Larry Summers on The Huffington Post

Les Leopold: Jobs and Justice: Tie Wall Street Profits and Bonuses to the Unemployment Rate

2009-12-04T06:12:49Z

"I want to be clear: While I believe the government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector." President Barak Obama, White House Jobs Summit

Well, Mr. President, I've got a proposal for you and it won't cost the government a dime. In fact, it will raise money for jobs programs like "Cash for Caulkers."

But first we've got to face up to our jobloss recovery. Unemployment now is 10.0 percent with an overall jobless rate of 17.2 percent (BLS U6). At this pace we may not see full employment again for an entire decade.

President Obama's belief that a "true economic recovery is only going to come from the private sector" doesn't mean much to the 30 million Americans without jobs or the one in four children who are on food stamps. Any job is a "true" job if you can't feed your kids.

But the Administration has boxed itself in by refusing to create jobs directly and by falling in line with the screeching deficit hawks who now control the debate.

To break through, the Administration must focus the nation's growing anger on Wall Street's unwarranted welfare. Obama, Summers and Geithner must back away from their confining strategy of building "investor confidence" first, foremost and always. Instead, of worrying about "true" jobs, President Obama should give voice to the great injustice staring us in the face:

We live in a divided and fractured economy. Wall Street will make record profits and pay out record bonuses as unemployment and hunger hit record highs in the richest country on Earth. This is our new billionaire bailout society with a hollowed out middle class.

Now is the time for a policy that directly connects the well-being of Wall Street to Main Street. Congress and the Administration should call for a steep windfall tax on all Wall Street profits and bonuses, directly tying the tax to the unemployment rate. The justification is simple: When the economy crashed, we put the entire financial sector on welfare with bailouts valued somewhere between one and thirteen trillion dollars (depending how you count the various liquidity programs and asset guarantees.) Welfare recipients are not entitled to windfall profits.

We should start with a windfall profits/bonus tax of 90 percent as long as the yearly average unemployment rate is higher than 10 percent. Then it could drop as follows:

75 percent until the yearly unemployment rate drops below 9 percent;

60 percent until it drops to 8 percent;

45 percent until it drops below 7 percent;

30 percent until it clears 6 percent and;

15 percent until it crosses 5 percent.

Full-employment (below 5 percent) would automatically end the windfall tax.

Would the American public back such a tax on Wall Street? I believe there would be overwhelming support because everyone realizes that the financial sector caused the crash and the unemployment in the first place. And as Ben Bernanke recently pointed out, Wall Street is causing unemployment to rise right now by its failure to make loans to jobs-producing businesses.

This proposal, if enacted, also would provide enormous incentive for Wall Street's best and brightest to figure out ways to put our people back to work. But don't count on it. Instead, they will do all they can to prevent this policy from seeing the light of day. The business of Wall Street is to make money, not jobs.

But a windfall profits/bonus tax, even if not passed, would change the debate dramatically. The Obama administration and the Democrats would be attacking welfare for the wealthy while also trying to bridge the divide between Wall Street and Main Street. Because the windfall tax would raise revenues, it would force right wing ideologues either to support the proposal or defend Wall Street's obscene profits and bonuses. The deficit hawks would have their feathers plucked.

But most importantly, by tying profits to overall unemployment we would be exposing the rot of our new billionaire bailout society. We would be saying loud and clear that those who crashed the system must be held accountable for the damage done, and should not be permitted to profit from taxpayer support.

The proposal also would serve as a constant reality check. It would remind us that top bankers profited wildly through their reckless financial gambling until our economic system collapsed under the weight of their fantasy finance scams. Then the taxpayers were forced to cover their bad bets with trillion dollar bailouts. And now the bankers are pretending none of it really happened as they happily walk off with record profits and bonuses again while 30 million are jobless and 49 million go hungry.

For just one moment let's imagine this windfall profits tax actually passed. Wouldn't it be something to see the powerful bank lobby swarm all over Capitol Hill, pushing measures that would create jobs as fast as possible?

Now, that's my kind of fantasy finance.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Harvard Stops Free-Tuition Program For Students Pledging To Go Into Public Law

2009-12-02T17:39:34Z

CAMBRIDGE, Mass. — Harvard University's law school will stop offering a year of free tuition to students who go into public service law after graduation, Law School Dean Martha Minow announced this week.

Minow said in an e-mail Monday to staff, students and faculty that the school will suspend its Public Service Initiative for future incoming classes.

Larry Summers: Cutting Unemployment Could Take Years

2009-12-01T10:28:34Z

"Addressing 10.2 percent unemployment is a matter of very great urgency. It is not something that is going to be fixed in a week, or a month, or a year," Summers said in after-dinner remarks for a conference on innovation and the economy sponsored by Intel Corp and the Aspen Institute.

Summers Ignored Warnings About Harvard Investments, $1.8 Billion Disappeared

2009-11-29T12:17:08Z

It happened at least once a year, every year. In a roomful of a dozen Harvard University financial officials, Jack Meyer, the hugely successful head of Harvard's endowment, and Lawrence Summers, then the school's president, would face off in a heated debate. The topic: cash and how the university was managing - or mismanaging - its basic operating funds.

Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment's risky mix of stocks, bonds, hedge funds, and private equity. Meyer's successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members.

Arianna Huffington: Will The Unemployment Disaster Be Obama's Katrina?

2009-11-23T18:14:12Z

There's a Category 5 storm about to make landfall, and the president and the officials in charge of preparing for the approaching disaster don't seem to be particularly worried. Sound familiar?

Just as Katrina exposed critical weaknesses in the priorities and competence of the Bush administration, the unfolding unemployment disaster is threatening to do the same for the Obama White House.

The members of the Obama administration may not be attending a birthday party at John McCain's ranch in Sedona or shopping for expensive Ferragamo shoes in New York as a great American city is destroyed, but their decidedly lackadaisical response to what job losses are doing to multiple great American cities raises the question: will unemployment be Barack Obama's Katrina?

His economic team's resistance to a second round of stimulus, "lukewarm" reaction to Congressional jobs legislation, and prioritization of deficit reduction over job creation certainly has the feel of a taking-in-the-damage-from-2,500-feet flyover moment.

"There is no discussion of a package like a second stimulus," said deputy White House press secretary Jennifer Psaki. "But we are working closely with Congress and consulting with outside experts to determine the right policies and next steps." No word on whether those outside experts include the 1 in 6 workers currently unemployed or underemployed.

Of course, the real problem isn't the outside experts; the administration's wrongheaded approach is a classic inside job. Sen. Sherrod Brown summed it up on CNN, telling John King that when it comes to putting the focus on Main Street, the president's "advisors are mixed."

Which makes one wonder: what level of unemployment would it take to unmix them? Even 10.2 percent, the highest level in 26 years, after 22 straight months of job losses, doesn't seem to have quickened the pulse of Larry Summers and Tim Geithner.

And it's not like the levees haven't begun to crack, with the real unemployment rate -- factoring in discouraged and partially employed workers -- at 17.5 percent, the unemployment rate for workers aged 16 to 24 at 19 percent, and the unemployment rate for young African-Americans at 30 percent. What's more, the average length of unemployment is at a record high, while the ratio of job seekers to open positions is now 6 to 1.

A new ABC/Washington Post poll reported that 30 percent of Americans say someone in their home has lost a job. I'm guessing that Summers and Geithner are comfortably in the other 70 percent. But even if it hasn't hit home for them, it should be clear that unemployment is going to be the singular issue of 2010.

Congressional Democrats have certainly gotten the message -- and have grown tired of waiting for the White House to take the lead. According to The Hill, House Democratic leaders, including Speaker Pelosi, are "worried they've appeared unresponsive to rising unemployment because they were absorbed by health care." The article also says that Harry Reid has told colleagues he wants a jobs bill soon.

As John Larson, the fourth-ranking House Democrat puts it: "It's jobs, jobs, jobs, jobs. Members of this caucus feel... that a jobless recovery is just simply unacceptable to us."

The problem for the White House and for the Democratic Party -- and, most importantly, for the country -- is that the administration's response on jobs is being led by Summers, who actually opposed the extension of unemployment benefits Obama just signed. At this point you have to wonder what Obama's attachment to Summers and Geithner is. We know if you become a target of Glenn Beck and cause five seconds of embarrassment to the administration you need to start updating your resume (ask Van Jones), but if you slowly bring down the administration, and the party, and the country, that's apparently fine.

Back in February, when the $787 billion economic stimulus bill was signed, Summers and company promised that it would keep the unemployment rate from going any higher than 8.5 percent. With another 3.4 million jobs lost since then -- and the official unemployment rate at 10.2 and rising -- what does Summers say now?

"I think we got the Recovery Act right."

Really, Larry? What would getting it wrong look like?

The tone-deafness of that statement rivals the clueless response of a certain clothes-conscious former International Arabian Horse Association commissioner turned FEMA head.

