly one in every four. Between 1979 and 2006, the average post-tax household income (including benefits) of the wealthiest 1% increased by 256%; the poorest households saw an increase of 11%; middle class homes, 21%, much of which was due to the arrival of two-job families.

Tax guru David Cay Johnston recently crunched [9] new Social Security Administration data and discovered an even starker divide. On the one hand, the number of Americans earning a steady income declined by 4.5 million between 2008 and 2009, and the average wage in the US dipped by 1.2%, to $39,055. On the other hand, the average wage among Americans earning more than $50 million per year was $91 million in 2008 and $84 million in 2009.

Harvard University economist Lawrence Katz put the situation Americans now find themselves in this way [10]:

"Think of the American economy as a large apartment block. A century ago—even 30 years ago—it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most."

Let's call those select few in the penthouse the New Oligarchy, an awesomely rich sliver of Americans raking in an outsized share of the nation's wealth. They're oil magnates and media tycoons, corporate executives and hedge-fund traders, philanthropists and entertainers. Depending on where you want to draw the line, they're the top 1%, or the top 0.1%, or even the top 0.01% of the population. And when the Supreme Court handed down its controversial Citizens United decision in January, it broke the floodgates so that a torrent of anonymous donations from this oligarchic class could flood back down from the heights and inundate the political lands below.

Coming next, Part 2: The 30 Year War.

Co-pays and deductibles don’t work (except to make you pay more)

This is not really surprising to me. People obsessed with so-called “market solutions,” which often should better be called “artificial market solutions,” are always trying to devise clever incentives to accomplish desired outcomes. The notion is that everyone is selfish, and will do certain things if there is a monetary reward for doing it. A classic timely example is merit pay for teachers, which is based on the premise that without monetary incentives, teachers are fat and lazy doing less than their best work. The advocates, of course -- think Bill Gates, Michelle Rhee, Barack Obama, Arnie Duncan and the guy who prodcuced the manipulative propaganda film “Waiting for Superman” -- know virtually nothing about teaching or or the people who choose it as a career. Sure, everyone likes money and all other things being equal, more is better. But how many teachers do you know who chose to teach in order to make a lot of money? We know the answer, which destroys the heart of the merit pay advocates’ argument.

But I digress (and merit pay is a topic that deserves a lot of skeptical attention in its own right). This post is supposed to be about how co-pays and high deductibles, instead of discouraging people from over-using medical services) end up having the opposite effect from what the so-called “market solution” was intended to accomplish -- building in monetary incentives not to use the services. In fact, where its effect was studied, costs went up.

I have never been one who thinks our cost problems come from patients constantly seeking medical attention -- how many more people like to stay as far away from doctors as they can except when they shouldn’t -- or from doctors cavalierly ordering tests they don’t think are necessary. Here is what blogger James Kwak at Baseline Scenario had to say about the observations of an expert, Atul Gawande, who reported on this on NPR:

One refrain you heard incessantly during the health care reform debate was that we have high health care costs because of overconsumption and we have overconsumption because people don’t bear a high enough share of their marginal health care costs, so the solution is to increase copays and deductibles. This is what Economics 101 would tell you: people respond to incentives. But Gawande discussed one large company that tried this year after year, but only saw their costs going up. The problem was that while most members responded to the higher copays and kept their costs more or less steady, the 5 percent of members who generated 60 percent of the costs behaved differently. Or, rather, they also reduced consumption (of doctor’s visits and prescription medications), but as a result they often had catastrophic outcomes. These were people with heart disease on cholesterol-lowering medications, and when they went off their medications they ended up in the hospital with heart attacks and then with congestive heart failure.

If incentives worked on this level, we should have solved the problem already. Employers all want to bring health care costs down, so if any insurer could bring health care costs down they would have a competitive advantage, and so insurers should be trying to bring health care costs down. But it’s not working. . . .

Another way of looking at the problem is to note that there is no one who is trying to brings costs down directly. Sure, insurers try to do it, but they do it through the types of monetary incentives that economists love: higher copays, lower payments for various procedures, etc. But that’s not actually what most companies do when they have a cost problem. . . . You go and figure out what the problem is and you engineer a solution, whether by redesigning the manufacturing process, reengineering the product to use cheaper parts, negotiating lower wage costs, negotiating lower input costs, or something else. That’s how you solve most problems in the business world — not by tweaking some clever incentive scheme. . . .

In the few examples that Gawande discusses, it results in cost reductions on the order of 20 percent with better outcomes. It seems that for the people who consume the most health care dollars, you can save money simply by focusing on giving them better care — because right now their big problems are things like coverage gaps that prevent them from getting basic care, not being on the right medications, and ending up in the emergency room for catastrophic problems. . . .

