I was the only Editor's Choice on Leonhardt's NYT article

...with the most readers' recommendations:

Time For Bank Creditors to Share the Pain? in Leonhardt's Economic Scene column.

Comment #21.

EDITORS' SELECTIONS April 29, 2009 2:24 pm

Let's not fool ourselves: Obama hired Summers and Geithner. He said to you airily when you soft-balled him that there are others besides the Wall Street Clinton brain trust involved in saving the U.S. economy. Who? Paul Volcker, who was trotted out for a photo op back during President-elect times and hasn't been heard from since?

The idea that the guys who created the destruction are the best for reconstruction is like saying because a fox knows how to kill a chicken he's the best one to keep it alive.

Geithner is bypassing Congress (taxation without representation indeed) by doling out money from the Treasury.

In any case, the idea that printing money out of thin air and shoveling it into the gaping maw of failed institutions will somehow unfreeze credit is belied by a rival publication on 4/20/09 (you'll print this, right, even if I quote another source--I know you've covered this story also):

"According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program."

The former chief economist of the IMF, Simon Johnson, believes that the oligarchs (or "overlords") of the financial institutions have already assumed the reins of government. Basically they own the Treasury.

Witness Geithner's brilliant plan to remove toxic assets with a trowel by subsidizing unregulated, opaque industries like hedge funds/private equity firms to purchase such assets and indemnifying them from any losses. Again, lemon socialism: privatized profits, socialized losses.

Don't be fooled by a pretty face. All that matters is policy. We're already past the tipping point to change the economic paradigm. Banks are reporting profits (who wouldn't, with cheap money thrown at them) and want to wiggle out of their obligations to the shareholders (us).

Let's see if banks represent an opportunity to private capital without a government guarantee. If not, public capital should demand its due. To paraphrase Arlen Specter, "there should be an uprising."


— Kathi Berke, New York City

Recommend Recommended by 13 Readers

Europeans are Noisy and Angry, While Americans Man the Internet Barricades (those Twits!)

I've read a number of articles lately questioning why Americans aren't angry in the face of economic hardship and injustice whereas the Europeans take to the streets. A NY Times article by Steven Greenhouse, their labor reporter, offers a dispiriting narrative between the lines. As opposed to the photo, which actually has the caption "THEM" under a crowd of angry European workers protesting in the streets, the picture of American labor is far more tame and sobering.

One assertion is that our government is more trustworthy.

Greenhouse quotes Leo Gerard, president of the United Steelworkers union, who said, "I actually believe that Americans believe in their political system more than workers do in other parts of the world." He said large labor demonstrations are often warranted in Canada(!) and European countries to presure parliamentary leaders.
I'll come back to him later.

Americans are also proud of their rugged individualism. Mentioned but barely emphasized is the downside of an American society built on individualism as opposed to community: shame. If rugged individualism is the guiding principle of success, then you are solely to blame for your misfortune. Your fate has nothing to do with socio-economic forces, only your own failings.

Greenhouse quotes David Kennedy, a historian of the Depression-era time period up until WWII, who cites a 1940 study by social psychologist Mirra Komarovsky, whose interviews of the Depression-era unemployed found "the psychological reaction was to feel guilty and ashamed, that they had failed personally."

This sentiment is currently borne out in a quote from a wsj.com article about people moving back with relatives because they've run out of money and options. The following anecdote from the story is about Pam Wilson, a 37-year-old social worker who had made $60,000 and shared a home in Kentucky with her mother:

After unsuccessfully looking for work, depleting her $25,000 in savings and exhausting her unemployment-insurance benefits, she realized she and her mother couldn't afford to live on their own. So she made the difficult decision for them to move back to Georgia to live with her two sisters. The four women share the house.

Ms. Wilson and her mother share a queen-size bed. Ms. Wilson cooks and says she sometimes does extra things around the three-bedroom house like making her sisters' bed, or taking out the trash.