I can hear it now: Heck of a job, Larry! Heck of a job, Timmy!

But though the alarm bells don't seem to be ringing in the White House, last week showed that there has clearly been a major shift in the tectonic plates on Capitol Hill.

For starters, there is increasing agreement that Obama's economic team is not up to the job of dealing with the unemployment crisis. According to Rep. Peter DeFazio, there is a "growing consensus" in the Congressional Progressive Caucus that Geithner should resign -- and that Summers needs to go, too. "We need a new economic team," DeFazio said on MSNBC. "We may have to sacrifice just two more jobs to get millions back for Americans."

And the next day, DeFazio told HuffPost's Sam Stein: "It is pretty embarrassing for a Democratic administration and a Democratic Congress to be identified with total attention to Wall Street and nothing for Main Street and jobs."

This comes just a few weeks after Senator Maria Cantwell told MSNBC's Dylan Ratigan that she was "not sure" why Geithner still has a job.

Even more dramatic evidence of the shift came in the House, where members of the House Finance Committee passed a measure to audit the Federal Reserve -- for the first time ever. The bill, sponsored by the bipartisan duo of Rep. Ron Paul and Rep. Alan Grayson, was passed over the objections of Chairman Barney Frank -- and of the Fed and its big time friends and lobbyists. That's a group that doesn't lose many votes in Congress. What's more, a last-minute "compromise" amendment that would have significantly watered down the bill was submitted by Rep. Mel Watt of North Carolina and heavily backed by the Fed. In normal times, this sort of "split-the-difference" amendment would likely have passed. But these are not normal times, and the amendment was defeated -- much to the shock of the Fed and its supporters.

The House Finance Committee was the site of another indication of how the ground is moving under the administration's feet. An hour before a scheduled final vote on the comprehensive financial regulation reform package sought by the White House, members of the Congressional Black Caucus cornered Chairman Frank and said they would refuse to vote for the bill because of the White House's lack of attention to unemployment. It was, as HuffPost's Ryan Grim reported, intended "as a direct rebuke of the White House."

When we hear about members of Congress holding up a vote (and we've heard it a lot lately), most of the time, it's a ploy to secure some kind of pork for their home district. This was an instance of the brakes being put on not for pork -- but for principle.

So, clearly, the winds of change are picking up in Washington and around the country. It's time for the White House to stop holding no-rush summits and insisting that everything is going as planned, and course-correct. Now. And there is no shortage of bold steps the administration can take to mitigate the damage before it turns into an all-out catastrophe.

Among the best ideas currently being floated:

-- Use Wall Street bailout funds left in the TARP program to hail out Main Street (via increased lending to small businesses and using money for public services being cut by states and cities).

-- Enact a one-year payroll tax holiday (creating a moratorium on Social Security, Medicare, and FICA taxes will encourage businesses to hire new workers).

-- Expand the Small Business Association's lending programs (45 percent of all job losses have been at small businesses).

-- Offer businesses a tax credit for every new job created over the next 12 months, or have the government pay a portion of the salary of new workers hired over the same period.

The bottom line: extending unemployment benefits, crossing your fingers, and waiting for things to turn around is just not enough.

In the post-Katrina fallout, video surfaced of a final briefing before the storm hit in which federal disaster officials warned President Bush that the hurricane could breach the levees and overwhelm the ability of rescuers to properly respond. Bush famously didn't ask a single question but assured local officials: "We are fully prepared." He later insisted, "I don't think anybody anticipated the breach of the levees."

Are we going to get similar protestations from Obama when the unemployment waters continue to rise?

The unemployment disaster has already inflicted great damage all across the country. And the Obama White House will be defined by its response to it.

So what is it going to be: a muscular, multi-tiered jobs plan to deal with reality or "heck of a job" delusion?

Wall Street Journal Supports Break-Up Of Big Banks

2009-11-23T15:48:41Z

Add the Wall Street Journal editorial board -- of all people -- to the growing ranks of those calling for a restoration of barriers between commercial and investment banking.

In an editorial today, the Journal's anti-regulation free marketeers threw their weight -- albeit in a back-handed way -- behind government limits on "risk-taking" by commercial banks.

The editorial was mostly an assault on Democratic proposals described as offering "unlimited taxpayer funds" to bail out "just about anyone... engaging in finance of one kind or another" in a way that "would entrench moral hazard (and cheaper funding costs for the likes of Goldman Sachs) even deeper into the financial system."

But the editorial concluded: "The other way to reduce moral hazard is to limit certain kinds of risk-taking by institutions that hold taxpayer-insured deposits, as suggested by former Federal Reserve Chairman Paul Volcker and Bank of England Chairman Mervyn King."

That was a reference to Volcker and King's idea to restore the separation between Wall Street investment banks and Main Street commercial banks. "This has its own problems. But unlike the emerging plans in Washington, it is credible and would give capitalism a fighting chance to survive regulatory reform."

Volcker, King, former Citigroup CEO John S. Reed, and Nobel laureate economist Joseph E. Stiglitz are four financial and economic luminaries advocating for at least a partial return to Glass-Steagall, a Depression-era law that banned commercial banks from underwriting stocks and bonds. It was repealed in 1999 at the urging of, among others, Larry Summers, President Barack Obama's chief economic adviser.

While progressive economists such as James K. Galbraith and Dean Baker support a return to at least some tenets of Glass-Steagall -- on the premise that banks with taxpayer-guaranteed deposits shouldn't be engaged in risky trading -- the Obama administration does not. The White House wants to regulate the behavior of these banks, rather than break them up.

For the Journal's editorial page to be taking a more pro-regulatory position on any issue than the Obama White House says a lot about our times.

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Paul Abrams: Geithner Is "Obama's Rumsfeld": Replace Him With Robert Reich

2009-11-17T18:48:30Z

"The fault, dear Brutus, is not in our stars, but in ourselves"--Julius Caesar, Act I, ii.

But for his personal tax problems, Tim Geithner would have been a consensus choice of Wall Street for Treasury Secretary last fall. As President of the New York Federal Reserve, he knew all the bankers on Wall Street. He was not only intimately involved with the bank bailouts, he now appears to have been the bankers' lapdog. He speaks fluent Chinese, helpful since China holds a huge amount of US debt obligations. Just months into the financial meltdown, avoiding Wall Street caterwauling about the Treasury Secretary-designate may have been a reasonable consideration for the incoming Administration faced with unprecedented calamities from 8 years of George W.

Yet, from the outset, Mr. Geithner's appointment compromised the Obama Administration-to-be's credibility on ethics. In order not to lose its first key approval, the President-elect had to swallow-hard and excuse his failure to pay social security taxes. That ethics problem was then compounded by Tom Daschle's failure to pay his taxes forced withdrawal of his nomination to be Health & Human Services Secretary.

Geithner survived the Senate approval process in part because he was the first that needed a 'bye' on ethics and in part because his combination of skills and experience were considered indispensable in the time of severe instability.

Nonetheless, even before the disclosure of his pro-bank lax handling of bailout funds while at the New York Federal Reserve, Geithner had become a lightning rod for the Administration's economic policies that coddled Wall Street. To be fair, and unlike Rumsfeld, Geithner has had some real successes--such as preventing total economic collapse with the stimulus plan, and stabilizing the financial system.

But Geithner, like Larry Summers inside the White House, has failed to respond to main street's needs directly and powerfully, and failed to stand up to Wall Street interests when they are inimical to sustained stability. Whether it was home foreclosures, or credit card reform, or financial reform, the measures were compromises rather than strong policy prescriptions. It has taken a popular website, www.breakupthebigbanks.com, and Senators such as Dorgan and Sanders, and House members such as Kanjorski, to push the issue of breaking up the big banks so they can never hurt us again.

President Obama should learn from all of George W's mistakes including his continued support of Donald Rumsfeld. Many Republicans(!) believe that they might not have lost the 2006 Congressional elections if Bush had fired Rumsfeld before, instead of after, election day.

The Treasury Secretary has become a continuing liability for this President. By stepping down, Geithner can rightly claim some successes, and provide the President an opportunity to appoint a Treasury Secretary that not only does not have ties to Wall Street, but also who has a history of championing main street.

Former Labor Secretary Robert Reich would be a superb choice. For a Treasury Secretary to have previously served as Labor Secretary would itself send a very strong message to main street that this Administration is "on their side" as Presidential election campaign suggested. Reich is eminently qualified for the position--he is a student and author about long-term economic trends, and is an economic policy-wonk.

Go to www.BreakUpTheBigBanks.com, sign the petition, and show your support for breaking Wall Street's stranglehold on Washington DC and your future.

Paul Krugman: Germany's Jobs, Unemployment Miracle Can Teach US

2009-11-17T01:32:01Z

Germany's jobs miracle hasn't received much attention in this country -- but it's real, it's striking, and it raises serious questions about whether the U.S. government is doing the right things to fight unemployment.