That certainly makes sense to me. As soon as you hear someone trying to inject “market principles” through money incentives, watch your wallet. Chances are, it’s an artificial market solution that is more problem than solution.

Nuclear safety

I know I've posted about this before, but in light of the recent tragic problems with nuclear power plants in Japan, it occurred to me that it might be worth revisiting events of long ago that converted me from a supporter of nuclear power to a skeptic.

Roughly thirty years ago, I was working as an economic expert on an anti-trust case involving pipe snubbers for nuclear reactors (Barry-Wright v. ITT-Grinnell et al). Pipe snubbers are essentially shock absorbers, designed to protect the miles and miles of piping in nuclear plants from earthquake damage. The snubbers need to allow the pipes to expand and contract as they heat and cool but still prevent them from swinging back and forth too wildly when earthquake tremors shake them.

Design engineers specify the exact position and placement of each snubber in the plant so as to maximize their effectiveness in protecting the pipes from damage, and it is essential that the snubbers are located exactly as specified in the plant designs.

At the time I was working on this case, there were two types of pipe snubbers; a) hydraulic snubbers, and b) mechanical snubbers, made principally by Pacific-Scientific. Hydraulic snubbers were much like the hydraulic shock absorbers found in your car, with a piston and a hydraulic cylinder to resist and cushion sudden shocks. Mechanical snubbers were more like the springs in your car.

Hydraulic snubbers were used in the earliest plants, but as the years went by, it became clear that the high radiation caused the hydraulic seals to break down, resulting in leakage of the hydraulic fluid and consequent failure of the snubber. In fact, in some plants, more than half of the hydraulic snubbers had been found to have failed. Because of this, many older plants were being retro-fitted with mechanical snubbers, and designs for newer plants called for mechanical snubbers in favor of hydraulic snubbers.

In the course of trying to define the size and nature of the market for these devices, I was conducting a survey of every existing and proposed nuclear plant in the country to determine the number and type of pipe snubbers used in or proposed for each plant.

Early in my investigation, I interviewed a construction supervisor at one of the plants then under construction in the South. As I was discussing the supposed superiority of mechanical snubbers over hydraulic snubbers with this gentleman, he asked me skeptically if I had ever spent any time at a nuclear plant construction site. I said I hadn't.

“Well,” he said, looking at me as if I were still wet behind the ears, “the first thing you have to know is the reality of what goes on in the field as opposed to the theory dreamed up by the plant designers in their ivory towers. Frequently, the engineers will specify a location for a snubber where there is no convenient place to affix it to the wall or ceiling of the building. So, the workers either move it 15 or 20 feet to a more convenient place or, in some cases, they'll drill a hole in the containment wall (a huge no-no) to attach a jig to hold the snubber.”

“But,” I said, “I'm told it's critical that the snubbers be located exactly where the designers specified. The whole design is based on putting the snubbers exactly between the nodes of the standing waves the pipes would experience.”

“Maybe,” the fellow retorted, “but I've worked on five plant sites and I've yet to see an inspector catch a misplaced snubber. But, it gets worse than that. When they are hanging other fixtures in the plants, often the easiest thing for the guys to do is walk on the pipes they've already hung, instead of getting a ladder. In other cases, the guys sit on the pipes while they break for lunch. Many of the mechanical snubbers are not designed to carry a man's weight, and when people walk or sit on the pipes, it bends the springs freezing them in place.”

In other words, many of the mechanical snubbers were broken before the plant was even finished. And, worse than that, the mechanical snubbers break in a locked position, so they can't even accommodate normal expansion and contraction, much less do any effective snubbing in an earthquake. When the hydraulic snubbers break, they usually break in an unlocked position, so the pipes can still move when they expand and contract.

All that seemed bad enough until I called the general counsel for Pacific Gas and Electric (PG&E) to inquire about the snubbers used in the two reactor units at the Diablo Canyon plant. The general counsel put me on a conference call with the site engineer at the construction site, and I explained that I needed to know the number and type of pipe snubbers in each unit.

The site engineeer said, “That's easy. Just I sec, I'll pull the blueprints for the two units, and we'll count them.”

A few minutes elapsed, and he returned to the phone. “Okay, let's see here. Hmmm. Let me see. Hmmm. Something seems odd here. Hmmm. There's something odd here that I'm going to have to check out, so I'm going to have to fax you the information. It might be several days.”