"You just want to make sure that you're not perceived as some type of burden or freeloader," she said. When company comes over, she feels like she might be in the way and retreats to her room. She knows she is welcome, but can't help feeling ashamed.

Not only is conflict muted by shame, there's also fear. Not merely of murderous strikebreakers, but of future consequences.

When desperation and anger finally overcame shame during the thirties:

[W]orkers' protests increased in number and militancy. They were fueled by the then-powerful Communist and Socialist Parties and frustrations over continuing deprivation. Workers also felt they had President Roosevelt's blessing for collective action because he signed the Wagner Act in 1935, giving workers the right to unionize.

From Wikipedia:

The National Labor Relations Act (or Wagner Act) is a 1935 United States federal law that protects the rights of most workers in the private sector to organize labor unions, to engage in collective bargaining, and to take part in strikes and other forms of concerted activity in support of their demands.

When WWII was over and relative prosperity returned, fueled by unionization and big government programs like the G.I. Bill, Congress used the left leaning sentiments of those involved in collective action in the thirties during the House UnAmerican Activities Committee and McCarthy hearings as a cudgel to consolidate power against the overblown threat of the Communist menace (not unlike the fearmongering of the Bush-Cheney years). People who joined collective movements in the thirties were branded as traitors and were blacklisted and imprisoned.

Reagan put the final nail in the coffin of unionization by firing all 11,500 air traffic controllers on strike in 1981.

But the numbers tell the story: Last year, American unions engaged in 159 work stoppages, down from 1,352 in 1981, according to the Bureau of National Affairs, a publisher of legal and regulator news.

Many opinionators in Greenhouse's article spout the party line that Americans are more effective in their internet protests, using energy otherwise wasted in angry, noisy demonstrations. However, this belief (that the internet, or virtual activity, is equivalent to collective action) may be a way to divert attention and let the vox populi think they're actually making a difference.

The most hilarious statement in Greenhouse's article comes from Gerard. (See, I told you I'd mention him again. Now go back in the article and find the first mention).

Demonstrations are less needed in the United States, he said, because often all that is needed is some expert lobbying in Washington to line up the support of a half-dozen senators.

If "expert lobbying" is what's needed to right outrageous wrongs, then big corporations must be ecstatic as they pour millions of dollars into campaigns and strategies to shut down the Employee Free Choice Act.

The Act, which would allow workers to join a union automatically upon employment, is discussed succinctly in David Frieboth's article in the Seattle Times. He lays out the competing narrative against the Act (it bars secret elections, it takes away individual choice) and addresses the realities behind the need for the Act. Employers protest that unionization is well-protected under current law. Freiboth politely disagrees.[My apologies to you, David, for taking so much of your content, but I feel your work is invaluable.]

Scare tactics that highlight problems with union intimidation during organizing campaigns are just that — scare tactics — designed to subvert the essence of the issue.

Problem is, the current law that protects workers' freedom to choose to bargain collectively has been perverted. When faced with a union organizing drive, 25 percent of companies fire the "ringleaders," according to the National Labor Relations Board.

Although this practice is technically illegal, the bar for proving union-organizing discrimination is so high and the penalties so low that when workers express a desire to unionize they are, in effect, risking their livelihoods.

In addition, employees who want to form unions are often threatened with plant closings, offered bribes, spied on and intimidated, according to the Center for Economic and Policy Research. The result? Only 8 percent of private-sector workers actually belong to unions, even though 58 percent of U.S. workers say they want a union in their workplace — the highest percentage in 25 years — based upon a report by the independent researcher firm Hart and Associates.

I only hope that President Obama (who voted for the original act while in the Senate) can persuade Congress to resist the lobbying currently muddying the Washington swamp, an activity that a major labor leader says is all that is needed to achieve goals to strengthen labor in a time of escalating unemployment and makeshift Hoovervilles.

Larry Summers Should Be Fired. Now.