Robert Kuttner: A Wake Up Call on Jobs

2009-11-15T22:30:24Z

President Obama has announced a White House Jobs Summit for next month. At least that's the beginning of recognition that the unemployment rate is unacceptable. The measured rate is now 10.2 percent, but if you count people who have given up or who are involuntarily working part time, the real rate is over 17 percent.

This spells political catastrophe for Democrats in the 2010 mid-term election, as foreshadowed by the recent losses in the New Jersey and Virginia governors' races. But Obama's top economic advisers, such as Larry Summers, don't seem to get it. They continue to resist the idea of a second stimulus package.

"I think we got the Recovery Act right," Summers recently told the Washington Post's Alec MacGillis, adding, "We always recognized that America's problems were not created in a week or a month or a year and that they were not going to be solved quickly. We designed the Recovery Act to ramp up over time, through 2010, and to make sure that the investments we made were important for the country's future."

And other senior Obama officials such as White House Chief of Staff Rahm Emanuel and Office of Management and Budget Chief Peter Orszag are more concerned with cutting the deficit than spending more money to reduce joblessness. According to the Wall Street Journal, Orszag is sympathetic to the idea of a commission to cap government spending and Emanuel is floating the idea of spending some of the money that has been repaid from TARP bank bailouts on deficit reduction.

But this is putting the cart before the horse. We need larger deficits now, in order to get a real recovery going, so that a healthy economy will allow us to pay down public debt later. Specifically, we need to focus on three big things:

State and Local Fiscal Relief. You often hear that outlays on public infrastructure are not a good source of stimulus because they take too long to plan. But emergency revenue sharing to states and localities takes effect almost instantly because it prevents cuts in existing programs and layoffs of existing workers. Today, states and localities are not only cutting back outlays because their constitutions require balanced budgets; they are raising taxes, usually regressive taxes. According to the Center on Budget and Policy Priorities, the three year state fiscal gap 2010-2012, will be at least $470 billion. So more than half of the federal stimulus is undermined by state and local belt tightening.

Accelerated Spending on Public Works. The Roosevelt administration, in an era before computers, got a lot of public works spending going in less than a year. There are massive unmet needs in public infrastructure. The Obama administration needs a short term and a long term strategy. Projects such as school repair and expansion, which can get underway in a few months, should get fast-tracked funding commitments right away. Longer term needs, such as smart electrical grids and modernization of water and sewer systems, expanded mass transit, and green energy, should be targeted for funding in 2011, so that plans can get on the drawing boards now.

Wage Subsidies. It is fashionable among American conservatives to make fun of the "rigidity" of European labor markets. But Germany today has a flexible and creative program of wage subsidies. The result is that the German unemployment rate has pealed at around 8 percent while ours has crashed through 10 percent. German companies suffering a downturn because of recession can get wage subsidies for their workers. Workers can also be put on reduced working time (kurzarbeit) and the German unemployment office will make up most of the loss in their take-home pay. According to the German government, a worker cut to 40 percent of his or her normal hours will end up with about 85 percent of usual take-home pay. Today, some 1.4 million German workers have been able to keep their jobs and most of their earnings thanks to the kurzarbeit plan. German firms keep their workers connected to the company, workers hold on to their jobs, and there are also incentives for workers on reduced time to use their spare hours to get additional training.

All told, we need additional federal spending in the range of at least $500 billion. But won't this increase the deficit? Yes it will, and that is the whole point. We are in a classic downward spiral of reduced household income and wealth, and a weakened financial sector. Many businesses face reduced consumer demand, compounded by a reluctance of banks to advance to any but the most blue chip borrowers.

In this climate, GDP growth can turn positive but companies are reluctant to hire. Full recovery will not resume spontaneously based on household or business demand, and the only source of increased demand to break the cycle is the government.

One of the most widespread and mistaken assumptions is that this bleak future is just baked into the cake. Because of the legacy of the financial collapse, and the limits of deficit spending, supposedly, we are just stuck with it. You hear that in testimony from Federal Reserve Chairman Bernanke, and it is repeated mindlessly by the media.

This fatalism is just plain wrong, and history's great counter-example is World War II. In 1939, unemployment was stuck around 16 percent. GDP growth after 1933 was solid -- 6 to 10 percent a year with the exception of 1937 -- but the wounded economy was just not generating net jobs. Many expert commentators of that era concluded that there was something about the maturity of capitalism, or the replacement of human workers by machines, that consigned the economy to a chronic structurally high, rate of unemployment.

Then World War II broke out. The US government borrowed huge sums to recapitalize US industry and re-employ and retrain US worker in war production, to employ 12 million men and women in the armed forces, and to invest massively in science and technology to develop advanced weapons and substitutes for materials in short supply. The unemployment rate dropped to 2 percent by 1943. Deficits were enormous, as high as 29 percent of GDP in 1942 (this year they will be about 10 percent) but the economy grew at 12 percent a year for the four years of the war, and the high unemployment of the 1930s never returned.

The deficit hawks of that era worried that the very large national debt would be a millstone around the economy. At the end of 1945, the debt was 122 percent of GDP, compared to about 55 percent today, but of course the end of 1945 was the beginning of the 25 year postwar boom -- the longest sustained boom in US history. GDP grew at 3.8 percent a year. The average deficit was about 1.1 percent, and with the economy growing much faster than the debt, the debt to GDP ratio declined to about 30 percent by the 1970s. So, we can grow our way out of debt -- but we need to get a real recovery going first.

If past Obama White House Summits are any guide, this one will invite a broad cross section of people: trade unionists and deficit hawks, investment bankers and labor economists, industrialists and Republicans; and everyone will speak of the importance of their pet project for job creation. That's not good enough. This is not a moment for another White House gab fest. It's a time for progressive leadership.

Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author of Obama's Challenge.

Lesley Stern: How to Live on $0 a Day: Assuaging Rage, One Prick at a Time

2009-11-12T10:53:50Z

If you've lived your life believing that hard work, ethics, observing the golden rule and fiscal responsibility will be rewarded, you're probably a little ticked off right now. Okay, you're probably roiling with rage (especially if you stopped taking your anti-depressants because your insurance company canceled you for being depressed).

A lot of that anger comes from a sense of betrayal and helplessness at seeing people who broke every law of decency living high on the hog while the rest of us are hard pressed to afford a swine flu shot (if we could find one).

The logical recourse is to seek justice. You've appealed to their non-existent sense of decency. You've written your elected officials, attorney general, chamber of commerce and better business bureau. Clearly, you can't afford a lawyer. Crank calls and Internet heckling bring no relief. And while sending offenders cat poop in the mail is satisfying, the postage is costly--there are no bulk media rates for mass poop mailings (which REALLY pisses you off). And try as you might, you can't seem to get your friends interested in storming Wall Street or the Capitol because pitchforks are too expensive.

If you're quivering with rage just thinking about it, it's time to take action. I've discovered a way to calm my ire and achieve a semblance of inner peace without costly aids like therapists, tranquilizers, a masseuse or weapons.

Whether your anger is directed at a TARP recipient harassing you for an overdue $69, a vile CEO, pundit or politician, someone who screwed you over, the neighbor's dog, or the waiter who lied when he told you the chef's special chicken was all white meat, my methods ensure that all bad behavior is met with swift and decisive punishment (finally!). I can't tell you how much better you'll feel. Here's how it works:

Proposals In House Would Curb 'Too Big To Fail' Banks, Firms

2009-11-09T23:26:17Z

Democrats are advancing proposals in Congress designed to limit the size and complexity of financial companies so that any collapse wouldn't damage the broader economy, a sign that lawmakers are responding to anti-Wall Street sentiment by toughening the administration's rewrite of finance rules.

Robert Kuttner: The Audacity to Change

2009-11-08T19:44:56Z

What a long, strange year it's been since Election Night 2008. Whatever this administration has represented so far, it has not yet delivered change we can believe in.

We need a radical break with Wall Street, and we got the politics of prop up and bail out -- with the result that most Americans don't think the program is benefiting them.

We needed President Obama to focus like a laser on economic recovery, and instead we got the distraction of a barely-worth-it health insurance patch. We needed the president to go to the country and win support for fundamental health reform, and instead we got Rahm Emanuel's deal with the drug and insurance industries that won House support by the barest of majorities and managed to frighten senior citizens -- the most satisfied customers of our one public option -- Medicare.

We needed a recovery program that held down unemployment, and instead we got a stimulus that even the Obama team considered too small at the time of its enactment, according to the reporting of The New Yorker's Ryan Lizza.

And now we are on the verge of Barack Obama's very own Vietnam, in an escalating Afghanistan entanglement.