I waited patiently for about a week. Then, one morning in late September or early October, 1981, I picked up my New York Times and read that the pipe snubber design plans for the two Diablo Canyon units had been inadvertently switched. In other words the designs for Unit 2 had been used to build Unit 1 and vice versa. As the Times wrote:

The mix-up that caused the improper placement of supports designed to protect the cooling systems of the two Diablo Canyon nuclear reactors from earthquakes occurred because a single, transparent blueprint was prepared for both, and someone failed to attach instructions to flip it over. The Pacific Gas and Electric Company disclosed today that the plans for installation of mandatory seismic safety supports in its twin reactors were depicted on a single transparency that was supposed to have carried instructions to read one side for one reactor and the other side for the second. The investigation of the construction blunder is part of an inquiry by the Federal Nuclear Regulatory Commission into design errors in the earthquake-safeguard systems at the plant. The plant has been the subject of demonstrations concerning its safety because it is near an undersea fault at San Luis Obispo, Calif. The company alerted the authorities about the errors last Monday.

A couple of days later, the general counsel called me back to apologize for the delay, saying that the snafu with the blueprints being switched would prevent them from giving me the snubber information right away.

I have no way of knowing for sure, but I have always suspected that if I hadn't called PG&E, the Diablo Canyon units might have eventually gone online without anyone knowing that the design plans had been switched. Indeed, less than a month before my original phone call to PG&E, the Times reported that licensing of the plant was imminent and one unit was expected to go on-line in a low power configuration within a month.

All of this has given me a healthy degree of skepticism when the scientists and engineers who design these plants in their ivory towers quote vanishingly small odds of plant failure from various causes. If the Diablo Canyon plant could get as far along as it was without anyone noticing the wrong blueprints had been used, just think how many other smaller errors could have been overlooked.

I'm not necessarily saying that we should refrain from using nuclear power. After all, I'm sure that so far, many more people have been killed by pollution from coal fired electric plants and gasoline propelled automobile engines than from radiation leaks from nuclear plants. Nevertheless, I am convinced that there's no such thing as a fail-safe nuclear design – if it's not the reactor itself, it's the cooling tanks for the spent fuel rods (as we've seen so tragically in Japan). No matter how well designed the protective devices may be, the construction crews building the plants may inadvertently alter them and weaken their effectiveness. For every eventuality anticipated by the designers, there's likely one that they didn't anticipate. For every safety check and maintenance task mandated by regulators, sooner or later some will be missed.

As low as those risks may be, if nuclear plants are sited near major population centers in the United States, sooner or later there is going to be a tragedy of epic proportions, possibly involving millions of people. I'm not sure whether nuclear power is worth that risk. I am sure that we should do many other obvious things first (e.g., using low wattage lighting, fuel efficient appliances, solar and wind power generation, etc.).

Obama gutless once again

From TPM:

The White House will not prominently inject itself into congressional negotiations on Social Security reform until after key legislators in both the House and Senate unveil their plans to reduce projected long-term deficits, according to administration officials.

I'm sure Geithner and his banking buddies love the idea of private accounts.

Just one war more

I'm waiting for someone to finish that lyric to fit the tune of "Just one more day" from Les Mis.

On the serious side, I'm very much on the fence on this one. Certainly Ghadaffi (or however you want to spell it. I've seen about 15 versions in the press) is no sweetheart. Unfortunately, however, I fear we (meaning the coalition) waited about a week too long and that the rebellion is already crushed and won't be able to rise again in the near term. I hope I'm wrong about that, but if I'm right, we're stirring up a very ugly brew with very little hope of finding it palatable when we pause to take a sip.

Is this the Change we can believe in?

From the DC underground:

Highly recommend Inside Job which we got from Netflix. This film truly deserves the Academy documentary award that it recently received. The DVD of the film was interesting in that it contained the director's comments and in depth deleted scenes. The one with Elliot Spitzer was particularly interesting in that he said that the mess that was created was not due to a lack of regulation but due to a failure of the regulators to act.

After watching this film and its message that the financial mess was a bipartisan effort with Republicans in the lead but Democrats being co-opted supporters. All those University economics/ business school professors from Columbia and Harvard like Obama advisor Larry Summers that made lots of money from this con-game makes you a skeptic of the whole system. Obama surrounds himself with advisors like Tim Geithner who approved government run AIG paying out $16 billion to Goldman at 100 % on the dollar without asking Goldman to take a discount on its CDS gambling. After watching this film, is it any surprise that the Obama administration has not moved to prosecute any of the evil doers?

In the savings and loan scandal of the late 1980s and 1990s, 1000 bank executives went to jail. Not a single one now has gone to jail even though the crimes and money involved were much bigger. We need Elliot Spitzer back in NY.

