A New Criminal Class in America

Who? The banks! Here's a NY Times article to introduce the banks with their badly managed "paperwork" who are illegally seizing properties around the country under foreclosure laws that simply assume the bank has a right to your property and you have to beg, plead, spend a fortune, wait for months for the slow wheels of justice to grind. But banks whiz through seize property and make off like bandits!

Here's a bit of the article:

In a Sign of Foreclosure Flaws, Suits Claim Break-Ins by Banks

By Andrew Martin

TRUCKEE, Calif. — When Mimi Ash arrived at her mountain chalet here for a weekend ski trip, she discovered that someone had broken into the home and changed the locks.

When she finally got into the house, it was empty. All of her possessions were gone: furniture, her son’s ski medals, winter clothes and family photos. Also missing was a wooden box, its top inscribed with the words “Together Forever,” that contained the ashes of her late husband, Robert.

The culprit, Ms. Ash soon learned, was not a burglar but her bank. According to a federal lawsuit filed in October by Ms. Ash, Bank of America had wrongfully foreclosed on her house and thrown out her belongings, without alerting Ms. Ash beforehand.

In an era when millions of homes have received foreclosure notices nationwide, lawsuits detailing bank break-ins like the one at Ms. Ash’s house keep surfacing. And in the wake of the scandal involving shoddy, sometimes illegal paperwork that has buffeted the nation’s biggest banks in recent months, critics say these situations reinforce their claims that the foreclosure process is fundamentally flawed.

So... the people who brought you sliced and diced "securitization" which crashed the economy and cause the Great Recession are back with more fancy paperwork that covers over illegal and unethical acts. Before it was selling paper as AAA when it was junk. Now it is seizing properties they don't own because the securitized mortgage bonds have improper and missing paperwork.

And guess who will pay for this mess? The million dollar bonus receiving bankers who got a $800 billion taxpayer bailout? Nope! You, the taxpayer, will pay for this mess through years of legal cases clogging the courts to straighten out the mess. Meanwhile the bankers will be blowing you bubbles. Literally, they will be blowing up new bubbles to enrich themselves because the Obama financial regulation act doesn't regulate any better than wet tissue paper when it comes to restraining fraud and illegality on Wall Street!

David Cay Johnston's "Free Lunch"

If you want to understand the disease that is rotting away the American democracy, this is one of the best books to read. It walks you though case after case of financial corruption that is rife throughout the political system in the US. It isn't about politicians being bribed. It is about how the power of the ultra-rich has corrupted the political process so that they get a "free lunch" through subsidies, tax loop holes, unmonitored regulations, tax audits that never happen, etc.

He traces this corruption mostly from when Reagan took power and systematically destroyed the counter-weight to the political power of the rich. But he also sees evidence of corruption going back further. In fact, he does mention how it has been in civilization from the beginning. But he sees the golden era for an America where the common people got dealt a fairly good deal as running from FDR up until the mid-1970s. But the corruption of politics has gone on since the 1970s through both Republican and Democratic presidencies. And it has gotten worse with time.

Here is the theme of the book that is worked out through example after example of the rich pocketing a free lunch:

It's been nearly 30 years since Ronald Reagan asked, "Are you better off now than you were four years ago?" and tens of millions of American voters responded with a resounding no.

With their votes the citizenry fired not just one unpopular and unlucky president but granted the new president, and eventually his party, broad authority to reconstruct the relationship between the government of the United States and its economic system. By overwhelming numbers, middle-class, well-to-do, and wealthy voters agreed that the economic malaise of the seventies -- inflation, skyrocketing energy costs, deficits, high unemployment -- was the sour fruit of a half-century of government interference with the "invisible hand" of the nation's market-based, capitalist economy.

The promised solution was to get government ouyt of the way -- to let business operate largely free of public oversight in the form of government pgorams, rules, and regulations, or at least with a lot fewer of them. The voters agreed to let the "private sector" of companies, corporations, associations, and charitable organizations take over a smany of the duties of government as practical. "Government is not the solution," Reagan famously declared as the battle cry of his revolution. "Government is the problem."

So it is only reasonable nearly three decades later to ask a new question: Are we better off than we were a generation ago?

...