The 2009 off-year elections were a repudiation of incumbents -- only now the incumbent party is the Democrats. Popular cynicism about government representing the interests of insiders and economic elites is even more extreme now than in November 2008, when the desire for drastic change thrust Obama into the White House. If present economic trends continue, the Democrats could lose control of the House in 2010, setting up a repeat of Bill Clinton's period of "triangulation," but with an even more lunatic-fringe obstructionist Republican Party.

Yet, as a friend points out, if you had evaluated John F. Kennedy in November 1961, a year after his election, you would have adjudged him pretty much a failure. His administration began with the disastrous Bay of Pigs invasion. Kennedy did not have firm control over his nominally Democratic majority in Congress (despite almost identical partisan margins as Obama's). He did not make an effective impression on Nikita Khrushchev at their Vienna Summit, and the Soviet Cuban Missile offensive followed. But by late 1963, Kennedy had begun the turn to détente, and he managed to lay the groundwork for the civil rights and antipoverty revolution that his successor, Lyndon Johnson, delivered.

So, can Barack Obama recoup, and can he recoup in time?

If you look at what most historians regard as Kennedy's finest hour, his leadership of the Cuban missile crisis of October 1962, you appreciate that Kennedy above all had to face down most of his own advisers. Most wanted a military confrontation with the Soviets. But the brothers Kennedy found an alternative to either war or surrender.

Obama, like Kennedy, needs to overcome the dubious counsel of his own advisers, this time both economic and military. With unemployment still rising to levels the administration did not anticipate, Messrs Summers and company are still opposed to a second stimulus, and the White House is mainly concerned with appeasing the budget hawks.

The president needs to listen to other voices, including his own. He needs to go to the country with a much stronger jobs program, to show people that his administration is on their side. He could take the TARP money that has been repaid by the banks and put it directly into mortgage foreclosure relief, as well as insisting that sub-prime bondholders take the same kind of write-down as auto-company bondholders. He could ask Congress for additional fiscal relief to the states, whose budget collapse is still worsening, undercutting the existing federal stimulus. Deficit reduction can come once the economy is back on track.

On Afghanistan, instead of the seemingly inevitable troop escalation that will please nobody and fail to alter events, he could pursue a policy of pressing the Karzai regime harder for reforms while helping Karzai keep the Taliban from taking control of Kabul and northern provinces -- and using a small troop presence of 20,000 or less to keep al Qaeda off balance. He could firmly reject getting dragged piecemeal into a war that will only be a quagmire. The Republicans would rattle sabers but most Americans would cheer.

Some of what Obama has faced was beyond his control. Nobody said digging out from the financial catastrophe would be easy, or that fashioning a viable policy for Afghanistan would be a cakewalk. Taming a Democratic majority that included Blue Dogs obsessed with fiscal balance and New Dems in bed with Wall Street was not exactly child's play either. But events did not require him to appoint an economic team headed by Larry Summers and Tim Geithner, or to reappoint Ben Bernanke as chairman of the Fed, or Rahm Emanuel as his chief of staff, or to favor the escalation faction in his Afghanistan advisers. Events did not require him to play an inside game with powerful industries instead of taking a case for radical reform directly to the people and offering a Rooseveltian program too popular to oppose.

From the day he declared for the presidency -- indeed, from the day he declared for the Illinois state senate -- Obama has displayed an audacity, a decency, an idealism, and an eloquence that gave us hope that here was a great president. But as chief executive, he has seemed buttoned up and damped down while a great crisis threatens to envelop the country and his presidency. He had the audacity to run and to win. Now, will he have the audacity to learn and to lead?

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. He is author of Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency.

Frank Rich: White House Doesn't Seem To Understand Public's Wall Street Rage

2009-11-07T21:26:33Z

The Obama administration does not seem to understand that this rage, left unaddressed, could consume it. It has pushed aside the entreaties of many -- including Paul Volcker, the chairman of the White House's own Economic Recovery Advisory Board -- to break up too-big-to-fail banks. Those behemoths, cushioned by the government's bailouts, low-interest loans and guarantees, are back making bets that put the entire system at risk.

Goldman Sachs Profiting From Low Interest Rates, But Earnings Are "Unsustainable": Felix Salmon

2009-11-06T09:23:33Z

To put these numbers into perspective, a savings of 2.43 percentage points in one quarter amounts to $1.2 billion in saved interest costs on $203 billion. That's over 40% of its third-quarter earnings.

10 Years Ago Today, Congress Allowed For "Too Big To Fail"

2009-11-05T19:20:03Z

On the 10th anniversary of Congress voting to repeal the law that had long separated Main Street commercial banking from Wall Street investment banking, current members of the body are talking about ways to potentially bring it back.

A return to the Depression-era law -- known as Glass-Steagall -- is now being seriously discussed. Some leading economists and financial thinkers point to its repeal as a precipitator of the current crisis, because it enabled banks to become "too big to fail."

Consider some of the action on Capitol Hill:

* Rep. Ed Perlmutter (D-Colo.) wants to give federal regulators the power to force big banks to divest themselves of either their commercial or investment arms if they pose a threat to the financial system. House Financial Services Committee Chairman Barney Frank (D-Mass.) reportedly supports the idea.

* Another proposed bill attempts to better equip the government when dealing with such firms and the risks they pose. It would enable regulators to sell off assets, for example, if they were deemed to "pose a threat to the safety and soundness of such company or to the financial stability of the United States."

* A senior Democrat on the House Financial Services Committee, Paul Kanjorski, reportedly wants to "empower federal regulators to preemptively break up financial firms deemed 'too big to fail.'"

* And Rep. Brad Miller, a North Carolina Democrat, is working on a provision that would call for separation between a firm's proprietary trading and investment activities and its traditional banking activities.

The financial services lobby is fighting proposals that would amount to a full or partial return of Glass-Steagall, warning that such action would kill jobs, send top financial companies oversees and generally damage the economy.

Miller doesn't think much of that argument. He notes that for the biggest firms, "the highest-risk, highest-rewards parts of their business were using the entire balance sheet of the firm implicitly as collateral.... And that, to a large extent, is what led to the collapse last fall.

"I'm interested in the idea of creating firewalls," Miller told the Huffington Post, "but if we are maintaining the separation, what's the point of having them in the same holding company anyway? If there's always going to be an implicit use of the assets of the entire holding company, the only way to solve that is for those activities to be off the firm."

Essentially, a return to Glass-Steagall.

On November 5, 1999, when Congress passed the bill repealing Glass-Steagall, it was hailed as something that would provide the country with the "opportunity to dominate" the new century.

The bill was the Gramm-Leach-Bliley Act of 1999, and it enabled banks to engage in the kind of activities that had been largely prohibited since the Great Depression. Main Street banks would be able to do what their Wall Street counterparts had always done, and vice-versa. It was celebrated as a match made in heaven.

"This historic legislation will better enable American companies to compete in the new economy," said the treasury secretary at the time, Lawrence H. Summers. He is, of course, now President Obama's top economic adviser.

By contrast, here is former Clinton administration labor secretary Robert Reich today:

No public interest has been served by allowing the casino called investment banking to merge with the traditional intermediary function linking savers to borrowers. In fact, it's caused nothing but trouble.

Separate them, and investment banks would not be too big to fail because they couldn't use commercial deposits, insured by the FDIC, to place big investment bets. Separate them and mortgage lenders couldn't re-sell mortgage debt as securities -- they'd have to bear responsibility for defaults, which would give them an incentive to carefully investigate credit risks before making a loan. Re-enact Glass-Steagall.

Many prominent figures are now calling for a break-up of the big banks, or at least a strong separation between their commercial and investment banking divisions. They include former Federal Reserve Chairman Paul Volcker; Nobel laureate economist Joseph E. Stiglitz; former Citigroup CEO John S. Reed; and the Governor of the Bank of England, Mervyn King.

As current members of Congress look back ten years, it's worth noting that there were some members at the time who were looking ahead, warning of looming disaster. From the New York Times of November 5, 1999:

"'I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

Senator Paul Wellstone, Democrat of Minnesota, said that Congress had ''seemed determined to unlearn the lessons from our past mistakes.''

''Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis,'' Mr. Wellstone said. ''Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.''

Orszag Curiously Circumspect About Unemployment Insurance Extension (VIDEO)

2009-11-04T17:07:03Z

Appearing on the Charlie Rose show Tuesday night, White House budget chief Peter Orszag was surprisingly noncommittal about the idea of extending unemployment insurance to people whose benefits have run out.

Despite Republican stalling in the Senate, the passage of a 13-week extension of
unemployment insurance benefits appears inevitable. [Update: Late Wednesday, it passed the Senate.]

It's the sort of thing you would expect the Obama White House to be excited about - a popular measure that will help people in need, and serve as a bit of a stimulus to boot.

But Orszag initially hesitated in expressing support for the legislation, and then only said he "expected" there to be some extension of unemployment benefits.