1. Relative to the criticism of the Obama administration in this film, I attach some excerpts from today's Post about Obama backing nuclear power:

"Some critics have charged that Obama's support for nuclear power can be traced to his political rise in Illinois, home to nuclear giant Exelon.

Those connections "run pretty deep," said Kevin Kamp, with the watchdog group Beyond Nuclear. "That begins to explain his policy."

Exelon has had ties to some of Obama's closest advisers.

David Axelrod, the president's longtime political strategist and former White House adviser, co-founded a consulting firm that worked for Exelon, though Axelrod said Friday he currently has no private clients.

Rahm Emanuel, Obama's former chief of staff and now Chicago's mayor-elect, helped broker the deal that created Exelon when he worked at the investment bank Wasserstein Perella.

Exelon's political action committee and its employees have given more than $340,000 to Obama's congressional and presidential campaigns over the years, including $4,300 from Exelon chief executive John Rowe, according to Federal Election Commission records.

Is this the Change we can believe in?

PS. Yesterday Bank of America's Countrywide unit got court approval for a $34 million settlement of a lawsuit that it overcharged for mortgage insurance. The homeowners alleged that Countrywide collected more than $892 million in mortgage insurance premiums without ever paying out a single penny. Nice money isn't it?

Countrywide denies any wrong doing. Countrywide and CEO Angelo Mozilo were at the epicenter of the subprime mess and were essential to creating it.

Tax Reform

I have a tax reform proposal that will, I'm sure, warm the hearts of all Republicans. The proposed "income tax" is as follows: the annual tax will be $100,000 less 50% of your taxable income. Hence, a person making $10,000 a year would be taxed $94,000. A person making $50,000 a year would be taxed $75,000. A person making $100,000 would be taxed $50,000. A person making a million would get a government subsidy of $400,000. And so on... After all, it's the little people who create all the expense for the government. They should pay for the services they receive. It's the BIG people who create the wealth. They should be encouraged through subsidies to do more wealth creation (for themselves, of course).

On second thought, I'm not sure this tax system is much different from the one we already have.

Oh well...

Reagan and Churchill, radical leftists

http://www.theatlantic.com/politics/archive/2011/03/ronald-reagan-loved-unions-and-collective-bargaining/72633/

In 1980, Ronald Reagan proclaimed, "Where free unions and collective bargaining are forbidden, freedom is lost!"

Why does Scott Walker hate what Ronald Reagan stands for?

I'll bet one of Scott Walker's heroes from history, as with most conservatives (or perhaps more accurately, people who claim to be conservatives), is Winston Churchill. And what did Churchill consider his finest domestic accomplishment? The National Health Service?

How hard is it to take today's Republicans seriously when they claim as heroes historical figures who would consider them incredibly stupid?

Libertarians!

Here's a comment I entered on another website to a post relating to Arnold Kling, an economist (MIT Ph.D., in fact) at the libertarian Cato Institute:

Off topic, but seeing the word "libertarian" sets me off. It's a funny thing about libertarians (as Kling says he is): in an exercise of their liberty to vote and express their opinion, an overwhelming majority of Americans have expressed their desire to have the Federal Government, our government, maintain a system set up like Social Security, one that through legally-defined benefits eliminates the risk of a down market in equities at the time of retirement (a risk a private 401 K account typically would have). They have consented to let a payroll tax be pulled out of their paychecks (and matched by employers), and in answer to the libertarians' knee-jerk reply that people should have the right to participate or not in the system, the overwhelming majority has consented to let that system serve its primary public purpose, which is minimizing or eliminating poverty in old age when a paying job is difficult to find or impossible to perform. They would prefer that the system not allow some people to opt out and make bad bets on a fluctuating market, and then come begging for help when they are old. They would prefer not being forced to make a choice when retired of feeling like a jerk for saying about their fellow seniors that it "serves them right, they had their chance" -- and letting them starve in the streets -- or reducing their own income.

So the overwhelming majority of the people in the exercise of their liberty want this system to be run by our government. However, solely from ideological beliefs that government is inherently bad, libertarians want to deny Americans the freedom to have the government do what they want it to do -- and declare their intention to use the power of government to force Americans to give up what the overwhelming majority of them want.

Explain the discrepancy, Mr. Kling. I’m sure you’ll say there isn’t one, but it sure looks hypocritical to me for someone who professes to place “liberty” above everything to deny the overwhelming majority of Americans to exercise their own liberty to have and support a Social Security system. Why should your desire not to have something done by the government override the majority who want the government to do it?