Yet despite all this success in hard dollars and improved product quality, for the vast majority of Americans the answer as to whether they are better off is again, almost three decades later, a resounding no.

The gross numbers and averages about economic growth obscure one overwhelming truth: The benefits of this bonanza flowed overwhelmingly to those at the apex of the economic pyramid. The base of that pyramid has weakened as average incomes have shrunk and more risks were forced upon them by government policies that favor those at the top.

For the bottom 90 percent of Americans, a group we will refer to as the vast majority, annual income has been on a long, mostly downhill slide for more than three decades. The vast majority's average income peaked at $33,000 way back in 1973. By 2005 it had fallen to a bit more than $29,000. Even with three decades of economic expansion, the vast majority has to get by on about $75 less each week than it did a generation earlier, tax return data show.

While the book is concerned with presenting case after case of a systemic bias toward the ultra-rich in this Reagan "revolution", the items that catch my eye are the general principles. For example, this discussion of the role of government versus "free enterprise":

Individual purchases can make things worse, not better, as shown by our history with fire insurance. There was a time in this country when people paid commercial fire companies to protect their property. But instead of replacing lost property, as we do today, these policies insured that firefighters would fight any fir at hour home or business. A problem arose when the house abutting yours caught fire. If that owner had paid a different fire company, or none at all, your fire company would not put out the blaze even though it was a threat to your property. Only when your building was ablaze was your fire insurance company obligated to act -- and that could be too late. That system died when we recognized that fires are a public problem, not a private one. Our solution was to have government provide fire-protection as a public service. People relinquished having their choice of fire-fighting companies, but saw that government monopoly on fire-fighting service saved far more lives and protected property much more efficiently than the market did. Accident and illness are, like fires, public and social problems, not individual ones, that are mostly efficiently treated as public service.

In America we do not speak of police insurance, or education insurance, or when vacationing at the seashore, ilfeguard insurance. Rather we pay taxes for police, education, and lifeguard services because these are essential services for a civil society.

Here is David Cay Johnston with an example of how Bush shoveled the public's money to rich drug companies via his prescription drug bill:

One key provision prohibited the government from enegotiatin for the lowest possible prices. Negotiating for low prices when buying in bulk is standard practice. That is what Veterans Affairs does. That is what every business owner does. So does every other industrial nation for their universal health care plans for their citizens. Negotiating for the lowest price would seem to be an obvious choice for those in both parties who talk about running government like a business, promising voters that if elected they will work tirelessly to replace waste with efficiency.

The corporatists say that negotiating for lower drug prices was an abuse of government power. They called negotiating a euphemism for government price controls. And they said it would mean less money to invet in new drugs, delaying advances in pharmaceuticals.

To the peoplists, the ban on price negotation was a stealth plan to make the drug benefit so costly it would cause the whole system of socialized medicine for the elderly to collapse. This political paranoia was not without some basis in fact.

Here is Johnston's assessment of the thirty years of Reagan revolution:

We now have almost three decades of experience with the idea that markets will solve our problems. The promised results are not there and there is no reason to believe that they are over the next horizon, just a few more subsidies away. Electricity costs more and its delivery is less reliable. Many hundreds of billions of tax dollars have been diverted to the rich, leaving our schools, parks, and local government services starved for funds. Jobs and assets are going offshore, sometimes to the detriment of not just the economy, but national security.

What Johnston didn't know when he published his book in 2007 was that the deregulation and lax regulation of banking and real estate was about to explode in the 2008 Great Recession. No better proof of the moral bankruptcy and money-besotted corruption behind Reagan's "revolution".

Johnston has a very simple solution for the malaise brought on by "free lunch" mentality of the Reagan revolution:

... we created a nation of laws, not of men. We set forth the principles for this bold experiment in 52 words whose eloquent wisdom we too often forget:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Belessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

These concepts inform our guideposts: Society, Justice, Peace, Security, Commonwealth, Freedom. What did not make the list was a purpose of our nation? Individual riches. That we may each become rich, if we choose and luck is with us, is a by-product rather than the purpose of our system of government.

Yet for more than a quarter century, we have acted as if economic gain is the great purpose of government.