And when Rose asked if any members of the administration, particularly top economic advisor Larry Summers, are against the extension, Orszag initially sidestepped the question -- "I don't want to speak about the views of individual member of the economic team or other parts of the administration" -- before saying, "I have not heard any commentary suggesting that anyone is opposed to extending unemployment benefits."

I don't want to speak about the views of individual members of the economics team or other parts of the administration, but I don't think that's the view that's coming from the administration or, frankly, from any members of the economics team... I don't think, I have not heard any commentary suggesting that anyone is opposed to extending unemployment benefits.

Joseph A. Palermo: The Wrath of Suburbanites and Independents

2009-11-04T09:45:46Z

Suburbanites and independent voters in Virginia and New Jersey broke Republican in yesterday's election. Last night I saw CNN's John King tell his viewers that this phenomenon could only mean that people are sending a signal to President Barack Obama that they're fed up with "all that spending" in Washington. King's assertion is interesting because it sounds a lot like the Republican talking point we'll hear flogged endlessly today and it comes from a network that prides itself on being neither FOX nor MSNBC. But I think the election results show that in today's miserable economic context no incumbent governor (or incumbent party) managing a state or province can escape the wrath of an electorate that continues to bleed and suffer while it watches its tax dollars squandered on foreign wars and Wall Street fat cats.

Any governor facing voters at a time when teachers are being fired, parks closed, and services discontinued, when people are unemployed, losing their homes and without adequate health care, is bound to have a difficult time. Here in California, if Arnold Schwarzenegger were up for re-election, with his abysmal 27 percent approval rating, he'd get clobbered. I heard that Jon Corzine's rating was 39 percent (Arnold would call that number evidence of a mandate). What Virginia and New Jersey show is that the inaction on the economy in real terms coming from Congress and the Obama administration is taking its toll. It's nice to hear all that talk about "economic stimulus" and "public options" for those who need health care, but so far Washington inertia has failed to deliver any concrete gains to ordinary people. And if this trend continues into the midterm election season of 2010 I wouldn't be surprised if more incumbents go down in flames when the voters have an opportunity to vote their rage.

The public's anger arises from the sense that Washington only serves the interests of the rich and powerful while the middle class gets bupkis. When was the last time the federal government did anything for the working middle class? Stagnant wages and salaries, depleted pensions, soaring health care, college, and housing costs, predatory lending, gouging of every kind imaginable from creditors. Consumer "confidence" is a foreign concept. The Great Wall Street Rip-Off of 2007-2008 broke the back of the American middle class. Most people were just treading water before Wall Street ran away with a large chunk of the country's wealth. The only lesson from yesterday's voting is that people want to throw the bums out and this sentiment will only build through 2010.

In 2010 the Democrats will lose House and Senate seats -- the only question is: How many? If the Congress continues on its do-nothing 1994-deja vu course -- whether due to bureaucratic inertia, Blue Dog obstruction, or political miscalculation -- the Democrats will lose their majority in one or both chambers of Congress. And they will deserve to lose their majority just as they deserved to lose it back in 1994.

Foreign wars and occupations of basket-case countries where every additional one thousand soldiers costs the nation an additional $1 billion a year. Trillions of dollars in bailouts, corporate welfare, and loan guarantees forked over to a clique of filthy rich, undeserving, white collar criminals on Wall Street. These are things that do not make good public policy and the American people understand this fact. Ordinary working people deserve to get something in return for their hard-earned tax dollars but so far all they've gotten is foreclosed homes, job losses, shoddy access to medical care, and uncertain futures.

The only "good" news for Democrats was New York's 23rd district. Now at least they have one more seat they can afford to lose in 2010. In Maine, the rollback of gay rights shows that these rights must be won in the courts, not at the ballot box.

During the 2008 presidential campaign Obama tapped into this same anger and won big. After he turned over the economy to Tim Geithner and Larry Summers it just looks like business as usual. Wall Street pays out billions of dollars in bonuses regardless of performance and has already begun securitizing about $18 billion worth of peoples' life insurance policies betting (indeed hoping) people will die earlier than expected, and speculators are once again hedging those bets with credit default swaps. Lukewarm regulations are the talk of Washington but so far nothing has come out of the Democratic Congress with any real teeth. Bob Gates continues Bush's ill-conceived wars unabated and the Treasury Department is full of Alan Greenspan retreads. These are the reasons people are angry and will take it out on incumbents in 2010, not because of "all that spending" in Washington or any fondness for the Republicans.

Cenk Uygur: Obama: The Central Question of Our Time

2009-11-03T12:02:42Z

To paraphrase Eminem, "Will the real Barack Obama please stand up? Please stand up?" That is the central question of our time -- who is the real Barack Obama?

If he's the guy who got us all excited that anyone could become president, that anything was possible, that real change was coming and the one that was going to stop the same old power players in Washington from controlling everything to the detriment of the people, then we're in great shape. That means he is one of us.

You can question his tactics, but as long as he has the right goals and the right agenda, we'll be fine. We're all hoping (with the audacity of hope, I suppose) that he's the master chess player who is carefully finding ways to play the system but in the end will do the right thing.

I don't even mind if he tries but fails. As long as he is pushing for us, working for us and wants to actually challenge the status quo (the central message of his campaign). Even if we fail in the short term, if we all fight together and we have the president on our side, we will ultimately prevail.

What I do mind is if he is not that guy. If he just played us to get elected and will give us just enough change to placate the masses but leave the system completely intact. That's the kind of guy who would push for a trigger for the public option and pretend he actually gave you the public option. It's not about the trigger, it's not about the public option it's not even about health care reform -- it's what it says about him. Is he playing the politicians and lobbyists in Washington or is he playing us?

The public option and the trigger are not the end of the world (though they are very important to the health care debate); what's more important is what they represent. The trigger is the usual cutesy games Washington plays where they kill reform while pretending to enact it. Where they push it off for another five years, and then another, and then another. They do just enough to appease the voters but not enough to change the system. If that's what Obama pushes for, then there's an excellent chance we're lost.

In my mind, the even bigger test is financial reform. That is the great test of the people versus power. So far, again, the Obama White House has been on the side of power. The proposed regulations are comically weak, and are getting watered down by the day. Obama has put the two worst offenders and defenders of the old system as his top economic advisers -- Tim Geithner and Larry Summers. With the exception of Robert Rubin, you literally could not have picked two worse Democrats to leave in charge of our economic policy.

What's his point? What's his plan? Where's he going with all of this? If he is really internally pushing for the trigger in health care reform and trusting Geithner and Summers to clean up the mess they created, then he is not the guy we voted for. Then, we have our answer. We know who the real Obama is. He is a master chess player, but it's us he's playing.

The financial reform that is needed is so crucial because if we leave this system in place, it will meltdown again. It's not a question of if, but when. The system has structural flaws. The executives do not represent their companies; they represent their own short-term interests. That will always lead to a crash. And after the next crash, we won't have enough money to rescue them - or us.

That is why this is the central question of our time -- who is Barack Obama? Because if he is on our side, he will figure out how to make sure this doesn't happen and that the powerful and corrupt won't game the system for their own benefit and lead to even more disastrous results for us. If he is on their side, then we have a massive, nearly unfixable problem. Then we can fight him, too, but that is an even longer and tougher fight.

The first year of his administration has not been full of good signs. Yes, he got some things done but he has clearly been leaning on the wrong side on the most important issues. But it's nowhere near too late. But the time to change and the time for change are right now. If we don't push him to go in the right direction and don't remind him who voted for him, he could wind up forgetting why he got elected and who he is supposed to be. If the second year is like the first year, it might be too late by then. On the other hand, if he gets health care reform passed with a strong public option and does real regulation of Wall Street, then he is the guy we voted for. It all hangs in the balance.

That's why we want to push him in the right direction. This week we will be doing protests in front of CNN offices in NY, LA and Atlanta to remind the mainstream media and the president that a clear majority of the American people wants the public option and this is the time to step up and fight. You can find out more about it here and talk to others going to the events here. If we want him to do the right thing, then we have to step up and be willing to get out there again and show him who put him in office and why.

Watch The Young Turks Here

So, one year after the election, what do you think Candidate Obama would think of President Obama? Tweet your response (our Twitter hashtag is #OneYearLater), or post it in the comments section.

David Paul: A Systemic Risk Regulator and a Compensation Tsar? Larry Summers and Ben Bernanke Must Be Kidding

2009-11-03T11:27:35Z

With the announcement of record Wall Street bonus pools and rising credit card fees, it is time to sit back and see where we go from here.

In the wake of the near collapse of the US financial sector one year ago, Hank Paulson and Ben Bernanke took extraordinary measures to avert collapse. Turning caution to the wind, they arranged shotgun mergers, decided who would live and who would die, and brought the word trillions into our every day vocabulary. By the time they were done, the landscape of American banking was transformed. Today, the six banking organizations that received $160 billion -- JP Morgan, Bank of America, Citigroup and Wells Fargo, and the former investment banks Goldman Sachs and Morgan Stanley -- are now looking to a future in which they can dominate the financial services landscape.