Democracy is only okay if you are Republican

For some reason, nobody seems to be paying attention to the Republican power grab that's taking place in Michigan. It goes way beyond anything that Gov. Walker has tried in Wisconsin, but if a tree falls in the forest and no one is around to see it ...

From Forbes, no less:

Perhaps lost in the Wisconsin shuffle is the story of what exactly is happening in Michigan. Newly elected Republican governor, Rick Snyder, is set to pass one of the most sweeping, anti-democratic pieces of legislation in the country – and almost no one is talking about it.

Snyder’s law gives the state government the power not only to break up unions, but to dissolve entire local governments and place appointed “Emergency Managers” in their stead. But that’s not all – whole citiescould be eliminated if Emergency Managers and the governor choose to do so. And Snyder can fire elected officials unilaterally, without any input from voters. It doesn’t get much more anti-Democratic than that.

Except it does. The governor simply has to declare a financial emergency to invoke these powers – or he can hire a private company to declare financial emergency and take over oversight of the city. That’s right, a private corporation can declare your city in a state of financial emergency and send in its Emergency Manager, fire your elected officials, and reap the benefits of the ensuing state contracts.

The ultimate ultimatum

I see that the Republicans in Wisconsin have stripped the 14 Democratic senators of their rights to vote in Senate committees. I see that Republicans in Washington have told Obama that they will block any and all cabinet appointees until and unless Obama capitulates on all fronts with their demands. I see all this, and I wonder what is the next likely step.

Hell, why not go for broke, you Republicans? Threaten to shut down the government permanently unless Obama and Biden both resign, thereby making Boehner president. "You, Mr. President and Mr. Vice President, have the choice. Either watch America be destroyed or resign and let us take over."

If they can't have bread, feed them I-Pads

President of the Fed. Reserve Bank of NY (paraphrased): "If they can't have bread, feed them I-Pads."

What is Hammering the Middle Class

Here is an insight by Peter Steinfels (co-director ofthe Fordham University Center on Religion and Culture, a university professor at Fordham ) .

Jacob S. Hacker of Yale and Paul Piersonat Berkeley collaborated with Hacker on a study of the Republican Party. In Winner-Take-All Politics are proposing a new narrative for understanding the past three decades of our democratic life, a “thirty-year war” in which a long slow struggle through much of the twentieth century for greater equality of income and wealth has been reversed. And what a reversal!

“From 1979 until the eve of the Great Recession, the top 1 percent received 36 percent of all gains in household income.” Between 2001 and 2006, that top 1 percent amassed over half the gains, while the median income of nonelderly households actually fell. In fact, the top one-tenth of that top 1 percent “received over 20 percent of all after-tax income gains between 1979 and 2005, compared with the 13.5 percent enjoyed by the bottom 60 percent of households.” The total of new income, in other words, going to roughly 300,000 people was one and a half times the size of the total going to roughly 180 million people!

In the past four decades, our democracy has become the most economically unequal nation in the advanced world. The rich and super-rich have shares of national income and wealth comparable to banana republics. Social mobility from one generation to the next is now lower in the United States than in every affluent nation studied except (very barely) Britain and Italy. Meanwhile the working and middle classes have either fallen behind or kept up by going into debt and having more family members work longer hours. We currently face millions of lost homes and 25 million Americans suffering from some form of prolonged or even permanent joblessness.

How did this happen? After all, political thinkers have traditionally assumed that democracy was inherently inclined toward equality, if not even dangerously biased toward leveling. The answer, Hacker and Pierson suggest, is organization. Voters are not dumb, but they can hardly track the fine print of things like financial regulation or health-care reform. Without organizations to monitor, articulate, publicize, and advocate policy choices, voters remain in the dark or fall prey to the most inflammatory bumper-sticker notions.

The real game-changer in recent politics, they argue, was not an election but the mobilization of business interests in the 1970s and the concomitant economic radicalization over the next two decades of the Republican Party. During the seventies, the National Association of Manufacturers moved to Washington; the Business Roundtable was founded; the Chamber of Commerce tripled its budget; firms with registered lobbyists went from 175 to 2,500 and corporate PACs from a few hundred to 1,200. The American Enterprise Institute and the newly founded Heritage Foundation soon had budgets more than equaling that of the venerable liberal Brookings Institution, and they devoted far more effort to PR and promoting free-market ideology.

The result? Two years before the “Reagan Revolution,” a Democratic president with a Democratic Congress tried to establish an office giving consumers an advocate in federal regulatory activities, tried to pass a measure supporting union organizing, and tried to reform the tax code. Outspending and outlobbying the Carter administration and its allies, coalitions of business groups shot down the first two proposals and turned the last into a dramatic tax cut for the wealthy, setting the stage for Reagan’s tax-cutting bill in 1981.