The escalating official unemployment rate made the front page of both the Wall Street Journal and the New York Times. Above the fold. It went from 7.6% in January 2009 to 8.5% in March 2009. Many economists predict the jobless rate to rise above 10% by later this year.

The Wall Street Journal article modifies the official rate further:

A broader gauge of unemployment--which counts Americans who want work but quit searching and people who want full-time jobs but settled for part-time work--climbed to 15.6%.

But Larry Summers, the director of the White House's National Economic Council, isn't worried. The stock market has improved. He can see spring coming:

"You couldn't find any sprouts of green. Now while the statistics remain very mixed, you can find some sprouts of green.

But we must be realistic, says he:

Mr. Summers said he expects several more months of payroll declines, noting, "it now appears fairly clear that the economy is going to be losing jobs at a substantial rate for some months to come."

One reason Summers may not be too concerned about unemployment woes, particularly his own, is that also according to today'sNew York Times, he earned more than $5 million last year from the hedge fund D.E. Shaw and $2.7 million in speaking fees to Wall Street firms that received government bailout money:

Last year, he reported making 40 paid appearances, including a $135,000 speech to the investment firm Goldman Sachs, in addition to his earnings from the hedge fund, a sector the administration is trying to regulate.

Mr. Summers's role at the White House includes advising Mr. Obama on whether--or how--to tighten regulation of hedge funds, which engage in highly sophisticated financial trading that many analysts have said contributed to the economic collapse.

It is a sick joke to pretend that the Obama economic team is concerned with Main Street. Summers, despite anything that comes out of his mouth, has worked very hard to preserve the bailiwick of Wall Street.

Back in the waning days of the Clinton Administration, Larry Summers fiercely opposed the regulation of derivatives such as credit default swaps, which are at the center of this man-made economic debacle, according to the blog of The Sunlight Foundation, which is dedicated to transparency/

The chairman of the Commodity Futures Trade Commission (CFTC) Brooksley Born issued a first call for her regulatory commission to have power to oversee financial derivatives.

Her credo was, "An unregulated derivatives market could “pose grave dangers to our economy.”

While previous legislative attempts had been made earlier, Born’s efforts were the most direct and threatening to the financial industry. During an April 1998 meeting of the President’s Working Group on Financial Markets, Federal Reserve chairman Alan Greenspan, Clinton Treasury Secretary Robert Rubin (and later Secretary Larry Summers), and Securities and Exchange Commission (SEC) chairman Arthur Levitt opposed Born’s efforts and attempted to derail her.

Not only did Summers object to the regulation of financial derivatives and credit default swaps, he worked hard with Phil Gramm as the driving force on the Commodities Futures Modernization Act, which exempted swaps and derivatives from regulation by both the CFTC, which had already implemented rules that it would not regulate swaps and derivatives, and the SEC. The final version passed in December 2000, barely a whisper amid the tumult of the 2000 election.

This is the fox guarding the hen house. Unless the U.S. economy gets help from the bottom up instead of the top down, we are in for a long fall. We need someone like a special prosecutor to investigate the causes of this calamity that is only deepening. We don't need the architects of destruction to be in charge.

The Government Investigates U.S. Torturers (the Spanish Government, that is)

Rachel Maddow has been calling for it, along with Jonathan Turley, the constitutional lawyer and MSNBC pundit. What is it? The prosecution of those responsible in the Bush administration for giving a flimsy legal basis for the torturing of thousands of "enemy combatants". Finally, there is going to be an investigation as reported in the New York Times, but it doesn't emanate from the Obama administration. The preliminary moves towards prosecution are coming from Spain.

A Spanish court has taken the first steps toward opening a criminal investigation into allegations that six former high-level Bush administration officials violated international law by providing the legal framework to justify the torture of prisoners at Guantánamo Bay, Cuba, an official close to the case said.

