Magic Mushrooms
It had been a rainy summer in Colorado. No surprise to find mushrooms as we hiked the Andrews Glacier trail in Rocky Mountain National Park. But these mushrooms! Three inches across, deep crimson with white splotches, glowing in the mountain sunlight! Amanita muscaria, the original deadly toadstool, the mushroom of fairytales, Alice in Wonderland’s mushroom. Not truly deadly—and safe to eat boiled—muscaria contains a psychedelic compound called muscimol. Siberian shamans took muscaria to induce religious visions. Muscaria extract may have been the Soma of the Indian Rig Veda.
I first learned of psychedelic compounds in 1966, in a thrilling economic botany course taught by Richard Evans Schultes (1915-2001). I can still recite the Latin names of dozens of useful plants. In the lab, supervised by Schultes’ student, Homer Virgil Pinkley, we extracted caffeine from coffee beans, made soap, paper and perfume and examined specimens in the Harvard Botanical Museum. Schultes himself, now known as the “father of ethnobotany” had spent over twenty years in the 1940’s and ‘50’s living among the natives of the Amazon, studying their use of plants, including hallucinogens. He collected thousands of medicinal plants, some of which were named after him. He published nine books, including Plants of the Gods: Origins of Hallucinogenic Use, 1979, with Alfred Hofmann. I didn’t know it at the time, but Schultes’ research set off the psychedelic revolution of the 1960’s and ‘70’s. Schultes, proper Bostonian that he was, kept his distance. Schultes also first sounded the alarm about the destruction of the Amazon rain forest.
In 1970, I moved to Berkeley with my ex. I grew my hair long and stringy, kept two dogs, four cats, two chameleons from Israel, an African spiny lizard, a gorgeous brown and cream banded Sonoran kingsnake, and a three-foot spectacled caiman. The caiman was a gift from the laboratory of Alan Wilson, where it provided blood samples for research on the DNA clock—until it outgrew its tank. I kept my toothy little pet in the bathtub, and fed it surplus mice from the lab.
I also read Carlos Castaneda’s The Teachings of Don Juan: A Yaqui Way of Knowledge and its sequels. It was an enthralling account of anthropology student Castaneda’s experiences with a Mexican shaman, an account that expanded from a sober report to a poetic vision. I never actually tried any mind-altering substances. Not for lack of opportunity, but more from a sense that if I concentrated, I could find other ways of seeing, just around the next corner.
And I did find a new vision, a vision of social justice. In 1970 my ex and I worked in Ralph Nader’s project on Power and Land in California, studying how large landowners induced government to enhance their land values, notably by building unnecessary water projects. In the process, I encountered Henry George’s Progress and Poverty (1879). Now there was an eminently practical vision: social justice to arise from taxing the unearned income of wealthy property owners and untaxing the wages of the poor. That was the vision that sent me to grad school in economics, inspired my dissertation on inequality, and has kept me active ever since. No mushroom could do that!
Income Inequality and Financial Crises, NYT, Aug 21
A New York Times article by Louise Story asks, “Do widening gaps between rich and poor necessarily lead to financial crises?” (Aug. 21) The answer is yes, for a reason observed over 100 years ago by American economist and reformer Henry George: Economic growth enhances the value of titles to real estate and other natural resources (like broadcast spectrum). This widens the wealth gap between individual or corporate title-holders and the rest of the population. As growth progresses, overoptimistic projections of future growth widen the gap even further. Come the inevitable collapse, imaginary wealth evaporates, and the gap shrinks. Only, as pointed out by Gretchen Morgenson (“Debt’s Deadly Grip” Aug 22), this time is different. By holding short-term interest rates near zero for the big banks, the Fed is supporting the value of their toxic assets at the expense of everyone else.
Unemployment, Austerity, Stimulus
[N.B.: First three items by our fabulous summer intern Elizabeth Murphy, who also chose this post's Possibly Irrelevant Image. Sorry for the delay posting these!]
(1) The Bureau of Labor Statistics released the July unemployment numbers last Friday (Aug.6) and they do not look pretty.
Unemployment remains exactly where it was at the end of the recession at 9.5%, with 14.6 million unemployed persons. The Center for Economic and Policy Research writes,
“For the second consecutive month, the economy created virtually no jobs, net of temporary Census jobs. The Labor Department reported that the economy lost 131,000 jobs in July, 12,000 less than the 143,000 drop in the number of temporary Census workers. The June numbers were revised down by 100,000 to show a gain of only 4,000 non-Census jobs.”
If anyone is looking for a more in-depth look at the unemployment figures, you should check out the Economic Policy Institute’s Economy Track. They have an interactive map of the U.S. which details unemployment figures for each state. Nevada is still the state with the highest unemployment at 14.2%.
–Elizabeth Murphy
(2) According to some statistics, theses unemployment figures correspond with an ongoing trend in U.S. economic recovery.