In this narrative, another moment of truth was not so much Clinton’s recovery of the White House for Democrats in 1992 as the 1990 Republican rebellion. Then Newt Gingrich and his tax-cutting allies slapped George H. W. Bush in the face, rejecting their own president’s budget and sending a signal to Republican moderates about who was in charge. A decade later George W. was not going to make that mistake. The Republicans completed their transformation to a cut-taxes-for-the-wealthy-and-deficits-be-damned party that Ronald Reagan would scarcely have recognized and that, indeed, a number of his old policy advisors have denounced.

Yet even Bush II could not escape that new development. In 2008, when he begged Congress to pass the TARP and prevent financial meltdown, two-thirds of House Republicans voted no and the bill was defeated. That triggered the greatest single-day loss (777 points) in the Dow’s history. A panicked House quickly passed a revised version, but the Bush administration still could not get a majority of Republican votes.

If Republicans have been the perpetrators, Democrats have been the enablers. Struggling to remain competitive by courting similarly conservative or wealthy sources, they went along with GOP tax cuts, backed deregulation during the 1990s, and blocked measures that could have added consumer protection or restrained executive pay. By 2008, Democrats finally matched Republican fundraising. But all this has come at a cost: more than a quarter-century during which, according to Hacker and Pierson, “the organizational landscape of American politics has tilted dramatically.” They report that during the debate on the 2001 tax bill “the AFL-CIO had only a single lobbyist working quarter-time to fight tax cuts for the wealthy.”

Nor do the media fill the vacuum. During that 2001 tax-cut debate, Hacker and Pierson found that USA Today, the country’s largest-circulation daily paper, “printed seventy-eight stories about the tax cuts, many of them on the front page.” Unfortunately, “only six were primarily about the content of the legislation” rather than the political jockeying. “Only one was about the distributional effects of the proposed changes.” But isn’t this embarrassing—running on about the rich? So nineteenth-century! So Karl Marx! So positively class warfare! So biblical! What difference does it make if a tiny slice of the population has oversized yachts, extravagant parties, expensive art collections, and more homes than they can keep track of without help? Does this threaten anything besides envy?

The question practically answers itself these days. That population slice has just garnered a $120 billion payoff for not blocking benefits for the long-term unemployed and/or triggering higher taxes on the middle class. Millions of Americans have been plunged into insecurity or misery because of the deregulation and legal and financial impunity acquired by that rich slice. The constraints on solutions for virtually any of the grave domestic problems facing the nation—growing deficits, energy dependence, environmental threats, climate change, jobs shortages, deteriorating infrastructure, health-care costs, pension shortfalls, and so on—are set by the ability of that slice’s money to influence elections. And its high-power lawyers and lobbyists can fiddle with the details of any complex policy.

The Obama administration made one accommodation after another, in appointments, in bailing out the too-big-to-fail, and in preemptive deals with sectors of the medical industry. Nonetheless, the Chamber of Commerce spent $145 million in 2009 to kill health-care reform, financial regulation, and climate-change bills—and then even more in 2010 to defeat Democrats at the polls and assure the continuation of the Bush tax cuts for the rich. Hacker and Pierson remind us of the obvious: the power of money is exerted not only to get government to do things but also to keep government from doing things, especially from updating safeguards when new technologies or inventions emerge, whether expensive therapeutic devices, risky executive pay practices, or Wall Street’s concoction of exotic financial instruments. This veto on effective government action has been greatly abetted by the now-entrenched requirement for a sixty-vote supermajority in the Senate to pass almost any substantial piece of legislation, a quasi-constitutional amendment that most of the public doesn’t understand.

Hacker and Pierson’s account of the past three decades of “organized combat” suffers from some significant gaps. They say almost nothing about race, immigration, war, terrorism, and international tensions, all so potent in channeling insecurities, anxieties, and patriotic sentiments. They take only passing note of the culture wars and the emergence of faith-based conservatism on the right and a new, “postmaterialist” liberalism on the left. The latter concentrated on environmentalism, abortion, women’s issues, gay rights, and civil liberties but “almost never focused...attention on the economic issues that most powerfully affected the working and middle classes.” It is left to readers to factor these important developments into Hacker and Pierson’s fundamentally economic analysis. Doing so will widen and deepen the story of the “thirty-year war” but not, I believe, undermine the authors’ thesis.