This is an excellent book to make you aware of the depth and breadth of corruption in America. The corrosive ideas of right wing ideologues has nearly destroyed the country. Sadly, despite the Great Recession, the message has not gotten through. The public gave the Republicans a majority in the Congress in the 2010 mid-term elections. Democrats and Republicans continue the charade of concern for "waste and fraud" while shoveling taxpayer wealth to the ultra-rich through tax cuts, deregulation, loopholes, special "laws", pork barrel politics, etc. It has to end. The longer it takes, the more ravaged the economy will be and the longer it will take to crawl out of the hole, the cesspit, created by the "free lunch" mentality.

A Tongue-in-Cheek Look at Obama's "Compromise"

Here is a post from Barry Ritholtz's Big Picture blog that jests at how liberals and conservatives can hold the same view and come to a "compromise" that results in something they both claim to hate. Yes, this celebrates the joys of "politics" and the razzle 'em, dazzle 'em politics that uses sleight of hand to "deliver the goods" to the only constituency that counts: big corporations:

President Obama has “compromised” on everything from financial regulation and healthcare to taxes.

Obama claims that all of his “compromising” shows that he’s getting things done. After all, politics was long ago defined as “the art of compromise”.

On it’s face, it makes sense that if both conservatives and liberals hate legislation, it must mean that there was give-and-take, and it ended up somewhere in the middle.

But that isn’t necessarily true.

Specifically, as I pointed out last month:

Conservatives tend to view big government with suspicion, and think that government should be held accountable and reined in.

Liberals tend to view big corporations with suspicion, and think that they should be held accountable and reined in.

Okay, stay with me here for a minute …

Conservatives hate big unfettered government and liberals hate big unchecked corporations, so both hate legislation which encourages the federal government to reward big corporations at the expense of small businesses.

As an example, both liberals and conservatives are angry that the feds are propping up the giant banks – while letting small banks fail by the hundreds – even though that is horrible for the economy and Main Street.

The Dodd-Frank financial legislation wasn’t a compromise where things landed somewhere in the middle between liberal and conservatives ideas. Instead, it enshrines big government propping up the big banks … more ore less permanently.

Many liberals and conservatives look at the government’s approach to the financial crisis as socialism for the rich and free market capitalism for the little guy. No wonder both liberals and conservatives hate it.

And it’s not just the big banks. Americans are angry that the federal government under both Bush and Obama have handed giant defense contractors like Blackwater and Halliburton no-bid contracts. They are mad that – instead of cracking down on BP – the government has acted like BP’s p.r. spokesman-in-chief and sugar daddy.

They are peeved that companies like Monsanto are able to sell genetically modified foods without any disclosure, and that small farmers are getting sued when Monsanto crops drift onto their fields.

They are mad that Obama promised “change” – i.e. standing up to Wall Street and the other powers-that-be – but is just delivering more of the same.

They are furious that there is no separation between government and a handful of favored giant corporations. In other words, Americans are angry that we’ve gone from capitalism to oligarchy.

So if both liberals and conservatives hate something, it doesn’t necessarily mean it’s a compromise. It may mean that they feel disenfranchised from a government that is of the powerful and for the powerful.

I like the comment posted by one reader of Ritholtz's blog:


You have to admit, that comment pretty well sums up the government under Republicans and Democrats.

The New World Economy

It used to be America #1. It is now America #6 and falling.

Here's a very telling bit of information from Robert Reich:

Consider one of most popular Christmas products of all time – Apple’s iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.

Some shows up in Apple’s profits, which are soaring.

About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.

Only about $11 of that iPhone goes to American workers, mostly researchers and designers.

This makes it pretty clear that US workers are being squeezed out of the international markets. But Corporate America, like Apple top brass and the shareholders are making out like bandits. But as Reich points out, top US corporations are less and less "America" and more and more "rest of the world". See the bolded bit:

Not that it was all that unfriendly before. Some would say the bailouts of Wall Street, AIG, GM, and Chysler were about as friendly as it can get. In addition, Washington gave windfalls to drug companies and health insurers in the new health bill, subsidies to energy companies in the stimulus package, and billions to domestic and military contractors.