But perhaps the term financial services is misleading in this context. After all, as bank earnings reports were rolled out for the most recent quarter and news headlines announced the record bonus pools that the banks were preparing to pay, it became clear that these earnings derived from trading activities, rather than traditional commercial bank lending activities. Before our eyes -- and with the full support of the Federal Reserve and the US Treasury -- the transformation that we have witnessed is not of the conversion of major investment banks such as Goldman Sachs and Morgan Stanley into commercial banks, but rather of each of these firms into government guaranteed hedge funds.

I readily concede that I am using the term hedge fund loosely. After all, hedge fund is a generic term for a relatively unregulated investment vehicle that is permitted to invest in a wide range of unregulated derivatives and other investments, and whose returns are dedicated to a limited universe of investors. And certainly, the practices of JP Morgan or Goldman Sachs, who undertake massive proprietary trading activities, run huge derivatives books, and dedicate the preponderance of their earnings to senior employees, should not be lumped into the same category.

But on the other hand, if it walks like a duck...

Today, the commercial banking world is sharply divided. With over eight thousand commercial banks and savings institutions, these six firms hold less than 50% market share. Therefore, by traditional measures of market concentration, they are far from monopolistic. But as individual firms, their size dwarfs their cohorts, even considering that two of them, Goldman and Morgan Stanley, are not traditional depository institutions. Together, the six boast total deposits of $2.7 trillion, or an average of $444.8 billion per firm. This compares with an average of $107.2 billion for the next six largest banks, and $76.0 billion for the following six. The fiftieth largest -- well within the top 1% among all banks -- Associated Bank of Wisconsin, has deposits of $16.4 billion.

At the same time, as JP Morgan and its brethren have increasingly concentrated on derivatives trading, loan securitization, securities underwriting and proprietary trading and as these activities have contributed disproportionately to profitability, the share of bank assets dedicated to traditional commercial bank lending--the type that is most directly linked to the local economy in towns across the nation -- has similarly decreased. Therefore, it is not a stretch to suggest that even as the Federal Reserve and Treasury have concentrated for the past year on addressing the risks to the financial system that largely emanated from the largest firms, these firms have at the same time migrated the farthest from the tradition public mission of the commercial banking industry.

It may be hard in the face of the drumbeat of stories about the banks and their problems and their bonuses to remember that commercial banking is an industry with a specific public mission: To take deposits and make loans. It was in the wake of the Great Depression that the Glass-Steagall Act was passed to restore confidence in the commercial banking industry. Glass-Steagall forced the separation of commercial banking (lending) and investment banking (trading, underwriting), and created the FDIC to insure the deposits of commercial banks.

Beginning around 1980, the banking industry began a steady assault on Glass-Steagall, as investment banking firms sought access to the large pools of commercial bank deposits and commercial banks sought to expand into trading activities that would allow each type of firm larger profit and bonus opportunities. These efforts finally culminated in the Financial Services Modernization Act of 1999, which finally ended the Glass-Steagall restrictions and allowed the complete merger of investment and commercial banking organizations. However, the 1999 Act left FDIC insurance in place, resulting in the hybrid creature that emerged, able to attract government-insured deposits and utilize those deposits across a range of lending, securities trading, and newly emerging derivatives trading activities.

Today, the financial policy brain trust of Ben Bernanke, Larry Summers and Tim Geithner have rejected calls for structural reforms to the banking system and to reinstate the Glass-Steagall restrictions. Despite the experience of the past several years, culminating in the financial crisis one year ago, they are suggesting that the concentration of power represented by these six firms is acceptable and desirable, and reform efforts should focus instead on the creation of a single systemic risk regulator to oversee those institutions deemed too big to fail.

Standing alone against Bernanke, Summers and Geithner within the Obama administration is former Fed chairman Paul Volcker. Volcker continues to call for the reinstatement of the Glass-Steagall restrictions, and recognizes the imperative of maintaining the link between deposit insurance and commercial bank lending.

It is hard to imagine what Bernanke, Summers and Geithner are thinking, and how they can look at the devastating experience of the past two years, and not conclude that something is fundamentally wrong. Financial modernization did little to help those thousands of commercial banks who have stuck to their knitting and who now have been sorely disadvantaged by the federal bailouts of their large competitors. Proponents of financial deregulation argue that Volcker and other advocates for turning back the clock are recalcitrant Luddites, yet they have been hard pressed to demonstrate how the creation of the new class of hybrid commercial-investment banks and unregulated derivatives trading have added value to the economy.

Can Bernanke, Summers and Geithner seriously believe that a systemic risk regulator can control the risks that are embodied in these massive firms? Recent history suggests that the risks entailed in the trading strategies, quantitative models, complex derivatives and contract risks were never fully understood by the risk managers, bank CEOs and directors of their own organizations. Bank regulators were captive of the banks themselves as they sought to understand the information that was provided to them. Capital requirements and other traditional tools for containing risk proved to be of only marginal value in the face of derivatives with nearly unlimited leverage, and collateralization requirements buried deep in unregistered and unregulated contracts.

Furthermore, political influence over regulators is a fact of life in Washington, and over time will undermine whatever independent structure these three wise men might have in mind. One need only point to Summers' own success in 1998 in silencing Brooklsey Born -- the head of the independent Commodity Futures Trading Commission -- when she argued the inconvenient truth of the growing systemic risks presented by the unregulated derivatives market, at a time when Summers and the Clinton administration were arguing the merits of financial deregulation.

It is mind boggling that we can continue down this road. Paul Volcker must be applauded and supported for his unflagging efforts to bring attention to this issue. He is a wise man standing against smart men. And he is right.

Leslie Grossman: Changing the World by Changing the Gender Gap

2009-11-02T10:51:55Z

Mathematics and statistics used to be boring to me. Then, my husband introduced me to the TV Show Num3rs, which is about how mathematics helps solve crimes. It's an engaging show, based on true stories, about 2 brothers, one a mathematician and the other an FBI agent, who combine their work effectively to successful solutions, even sometimes saving lives. Recently Num3rs has interjected a female mathematician, also the love interest, who gets to show her prowess, solidly disputing former Harvard University President Larry Summers' claim that "women aren't good at math and science."

However, this blog is not about disputing "women are not good at math," because we know that's an old wives tale (or an old Larry Summers' tale). This blog is about the value mathematics and specifically statistics play in changing the world.

Math and statistics were a vital component in announcing the results of the Gender Gap Index 2009, presented by the World Economic Forum, which is busily at work trying to make the world a better place, well beyond its annual event in Davos. I attended a recent meeting at which the report was presented by its authors, Ricardo Hausmann of Harvard, Laura Tyson of University of California, Berkeley, and Saadia Zahidi, head of the Forum's Women Leaders and Gender Parity Programme, and is based on hard data.

Why is a Gender Gap Index important, you ask? According to Klaus Schwab, founder and executive chairman of the World Economic Forum:

Girls and women make up on half of the world's population and without their engagement, empowerment and contribution, we cannot hope to achieve a rapid economic recovery nor effectively tackle global challenges such as climate change, food security and conflict.

This is supported by countless independent studies and reports that show that the gender equality is critical to a country's economic success. In fact, this WE Forum report demonstrates that engaging women equally with men in all aspects of life is imperative for economically competitive and prosperous societies.

As to be expected, there was good news and bad news in the Gender Gap Index. The good news is that the health and education gaps are being closed. The bad news is that overall, the economic and political gaps are not. The good news is that out of 115 countries measured, 99 have made progress in the last 4 years, however, the bad news is that 16 countries have deteriorated. It was good news for the Nordic countries. Iceland holds the top spot, flanked by Finland, Sweden and Norway with Denmark not far behind (#7). New Zealand(#5) and South Africa(#6) and Ireland (#8) are right up there, and surprising to me was the Philippines (#9) considering that most of Asia is quite low on the Index with China #60 and Japan #75 and India #114. Most of Western Europe (with a few exceptions including Italy) is in the top 20. The bad news is that the U.S is a disappointing #31 with Canada ahead of us at #25. In fact, in 2006 the U.S. was #23, so we've lost our position in 3 years. The authors of the report generously tell us that it could be that the U.S. is lower on the list due to the fact that other countries are doing better than us, not necessarily because we are doing worse. However, if you closely examine the report, it shows that while the U.S. has done well investing in education and health for women, we have not made progress in business or in politics. The fact that the U.S. is not closing the gap is surely no surprise to many leaders of organizations trying to increase the number of women at the top in government and business. Yet it is truly frustrating and embarrassing when we see in the report how well other countries are doing. To see the entire Gender Gap Index, go to http://www.weforum.org and choose Women Leaders and Gender Gap.