The case, against former Attorney General Alberto R. Gonzales and others, was sent to the prosecutor’s office for review by Baltasar Garzón, the crusading investigative judge who ordered the arrest of the former Chilean dictator Augusto Pinochet. The official said that it was “highly probable” that the case would go forward and that it could lead to arrest warrants.

Clash of Titans

I can feel the swollen monster push of two clashing forces; they're not quite against each other but not quite for. That would be the giant "too-big-to-fail" (TBTF) firms versus Geithner, the Treasury Secretary with his new plan to rein in the companies that dragged the world down into Depression 2.0 and rage-filled violence, at least in Europe.

LONDON — Tempers are flaring across Europe as the economic pain deepens and more people lose their jobs.

On Wednesday, the suburban Edinburgh home of RBS’s ex-chief was damaged.

Just ask Fred Goodwin, the former chief executive of the ailing Royal Bank of Scotland, whose house and car were vandalized early Wednesday. Or Luc Rousselet, the manager of a 3M factory in France, who was barricaded in an office for a second day by workers demanding better severance packages for 110 employees who are being laid off. Or Luc Rousselet, the manager of a 3M factory in France, who was barricaded in an office for a second day by workers demanding better severance packages for 110 employees who are being laid off.

American financial wizards who thought up securitization as a vehicle of greed and convinced themselves (or else didn't care about the consequences-who looks that far ahead?) that the process eliminated risk,actually promoted risk and brought down the houses of cards that was the mighty financial sector. The pile of leverage they created burst. It destroyed trust, killed the credit market, shut down perfectly good companies that couldn't roll over their debt, raised the unemployment numbers like a bottle rocket and drove people from their homes into tents, like the Hoovervilles of the Great Depression. (Isn't it funny how it probably will no longer be known as the Great Depression, just as the Great War just became World War I, one in a series), I quote from yesterday's NY Times:

As the operations manager of an outreach center for the homeless here [Fresno, CA], Paul Stack is used to seeing people down on their luck. What he had never seen before was people living in tents and lean-tos on the railroad lot across from the center.

“They just popped up about 18 months ago,” Mr. Stack said. “One day it was empty. The next day, there were people living there.”

Geithner proposed a new plan to regulate the behemoths. The market is down today. When he unveiled his TALF-on-steroids plan the other day, the market climbed over 400 points. The bold-faced names behind Obama's economic steerage are Wall Street-friendly (Larry Summers, Tim Geithner himself) and the market responds like an EKG. Give us the taxpayer-backup on the worthless ("toxic") securities and we love the thought we'll make trillions. Tell us we have to be reined in and we growl, chomping off big pieces of common equity. Who's running the show, anyway?

Forget the Bread Line, Now It's The Job Fair Line

Floyd Norris, a business columnist for the New York Times, sternly lectured us in his column today that we should grasp the reality of our lost trillions and permanently shrunken economy with attendant extinction of jobs and adapt to a new downwardly trending lifestyle

Okay, I've done that. I'm an intelligent, articulate, multitasking professional with a powerful academic and business background. By August 2007, I knew the economy was going to take a disastrous fall. I took all of my money out of equities and put it in Treasuries. I paid down my debt. I predicted company deleveraging and the shedding of jobs, because cutting labor is the quickest and easiest way to cut costs. I became a consultant, paid for my own health insurance, and tried to adapt to any contingency. I knew how to maximize value without investing capital. Yet I still lost consultant jobs, one after another.

I've had to make plenty of socioeconomic and psychological adjustments to my downward spiral. All I want is hope for new employment. I need and love to work.

Norris is wrong to say that most of us, the "poorer", those losing their jobs, their homes and their equity on an escalating basis, are in denial. We're somewhere mired in the 5 stages of grief: denial, anger, bargaining, depression and acceptance.