But for corporate America it still wasn’t friendly enough. Before the midterm elections, Verizon CEO and Business Roundtable chair Ivan Seidenberg accused the President of creating a hostile environment for investment and job-creation. In the midterms, business leaders overwhelmingly threw their support to Republicans.

So the White House caved in on the Bush tax cuts for the wealthy, and is telling CEOs it will be on their side from now on. As the President recently told a group of CEOs, the choice “is not between Democrats and Republicans. It’s between America and our competitors around the world. We can win the competition.”

There’s only one problem. America’s big businesses are less and less American. They’re going abroad for sales and employees. That’s one reason they’ve showed record-breaking profits in 2010 while creating almost no American jobs.

Here's the new reality. Here's the new "bottom line"...

So when President Obama tells American CEOs our biggest challenge comes from abroad, you’ve got to wonder. The leaders of American business are already abroad, and doing quite nicely.

Just after the midterm elections, the President’s chief economic advisor, Larry Summers, told a group of top U.S. CEOs that the election was partly a “rejection of elites…that were seen as more citizens of Davos than of their countries.” American CEOs, Summers warned, should “think very hard about their obligations as citizens of this country.”

Yes, they’re citizens. But first and foremost they’re CEOs. And CEOs have to show profits – wherever those profits come from. Under American-style capitalism, profits matter. Jobs don’t.

2010 was the year Washington became even more “business friendly.” The result has been more and better jobs – but not in America.

Sadly, the voters who elected Obama didn't expect this. They don't want Obama to hand over the keys to the corporate CEOs and declare that America is now "business friendly".

Using Historical Analysis to Understand America Today

Here is an excellent, thought-provoking essay by David Cay Johnston that explores why we are living in politically tumultuous times, how these relate to previous similiar episodes, and an attempt to understand how to master the current situation and extract ourselves from it:

America is in the grip of a full-blown societal panic. Crazy, irrational, contradictory ideas about tax policy are just the most obvious symptom.

Societal panics occur when the expectations and rules everyone has been accustomed to living under no longer work. They occur when some new force changes the rules of the game -- a force that may be easy to identify or invisible, but whose effects are far-reaching and unstoppable.

Sometimes that force comes from nature, sometimes from a discovery, sometimes from inventions of the human mind. But in every case throughout history, that force, like the waters pouring over Niagara Falls, cannot be stopped, although sometimes it can harnessed.

Because no one knows quite what to do when the old ways stop working, panic sets in, replacing reason. Crazy responses spread until an idea or a leader emerges, a new way to make sense of the change. The new leader is often the one who persuades people that it is better to live by new rules.

Humans have experienced societal panics time and time again. Sometimes they end in tragedy, sometimes in triumph. And those unexpected accidents of history often play a huge role in the outcome.

Consider what happened to the Greeks 2,700 years ago. Greek settlers in Lydia, what is now the Mediterranean coast of Turkey, found a mine rich with electrum, a naturally occurring alloy of gold and silver. This find resulted in the invention of coinage, an invention so revolutionary that it launched the ancient Greeks into a societal panic that lasted two centuries, but at its end gave us two of the most powerful, intertwined, and enduring principles of Western Civilization -- the moral basis for progressive taxation and democracy.

America was in the grip of a societal panic from the end of the Civil War until 1893, an era historians call the Gilded Age, but that could just as easily be called the Agrarian Death or the Industrial Triumph as America the land of yeoman farmers became America the land of industrial might. It was an era of turmoil and conflict -- gilded mansion ceilings and a famous speech about oppressive debt and a gold cross; the invention of the electric light and violent night-time attacks on workers seeking more pay; and our first encounter with a politician who lost the popular vote but became president anyway.

Our current societal panic began almost four decades ago, when the economic glow created by emerging from World War II with half the world's industrial capacity wore off and President Nixon went to Beijing, opening the door to the transfer of that manufacturing capacity to China.

The long-term effects of this, and the faux "free trade" policies adopted at the behest of our financier class, took time to affect society, just as the invention of coinage did not instantly disrupt ancient Greek social and commercial relations.

Our panic turned into wildly unthinking behavior at the end of the last century, with taxes as the first sign that reason was giving way to belief, that dogma was trumping empirical evidence.