Understanding the role math and statistics play in changing the world might be a good way to encourage young women to pursue math as a career. We know women are equally capable, however, their collective interest has not been strong. I predict that when we show women how they can change the world with mathematics, such as with the Gender Gap Index, many more will pursue it as their field of choice.

Joseph A. Palermo: Wall Street and Goldman Sachs Party On

2009-11-02T10:29:35Z

Time magazine's cover story this week titled "What's Still Wrong with Wall Street," by Allan Sloan, is a remarkable indicator of where the public stands on the recent obliteration of the economy by a gang crooked financiers and speculators. It shows that even the corporate media is now making the connection that millions of Americans have already made, namely, that a criminal gang of rich white guys in New York did some extremely reckless things with the nation's collective wealth and the middle class got clobbered.

The recent revelations about the criminal "pump and dump" speculative behavior of the Goldman Sachs Syndicate, along with its heartless new role as Repo-Man of Americans' homes, drives home the point, once again, that the federal government must do something to tame Wall Street or we're just setting ourselves up to be scammed again.

No jail time for the men who gave triple-A ratings to derivative junk? No jail time for mortgage originators and their henchmen who were signing up people for loans who clearly did not qualify for them? No jail time for the guys who securitized bad debt and sold it off to investors all over the world? No jail time for the federal officials who turned a blind eye while the house was on fire? Just because everybody up and down the assembly line of greed operated on the "IBG-YBG" principle ("I'll Be Gone, You'll Be Gone") doesn't mean that they should be allowed to walk away unscathed. Their short-term recklessness led to our long-term disaster. The nation will never be the same and the federal response has been half assed.

It's ironic that all we hear on FOX News and right-wing talk radio is how "socialistic" the Obama Administration is when in reality the way the administration has handled the Wall Street crisis is anything but "socialistic." The University of Missouri economist, William Black, recently testified to Congress that Treasury Secretary Tim Geithner and Larry Summers, the President's chief economic adviser, are not the right people for the job because neither of them believe in regulating Wall Street. If Obama is such a "socialist" then why did he appoint the head of the New York Fed to be his Treasury Secretary?

So far the regulations have been either lukewarm or nonexistent. Congress is beholden to Wall Street lobbyists and campaign donors. The Obama Administration is doing nothing to address the big picture. As Kevin Phillips and others have been writing about for years the American economy has been "financialized" and unless something is done aggressively to reverse this trend the "real" economy will continue to falter. According to the piece in Time, as a share of overall corporate profits the financial-sector's profits rose from about 12 percent in the mid-1960s to nearly 41 percent in 2002.

There has been a lot of head scratching in the corporate media and among the mainstream commentariat asking: "Why all the anger?" It's usually dismissed as misplaced "populist" rage. Meanwhile, the right-wing media does everything they can to distract attention away from the real culprits on Wall Street. They say its Barney Frank's fault or Fannie and Freddie's fault or the Democrats' and their "Community Reinvestment Act" or stupid home buyers who should have known better, etc. But no matter how many Red Herrings they toss out the American public has already made the explicit connection between their suffering and the wild party that is still raging on Wall Street. That's why there's so much anger directed at "bonuses" and "executive compensation." The caps placed on the pay-outs to a handful of Wall Street scapegoats might feel good but it doesn't do anything to address the underlying injustices of living in a plutocracy. Unless the federal government steps up and takes control from these people who a year ago came begging for bailouts we're staring down the barrel of the next catastrophe.

Linda R. Monk, J.D.: Let Us Now Praise Uppity Women

2009-11-02T08:04:46Z

On the day of the dead, Nov. 1, the news media reported the story of CIT's* impending bankruptcy. Cassandra, take a bow. This time, her name is Brooksley Born. She saw it all coming almost 20 years ago.

Born was the lone woman in a group of powerful men when she tried to persuade Congress to regulate the novel financial instruments known as over-the-counter derivatives during the 1990s. She served as head of the Commodities Futures Trading Commission, and legally had jurisdiction over the side bets that banks and insurance companies made with each other to hedge their risky investments. Except nobody was keeping score, and nobody was required to actually have money on hand to pay up. Born thought that should change, because too much of the American people's money was at risk.

She was defeated by the financial titans of Robert Rubin, Larry Summers, and Alan Greenspan -- at the time Secretary of the Treasury, assistant secretary, and chairman of the Federal Reserve. The triumvirate portrayed her as that worst of all possible beasts in Washington officialdom, a "difficult" woman.

Greenspan believed "The Market" would police itself of fraud because he was a devoted acolyte of Ayn Rand, the radical individualist and author of Atlas Shrugged. Not exactly an inspiring metaphor for a Fed Chairman during a global economic meltdown.

But as Born knew, fraud is the mortal enemy of any supposedly free market. Unless investors can be confident that their money is safe from fraud, capitalism cannot survive. A system rife with fraud is a death star, imploding upon itself. Derivatives, houses, tulips--the object of the exchange does not matter if the information it is based on is knowingly false. Such a system is based on patsies, not investors.

Let's not forget that fraud is, after all, a crime. Saying the government should not regulate fraud is like saying it should not regulate murder. Sure, private means can redress the grievance, but in the end the whole society suffers. That is, assuming that suffering matters. It didn't to Ayn Rand.

All the New Deal securities regulations boil down to preventing fraud. Insider trading, churning, margin requirements--the premise is that traders cannot hold themselves out to be something they are not if they are soliciting, in Louis Brandeis' immortal phrase, "other people's money."

Ever late to the scene of a catastrophe, Congress is now considering new regulations for the financial markets, in the wake of the Great Recession.

Brooksley Born recently gave the PBS series Frontline her latest warning:

I think we will have continuing danger from these markets, and that we will have repeats of the financial criss--it may differ in details, but there will be significant financial downturns and disasters attributed to this regulatory gap, over and over until we learn from experience.

Women have a long history of being whistleblowers in systems dominated by men. Perhaps this time Congress -- and the American people -- will listen.

*Correction note: This has been corrected from an original version that mistakenly said Citi rather than CIT.

Robert Lenzner: While Larry Summers Dreams, You Can Act

2009-10-31T10:25:12Z

Lawrence Summers, the White House economics czar, paints a fuzzy
picture of a social compact between Wall Street and Main Street, an
agreement based on speed limits and guardrails, overseen by Washington,
with the goal of limiting risk and encouraging growth.

In my StreetTalk column for Forbes.com, "Larry Summers Has A Dream, But No Details," I noted that Summers lacks specifics and that such symbolic moves as limiting
compensation for a tiny group of executives at bailed-out banks is not
going to restore public confidence.

A more noteworthy Summers point: his prediction that "the incidence of
financial crises may be greater over the next 25 years than the past 25
years."

Yes, that means a return to the days of the 1987 crash in the stock
market; the liquidation of Long Term Capital Management; the default of
Russia and Argentina on their sovereign debts; serial monetary crises
in Asia, Latin America and emerging markets;
and the dot-com meltdown and the global subprime disaster that froze
financial markets, requiring trillions in taxpayer bailout money.

So what can an investor do? For advice, I sat down with Marc Harris of RBC, one of the few large banks that maneuvered a clear course through the economic turmoil. In the first part of our video interview, we discussed financial stocks.

Harris singled out Bank of America (BAC), KeyCorp (KEY), and Boston Private (BPFH). There will be more consolidation, Harris predicted, and Bank of America is going to be one of those making acquisitions: "It's time to buy it," he said, citing a single digit multiple on depressed earnings.

The co-head of global research for RBC Capital Markets, Harris is also high on gold. He noted in the second part of our video interview (Green Light For Gold) that RBC as lead booker just raised $4 billion for Barrick Gold (ABX) and added that RBC has a buy rating on the stock.

"The way to buy gold it to buy it through the equities," Harris added, emphasizing the importance of chosing the right operators.

The other factor to keep watching: the dollar.

As I said in my StreetTalk column about the inverse relation between the dollar and the stock market (Dollar's Depreciation Inflates All Assets):

Gold and oil, especially, have an inverse relationship to the
dollar, underscores Frank Holmes, CEO and chief investment officer of U.S. Global Investors
(GROW), a mutual fund empire headquartered in San Antonio,
Texas, that focuses on hard assets. "When gold is up, the dollar tends
to be down, and vice versa," says Holmes. "Looking at weekly data going
back 20 years, this relationship occurs nearly 70% of the time."

Holmes,
manager of the U.S. Global Investors Gold and Precious Metals (USERX)
fund, believes gold mining stocks are cheaper than bullion. "If the
price of bullion goes up 10%, gold mining shares like Freeport McMoran,
Anglo Gold and Newmont Mining
(NEM) should rise by 20%."

Summers will keep dreaming, but smart investors know that dreams alone offer scant protection in rough seas.