Their book ends with the requisite call to arms, to rectify “the enormous imbalance in organizational resources between the chief economic beneficiaries of the status quo and those who seek to strengthen middle-class democracy,” or, as they say a few pages later, to develop “groups that can provide a continuing, organized capacity to mobilize middle-class voters and monitor government and politics on their behalf.”

Reconsideration of Key to job growth

Key to job growth, equality is boosting tradable sector of economy

By Steven Pearlstein
Washington Post Staff Writer
Saturday, March 12, 2011; 6:02 PM

When Professors Spence and Hlatshwayo looked at what happened between 1990 and 2008 - a period of rapid globalization - two things stood out. One was that all the job growth came pretty much in the non-tradable activities, in particular government and health care, while across wide swaths of the tradable manufacturing sector, jobs declined significantly. The other thing they noticed was that in terms of economic value-added - the "output" that is measured by GDP and generally correlates with income - the tradable sector experienced a slight edge.

Put the two together - the very unequal employment growth and nearly-equal output growth - and what you get is an economic tale of two cities, one that is growing in terms of jobs but not income, another that is growing income but not jobs. In short, a recipe for increasing inequality and social and political polarization.

Find a way to tilt the market incentives so that businesses - in particular, big multinational corporations - are more willing to invest in the physical and human capital necessary to make American workers more productive, rather than simply outsourcing work overseas. ..An example of how this might work from the 1980s, was when "voluntary" auto-import quotas negotiated with the Japanese led a number of foreign companies to establish assembly plants in the United States. Although the wages paid by the "transplants" weren't up to the union wages paid by unionized American firms, they were higher than those paid in Asia at the time, and certainly above those in the Southern states where the factories were located. But thanks to extensive training and investments in the latest production machinery, the foreign automakers found they could produce quality cars at competitive prices right here in the United States. Without that little "nudge" provided by the government, the American auto industry might have gone the way of shoes and textiles.

There is a name for such "nudges" - it's called industrial policy. There's no question that sometimes governments get it wrong. There's also no doubt that governments can get it right, whether it be the lighter touch of European countries such as Germany and Finland or the heavier hand exercised by economic policymakers in China, Korea and Singapore.

What's pretty clear, however, is that continuing to do what we've been doing - pushing down wages and taxes in the hope that free markets will somehow solve this problem - is folly. Spence and Hlatshwayo have demonstrated, the future does not lie in further expanding employment in health care, government, restaurants and real estate. Our urgent challenge is to reorient the tradable sector of the economy, services as well as manufacturing, so that it creates not just wealth for investors and jobs for PhDs and MBAs, but jobs for middle-class Americans as well.

Based on Michael Spence and Sandile Hlatshwayo, "The Evolving Structure of the American Economy and the Employment Challenge," will be published soon by the Council of Foreign Relations.

Putting an end to Wall Street's 'I'll be gone, you'll be gone' bonuses

Read about the guys who made out in the big meltdown and created the economic mess we're in . Left unsaid was that all this 'clever financial engineering with collaterized mortgage debt obligations and credit default swaps' was made possible by Sen. Phil Gramm ( John McCain's economic advisor) bill in 1998 that repealed the Glass Steagall Act. This allowed the clever Wall St Investment Bankers to create these 'clever' financial engineered products.

By Barry Ritholtz
Saturday, March 12, 2011; 6:08 PM

Want to reform Wall Street bonuses? Try clawbacks. That's right. We need to make executives personally liable for their reckless bets if we want to remove the risk for taxpayers. That means giving shareholders, boards of directors and regulators the ability to "clawback" past gains when new speculations go horribly wrong.

The Federal Deposit Insurance Corp. and the Securities and Exchange Commission have floated proposals on performance-based compensation for traders and bankers. Firms that have more than $1 billion in assets would have to disclose incentive-based bonuses. The largest firms (those with more than $50 billion in assets) would have to pay at least half of their bonuses in compensation that is deferred for three years. The SEC could, in theory, deny plans that encourage excessive risk-taking or outrageous bonuses. While this approach is well-intentioned, Wall Street has proven itself especially adept at circumventing compensation laws. Rules that seek to limit bonuses will likely shift compensation more to salary and commissions.

Private profit, public risk

Understand this: I do not care what shareholders and their boards pay the people who create enormous value. Whether it's a chief executive such as Steve Jobs of Apple or a hedge-fund manager such as Steve Cohen of SAC Capital, the people who are paid handsomely for creating incredible profit are not the problem.

On the other hand, many others received huge bonuses for bankrupting their firms and driving the economy into recession. Their job performance should be the subject of your ire and of regulators. They brought the world to the abyss of economic collapse because they had incentives to do so.