But while the symptoms we see are crazy tax policies, crazy borrowing, and neglect of the commonwealth property and policies that are the foundation for private wealth creation, our panic is about something much deeper.

Our societal panic is about what we as a nation fear almost as much as death itself -- the end of American abundance, the death of the idea that each generation would do better than the last, the end of the notion that everyone who works hard and plays by the rules will at least prosper in the sense of having a roof over their heads and enough to eat. Our societal panic is about a new world of mind-numbing complexity where speculation with algorithms and borrowed money pays more in a day than thoughtful investment may return in a lifetime, where jobs pay less tomorrow than yesterday, and where loyalty is something we associate with frequent flier programs rather than careers.

There is a lot more discussion of societal panics, history, and the current situation. Go read the whole article.

Here is where Johnston gives hope:

The 20th century, what some historians will look back on as the American Century, prospered under a national, industrial-wage economy, flush with high-paying jobs and tax rules that discouraged withdrawals from operating businesses. Taxing wages was a smart way to finance government because wages were rising. But since 1973, with some brief exceptions, this has not been true for the vast majority, whose average income in 2008 was less than 1 percent greater than in 1980, while incomes at the top soared, spurred in part by rules that encourage withdrawals of capital from business for unproductive consumption because of extremely low tax rates.

The 21st century is an era of a global, digital, and asset economy with rules that favor the free flow of capital over labor, which is brutally suppressed in China and legally suppressed in America through anti-union laws, lack of enforcement of wage laws, and the dampening effects of a growing reserve army of the unemployed.

America's current societal panic is not going away soon. Tens of millions of people are out of work and tens of millions more fear their next paycheck could be their last. The temporary Bush-era tax cuts will not end next month, even though the huge deficits run up since 1980 hover over us like dark clouds of debt that could drop enough worthless government bonds to drown us all.

Yet we must deal with the circumstances we have created for ourselves. The price of self-governance and its freedoms is making wise choices and electing wise leaders or suffering the consequences.

The adoption of misguided economic policies, the election of politicians unwilling to be disciplined in opening the public purse, and the artificial deadlines imposed on us by the legislative gamesmanship used in enacting the 2001 and 2003 tax cut laws, together with our faux free trade policies, have put us in a deep hole.

In clawing our way back we must keep in mind that those Bush tax cuts were not tax cuts at all but simply loans against a future which has now arrived in giant waves of red ink.

There is talk, by very thoughtful people, that we can never recover from this hole, that our fate is sealed, and that we will descend into a future worse than the past within living memory. I believe we can go on to a richer future, but it will take a leader who synthesizes an understanding of how the old rules must be discarded and new ones adopted that flow from the changes in the world economy.

Before we get there things may get worse, much worse, as the Greek experience with Draco and his draconian laws should remind us. But we will never get on a path to sound tax policy, policy that flows from the new economic order instead of against it, until enough of us stand back from the riotous conditions and find a place where rational debate about taxes can grow into popular understanding.

Arguing from historical analogy is notoriously tricky. Johnston's analysis may be completely wrong. But it at least gives a framework to think positively about contemporary problems and use positive historical event as possible clues to dealing with the current situation. The one thing that is utterly clear: continuing on the current path gives no hope. Something new needs to be done. A kind of Constitutional Convention needs to be called to rethink the framework of governance to find a way to unshackle the politicians, the political institutions, and the economy from the power of big money.

What Wall Street Hath Wrought

Here is the initial bit from an article by Brett Arends that lays out the horrors that the Wall Street banks have wrought on America...

The great bank heist of 2010

Commentary: Wall Street wins, Main Street pays — again

This was the year America finally took on the power and greed of the Wall Street banks.

And the banks won.

They dodged the bullet of real reform, probably for all time. They bounced back to post huge profits, helped by legal theft from the middle class. They completed their takeover of both political parties — and bought themselves a new Congress even more pliable than the old one.

Middle-class America is flattened, devastated and broke. The bankers that caused it all have escaped punishment. They’re raking in huge profits. Oh, and the tax cuts just got extended for high earners, too!

Game over.

Of all the signs of Wall Street’s gloating and arrogance this year, which one stands out the most?

The image of the president of the republic, traveling to New York to reassure them that they wouldn’t suffer too much from new regulations?