Watch: More Robert Lenzner StreetTalk interviews with top investors. Click here.

Read more at: http://www.huffingtonpost.com/robert-lenzner/streettalk----weak-econom_b_327762.html

Read more: Larry Summers, Wall Street, Stock Market, Equities, Banking Crisis, Financial Crisis, Executive Pay, Business News

Bankers Vs. The People: Which Side Is The White House On?

2009-10-28T10:35:54Z
As the battle lines are drawn between the people and the bankers outside the ABA convention in Chicago, the question arises: Which side is the White House on, exactly?

Yes, the Obama administration is pushing to dramatically increase the regulation of consumer and other financial transactions that have run amok, but there is widespread concern from across the political spectrum that the White House is neither going far enough nor fighting hard enough. And time and again -- most notably with the ongoing $700 billion bailout -- Obama administration policies have put the interests of bankers and Wall Street ahead of those of impoverished families, unemployed workers or underwater homeowners.

One reason -- which has never been directly addressed by Obama -- may be that many of his chief financial advisers have pocketed extraordinary amount of money from banks and Wall Street, and presumably intend to do so again. They are part of the banker class, and their loyalties have been bought and paid for.

Back in April, when the White House released financial disclosure forms late one Friday, those few people paying attention learned just how stupendously beholden Obama's top economic adviser, Larry Summers, is to the financial industry that he is ostensibly trying to rein in.

Summers was paid $5.2 million for his part-time work for a massive hedge fund in 2008. He also took in more than $2.7 million in fees for speaking engagements at such places as Citigroup, Lehman Brothers, Merrill Lynch and Goldman Sachs -- including one visit alone that netted him $135,000 from Goldman Sachs.

That's right: $135,000 for one visit on one day. You can't pocket that kind of money and not be, on some level, corrupted.

Similarly, deputy national security adviser for international economic affairs Michael Froman received $7.4 million from Citigroup between January 2008 and January 2009 -- including a year-end bonus of $2.25 million that he received just days before coming to work at the White House for a man who was at that very moment calling just such bonuses "shameful".

And earlier this month, Bloomberg's Robert Schmidt significantly added to our understanding of just how co-opted Obama's financial team is by examining the financial disclosure forms of Treasury Secretary Timothy Geithner's closest aides.

The advisers include Gene Sperling, who last year took in $887,727 from Goldman Sachs and $158,000 for speeches mostly to financial companies, including the firm run by accused Ponzi scheme mastermind R. Allen Stanford.

Another top aide, Lee Sachs, reported more than $3 million in salary and partnership income from Mariner Investment Group, a New York hedge fund.

Sachs, who joined Treasury in January, reported in February that he was still owed a 2008 bonus whose value was "not ascertainable." I wonder how that one turned out.

Also in Geithner's inner circle, according to Schmidt: "counselor Lewis Alexander, the former chief economist at Citigroup; Chief of Staff Mark Patterson, who was a lobbyist at Goldman Sachs, and Matthew Kabaker, a deputy assistant secretary who worked at private equity firm."

Alexander was paid $2.4 million in 2008 and the first few months of 2009 by Citigroup; Kabaker earned $5.8 million working on private equity deals at Blackstone in 2008 and 2009.

Patterson, Geithner's chief of staff, was a registered lobbyist for Goldman Sachs before joining the Obama campaign, and took in what seemed at first glance to be a relatively modest-by-Goldman-standards salary of $637,230 in 2008. But it turns out that was only for three months' work -- he left Goldman in early April.

All this money makes Obama's top financial advisors veritable poster boys for the Wall Street culture that the president in his speeches has publicly decried as a "house of cards" and a "Ponzi scheme" in which "a relatively few do spectacularly well while the middle class loses ground".

I'm not doubting the smarts of Obama's financial team -- but I do feel that the vast majority of people who take the kind of money we're talking about here can't help but be warped by it, and that in choosing to cash in, they essentially disqualified themselves from public service.

Unless they are willing to assertively act in ways that redeem themselves and show that their allegiances have not been purchased, they should step down and make way for people who see the people's side of things a little more clearly.

* * * * * * * * * * * *
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Read more: Goldman Sachs, Gene Sperling, Michael Froman, Lee Sachs, Larry Summers, Politics News

Robert Reich: Breaking Up the Big Banks, and Why Congress Won't Do It

2009-10-26T21:49:41Z
And now there are five -- five Wall Street behemoths, bigger than they were before the Great Meltdown, paying fatter salaries and bonuses to retain their so-called"talent," and raking in huge profits. The biggest difference between now and last October is these biggies didn't know then that they were too big to fail and the government would bail them out if they got into trouble. Now they do. And like a giant, gawking adolescent who's just discovered he can crash the Lexus convertible his rich dad gave him and the next morning have a new one waiting in his driveway courtesy of a dad who can't say no, the biggies will drive even faster now, taking even bigger risks.

What to do? Two ideas are floating around Washington, but only one is supported by the Treasury and the White House. Unfortunately, it's the wrong one.

The right idea is to break up the giant banks. I don't often agree with Alan Greenspan but he was right when he said last week that "[i]f they're too big to fail, they're too big." Greenspan noted that the government broke up Standard Oil in 1911, and what happened? "The individual parts became more valuable than the whole. Maybe that's what we need to do." (Historic footnote: Had Greenspan not supported in 1999 Congress's repeal of the Glass Steagall Act, which separated investment from commercial banking, we wouldn't be in the soup we're in to begin with.)

Former Fed Chair Paul Volcker, whose only problem is he's much too tall, last week told the New York Times he'd like to see the restoration of the Glass-Steagall Act provisions that would separate the financial giants' deposit-taking activities from their investment and trading businesses. If this separation went into effect, JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. And Goldman Sachs could no longer be a bank holding company.

But the Obama Administration doesn't agree with either Greenspan or Volcker. While it says it doesn't want another bank bailout, its solution to the 'too big to fail' problem doesn't go nearly far enough. In fact, it doesn't really go anywhere. The Administration would wait until a giant bank was in danger of failing and then put it into a process akin to bankruptcy. The bank's assets would be sold off to pay its creditors, and its shareholders would likely walk off with nothing. The Treasury would determine when such a "resolution" process was needed, and appoint a receiver, such as the FDIC, to wind down the bank's operations.

There should be an orderly process for putting big failing banks out of business. But this isn't nearly enough. By the time a truly big bank gets into trouble -- one that poses a "systemic risk" to the entire economy -- it's too late. Other banks, competing like mad for the same talent and profits, will already have adopted many of the excessively-risky banks' techniques. And the pending failure will already have rocked the entire financial sector.

Worse yet, the Administration's plan gives the big failing bank an escape hatch: The receiver might decide that the bank doesn't need to go out of business after all -- that all it needs is some government money to tide it over until the crisis passes. So the Treasury would also have the authority to provide the bank with financial assistance in the form of loans or guarantees. In other words, back to bailout. (Historical footnote: Summers and Geithner, along with Bob Rubin, while at Treasury in 1999, joined Greenspan in urging Congress to repeal Glass-Steagall. The four of them -- Greenspan, Summers, Rubin and Geithner also refused to regulate derivatives, and pushed Congress to stop the Commodity Futures Trading Corporation from doing so.)

Congress is cooking up a variation on the "resolution" idea that would give the Federal Deposit Insurance Corporation authority to trigger and handle the winding-down of big banks in trouble, without Treasury involvement, and without an escape hatch.

Needless to say, Wall Street favors the Administration's approach -- which is why the Administration chose it to begin with. If I were less charitable I'd say Geithner and Summers continue to bend over bankwards to make Wall Street happy, and in doing so continue to risk the credibility of the president, as well as the long-term financial stability of the system.

Wall Street could live with the slightly less delectable variation that Congress is coming up with. But Congress won't go as far as to unleash the antitrust laws on the big banks or resurrect the Glass-Steagall Act. After all, the Street is a major benefactor of Congress and the Street's lobbyists and lackeys are all over Capitol Hill.

The Street obviously detests the notion that its behemoths should be broken up. That's why the idea isn't even on the table. But it should be. No important public interest is served by allowing giant banks to grow too big to fail. Winding them down after they get into trouble is no answer. By then the damage will already have been done.

Whether it's using the antitrust laws or enacting a new Glass-Steagall Act, the Wall Street giants should be split up -- and soon.

Cross-posted from Robert Reich's Blog.
Read more: Treasury Department, Congress, Robert Reich, Too Big to Fail, Bank of America, Larry Summers, Paul Volcker, Barack Obama, Merrill Lynch, Goldman Sachs, JP Morgan, Morgan Stanley, Wall Street, Financial Crisis, Banks, Glass-Steagall Act, Timothy Geithner, Bear Stearns, Citigroup, Break Up Big Banks, Breaking Up the Big Banks, Breaking Up Banks, Business News