If that sounds unbelievable, consider:

l Subprime mortgage brokers who were paid based on the quantity - not the quality - of their mortgage writing. The loans lenders sold to Wall Street to be securitized carried a 90-day warranty. Hence, the brokers' jobs were to find people who would make the first three monthly payments of a 30-year loan. After that, it was no longer their concern.

l Derivative traders who knew that what they were buying was going to blow up. In 2007, I published an e-mail from one such trader who wrote, "We knew we were buying time bombs." The motivation was deal fees and bonuses. Once the derivative machinery was in motion, they had to "keep buying collateral, in order to keep issuing these transactions."

l Collateralized debt obligation managers whose job it was to assemble pools of mortgages, yet had little or no understanding of the underlying loans. The salespeople, traders and managers working in the mortgage sector had incentives that were upside down. The greater the risk they took, the more they were paid. But brunt of those risks was on third parties, never themselves. It was shareholders and taxpayers who shouldered them.

This is backward. The people who should bear the downside are the ones who have the upside. Instead, the system was perversely one of private profit but public risk. Note that it wasn't merely the staff that engaged in this reckless risk-taking. At investment banks, senior managements were so reckless that they managed to destroy their firms. For this act of gross incompetency, they were rewarded with vast bonuses in cash and stock options. By the time their firms collapsed, they had cashed out hundreds of millions of dollars in legal booty.

Consider:

l Lehman Brothers Chairman and CEO Richard Fuld Jr. made nearly a half-billion - $490 million - from selling Lehman stock in the years before it filed for Chapter 11 bankruptcy.

l Countrywide Financial (now owned by Bank of America) founder and CEO Angelo Mozilo cashed in $122 million in stock options in 2007; His total take is estimated at more than $400 million dollars.

l Stanley O'Neal, who steered Merrill Lynch into financial collapse before it was taken over in a shotgun wedding with Bank of America in 2008, was given a package of $160 million when he retired.

l Bear Stearns former chairman Jimmy Cayne, rescued by a $29 billion Fed shotgun wedding to JPMorgan Chase, received $60 million when he was replaced;

l Fannie Mae CEO Daniel Mudd received $11.6 million in 2007. His counterpart at Freddie Mac, Richard Syron, brought in $18 million. In 2008, the two were forced into government conservatorship.

Add to this list Washington Mutual, Wachovia, IndyMac and other bankrupted firms whose senior management took a boatload of money and ran.

Nice work if you can get it - and still live with yourself.

Blame game

How did this happen? Some people blame excessive greed; others say crony capitalism is at fault. I believe we can sum it up in one word: liability. In recent years, there was no legal liability for extreme recklessness. Take a healthy company, roll the dice and if it comes up snake eyes, all you lose are your unvested stock options. Most management does not have significant capital at risk. The cost for pushing a healthy firm into insolvency by excessive risk-taking is some snickering at the golf course. In terms of lost monies, it is minimal.

You might be surprised to learn that it was not always this way. Before these firms went public in the 1970s and 1980s, bank management had full liability for their firm's losses. During the era of Wall Street partnerships, if employees were so reckless as to lose billions of dollars, the partners were on the hook for the full amount. This meant that after the firm was liquidated to pay its debts, the partners' personal assets were next on the auction block: Houses, cars, boats, even watches were sold to satisfy the debt. Not surprisingly, partnership liability worked wonders in focusing attention on taking appropriate risks. Once a bank or investment firm went public, this liability shifted from management to the company's stockholders and creditors (namely, the bond holders). Add to this the rise of stock-option compensation, and you have a recipe for extreme short-termism.

In his book "The Accidental Investment Banker," Jonathan Knee described this mercenary attitude with the phrase "IBGYBG." As bankers signed off on increasingly risky deals, IBGYBG meant "I'll be gone, you'll be gone" by the time the really messy stuff hit the fan. Call it what you will - smash and grab, take the money and run. Without partnership liability or clawback terms, IBGYBG was perfectly legal.

The simple solution to IBGYBG is legal liability. How this works: There must be a civil liability for recklessness that caused a collapse or loss. Liability for loss accrues when a trader knew and disregarded the risk or, failing that, should have been aware of the risks they were taking. The ability to clawback past gains in the event of a subsequent collapse should accrue to the board of directors, the shareholders and the SEC. It is too late to force the big banks and investment houses to go private and become partnerships again. However, we can return the liability for their recklessness back to where it belongs - on the traders, fund managers and executives who profited from extreme risk-taking.

Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of "Bailout Nation" and runs a finance blog, The Big Picture