In Susan Dominus's article, also in today's Times, illustrates this perfectly with a quote from one Arthur Bernstein, a recruiter from Bramson ORT College who manned a booth at a NYC job fair yesterday where the line for applicants wound its way down a cold, dreary street way before it opened at 11 am. He was trying to drum up students but many of the attendees thrust their resumes at him, hoping for a position.

"This situation," he said to no one in particular, "is really sick."

I got news for you, Floyd. Out here we know the score. It's in DC and Wall Street, those overlapping bubbles, that permanent denial lives on. That's where lifestyles haven't changed even though these are the people responsible for all the destruction. Robert Rubin and Larry Summers blocked the regulation of derivatives during the Clinton administration, yet they've come back to oversee the collapse. Politicians whose hands are in the pockets of financial lobbyists shred any rules that might interfere with permanent employment. They are millionaires. They have free health care. They have large pensions and golden parachutes. The financial institutions are on government life support which allows them to continue their lavish lifestyles.

I hear a lot of heated rhetoric but I don't see any strings attached or iron-clad laws passed against fraud and criminality. The credit rating agencies that gave out the triple-A ratings to the worthless mortgage-backed securities because they were paid by the issuers are still in charge of rating trillions of dollars worth of assets. They are also rewarded for failure.

The overlapping bubbles of DC and finance are sociopathically reinforcing: they are grandiose, and narcissistic without a shred of remorse. And they wonder why there is populist rage. Rage that is nonpartisan.

I am a strong writer. I wanted to be an investigative journalist like Sydney Schanberg or Seymour Hersch, but the Internet with its insatiable desire for free written content (except for consumerreports.com) and its ability to destroy income for dead tree media leaves few openings for someone to make a living. Does Arianna Huffington pay enough for the Huffington Post to do great primary reporting? Or does the Post steal content from other sources ("not stealing, merely aggregating")? Are we in a drive to the bottom, where writers will have to offer the lowest bid for their services? The NY Times used to pay $750 for an op-ed piece. Now it pays $300.

Is labor in a race to the bottom? Will the taxpayer pay private equity and hedge fund firms to take toxic waste off the banks' hands, thus subsidizing systemic risk and perverse incentives? Is the Pope Catholic?

The Financial System's Maze to Defeat You

I don't have automatic bill paying through my bank because I don't trust banks. My last bank, Washington Mutual, failed. Many people had great difficulty extricating themselves from their automatic bill paying with WaMu, and as a consequence, their bills remained unpaid until they were way past due.

I pay the old way: writing a check, putting it in an envelope, and pasting on a stamp (now 42 cents, will be 44 in May). Generally I send out it out days before it's due. For instance, I paid for my el cheapo, desperation bid Daily News subscription on 3/5/09. Due date 3/8. Because they didn't get it until 3/10, they sent out a past due invoice immediately. My check was cashed 3/12. In other words, there is no way to pay bills on time the old-fashioned way. Yet if you trap yourself with automatic bill paying through a possibly zombie bank, you may get hung up with the over-burdened FDIC (527 banks on the watch list and counting) and the difficulty extricating yourself.

The Post Office is cutting back one day a week and raising the cost of its first class stamps in order to remain in business. Those measure impair its service. On the other hand, banks are failing and wise heads say don't connect your account with your creditors.

So what happens? If you have an arbitrage thinking financial company, they will dart out a past due notice with late fees and finance charges eagerly attached without a breather. There's no way they can lose. They're betting against the post office and you can't prove them wrong. I mean, the Daily News is telling me they got my check a week after I mailed it. Imagine what Bank of America could do to leverage the calendar? Their BoA credit card is the only one I use. I have a large credit line and I've invested the card with sentimental value (it's granted through my alma mater). And BoA is first out of the gate. The instant my check leaves my burning fingers, BoA has cashed it. I don't know how they do it. Maybe they've cracked the time-space continuum.

I try not to use my credit card at all. I'm not going to pay extra and risk my credit score. How does this system of logic help stimulate the economy?