Or maybe billionaire Steve Schwarzman, the private-equity oligarch at Blackstone Group (NYSE:BX) , complaining that any attempt to make him pay actual income tax on his income was akin to “when Hitler invaded Poland.”

Not France. Not Belgium. Poland.

In the aftermath, he grudgingly issued a partial retraction.

In any civilized society he would now be pariah. He’d have to eat alone at unfashionable restaurants, and the waiters would spit in his soup.

Instead, as the year drew to a close, I saw him being interviewed on TV, the hosts hanging on his every word.

In 2010, Wall Street’s year, Schwarzman’s only real sin was getting caught flaunting his contempt for the nation.

Far worse went on behind closed doors.

Read the whole article and be completely filled with contempt for the banks.

And the level of corruption and cynicism by those who take from the poor to give to the rich in their anti-Robin Hood frolics is astounding:

By keeping short-term interest rates near zero, the Fed is basically robbing your grandmother, and other hard-working savers, and giving to Wall Street. The banks borrow from us for free, and then lend us back our own money at interest by purchasing Treasury bonds.

And in a perfect circle of cynicism, the beneficiaries of bailouts are now spending some of their loot lobbying our Congress to overrule us on reform.

The commercial banks and investment firms spent a total of $118 million lobbying just in 2010, according to the Center for Responsive Politics.

And the politics is ugly, the politicians are venal, and the system has failed:

Top Democrats were too terrified of alienating their sugar daddies to pass real reform.

But the joke was on them.

First, Wall Street’s campaign contributions aren’t that important — they only account for about 10% of the party’s money. The Democrats could have lost all of it (an unlikely scenario in any event) and still been in business.

Second, the Democrats would have got a lot more credit — and contributions — from the rest of America if they’d stood up to Wall Street.

And third: Sucking up to Wall Street didn’t help them anyway. Wall Street still turned Republican. The American Bankers Association, J.P. Morgan Chase & Co. (NYSE:JPM) , Citigroup, Bank of America, even Goldman Sachs: This time around, more than half their donations went to the GOP.

Most Americans don’t realize it, but this talk of a “grassroots” and “anti-establishment” election was a bunch of hooey. What really happened was that Wall Street has just bought itself a new, even more compliant Congress.

The new Republicans are already fawning over the bankers. They’re promising to stop the restrictions on (ahem) “financial innovation.” Congressman Spencer Bachus — the next chairman of the House Financial Services Committee — actually said “Washington and the regulators are there to serve the banks.” Let the good times roll!

It was the greatest heist in history. The bankers pulled it off under everyone’s nose.

I can hardly wait for the next financial bubble to burst and everybody is put through this wringer again. But this time it will be truly different. Instead of doing this dance to make millionaires into billionaires, the number of seats and dancers will be reduced and this time the game will turn billionaires into trillionaires!!!

Big Government

Here is a bit from a post by Paul Krugman on his NY Times blog that looks at how "big government" is an illusion of the crazy right in American politics:

...why has government employment grown over time? Because, um, we have a growing population. Here’s government employment as a share of the population:


Yes, government got bigger under those socialists Dwight Eisenhower, LBJ, and Nixon. Since then, however, there has been no trend relative to population.

It is pretty clear that "big government" as sold by Ronald Reagan and his acolytes over the last 30 years is a "big lie".

I love the way Krugman takes a swipe at the crazy right by pointing out the staunch Republicans like Eisenhauer and Nixon resided over big increases in government size.

The truth is that government grew to fulfill the modern role of the state. If you want to live behind a horses arse pulling a plow, then you can have a tiny, tiny government. But if you live in a complex modern society with advanced educational needs, lots of social services, protections provided by agencies such as FDA, EPA, CDC, etc. then you need big government.

But reality doesn't daunt the ideology. As Krugman points out, their fantasies run wild despite the facts:

...thanks to one of my commenters for pointing to Mike Konczal’s dissection of claims that there has been a huge increase in the number of regulators; it turns out that essentially all of the increase reflects the growth of Homeland Security.

But ideologues don't want to be hampered by facts. They want to be free to spew their vile propaganda. They aren't interested in truth. They don't want to debate or discuss. They want to bludgeon and destroy.