Pragmatic Capitalism offers Some Perspective on the High Unemployment Rate:
“Assuming that the recession ended in June 2009, the current unemployment rate is exactly where it was at the end of the recession (9.5%). For some perspective on the current state of the labor market, today’s chart illustrates the amount of time it took for the unemployment rate to ultimately dip below (and stay below) its recession-end level for each recession since the late 1940s. For example, at the end of the recession that ended in November 1982, the unemployment rate stood at 10.8%. As the chart illustrates, it took two months for the unemployment rate to drop below (and stay below) the recession-end level of 10.8%. It is noteworthy that, over the past two decades, it has taken significantly longer (on average) for the unemployment rate to drop below its recession-end level. The reasons for this increased time for the unemployment rate to turn around varies. However, one explanation has it that following World War II, the US found itself in a strong/dominant economic position. It took time, but eventually many of the remaining world economies began to recover and we are currently witnessing increased competition as a result of the rise of the rest.”
The article (by Chart of the Day) includes a great chart showing how long it took after each recession for unemployment levels to drop below recession end levels starting in 1949. It shows that in 2001, it took nearly 36 months!
–Elizabeth Murphy
(3) As worrying as these unemployment figures are, even more worrisome is the lack of action being taken to fix unemployment. Brad Delong vents his frustration at TheWeek.com:
“where is the panic, the sense of urgency? The Obama administration and the Democratic majority in Congress passed a fiscal stimulus plan half the size recommended by Democratic economists fifteen months ago. Since then, they have been unable to assemble a political majority to finish the second half of the job. There seems to be no appetite for addressing ten percent unemployment.
Instead, we have the Obama administration calling for a three-year spending freeze on programs unrelated to national security. We have Democratic Congressional Campaign Committee chairman Chris van Hollen calling for deeper short-term spending cuts. We have an administration experiencing difficulty finding $23 billion to prevent additional teacher layoffs, even though maintaining — no, expanding — investment in education in a recession is the no-brainiest of no-brainers.
Why the enormous disconnect?”
A calm, passive approach to unemployment is not going to help improve these unemployment figure, but panic probably won’t help much either. Delong ends his article with interesting and unnerving questions. And as far as the last question is concerned, I sincerely hope the answer is no: “Are we passively watching an unrepresented underclass of the long-term unemployed created before our eyes?”
–Elizabeth Murphy
(4) Today’s New York Times has an interesting article, Rates Fall as Market Fears Economic Weakness, suggests that bond traders, far from being “bond vigilantes” pressuring governments toward austerity, may actually be worried that deficit hawks are leading us to a double-dip recession:
The governments are seeking ways to bring down budget deficits, fearing that without austerity they could go so far into debt that they would never be able to borrow again. Investors in the financial markets seem to be much more concerned by the possibility of renewed recession and a general deflation that could send asset values and prices down.
That market reaction is the opposite of what happened in the late 1970s and early 1980s. Then “bond vigilantes” were reluctant to invest in United States Treasury securities because they feared runaway inflation. Their refusal drove up the interest rates the government had to pay on its borrowings and eventually led the Federal Reserve, under Paul A. Volcker, to wage war against inflation even if it meant choking off economic growth.
Now, far from showing a reluctance to finance the American government, investors are seeking safety and evidently believe American government debt is the safest possible investment. They have rushed to send money to the Treasury, thereby reducing borrowing costs for the government.
By late 2009, interest rates had fallen to levels previously thought inconceivable. The annual yield on a two-year Treasury note dipped below 1 percent. But it has since traded barely above one-half percent.
Perhaps investors are nervous because they fear governments will swing too far toward austerity. When economies weakened three years ago, talk immediately turned to economic stimulus. This time, much of the discussion in Washington, as well as in many European capitals, has focused on the need to reduce spending and deficits, rather than on the possibility that additional stimulus might be needed to avert a new worldwide downturn.
And the article concludes:
Economics is a notoriously uncertain discipline. It is possible that a surprisingly strong employment report, or some other unanticipated event, could begin to disperse the fog of economic pessimism that has engulfed investors and sent interest rates to record lows.
But for now, the financial markets seem to fear recession and deflation much more than they fear deficit spending.
Maybe the markets are smarter than we thought, this time around?
–Chris Sturr
The Buyout of America
On vacation in Colorado, we drive through the Littleton shopping mall. There it is, a two-story building, black and empty behind its glass facade. Mervyn’s Department Store. Founded in 1949, Mervyn’s grew to a chain of 189 stores in 10 Western states. But in 2008, Mervyn’s went bankrupt , laying off 18,000 employees without severance or vacation pay. Just an ordinary casualty of the recession? Hardly.
In The Buyout of America Josh Kosman introduces us to the private equity or PE firms. They are a major force behind what Barry Lynn called “the economics of destruction.”
The players:
PE firms. You haven’t heard of most of them, and they like to keep it that way. A few better-known ones are the Carlyle Group, Goldman Sachs, Kohlberg Kravis Roberts, and the Blackstone Group. They are the descendants of the notorious leveraged buyout operators of the 1970s.
Target corporations. These are typically midsize to largish corporations, steadily profitable but not exciting. Often, like hospital chains, they are not especially well-managed.
Investors. These are mostly pension funds, desperate for higher returns to compensate for prior underinvestment. They include public pension funds, like the giant California Public Employees Retirement System.
Banks. These are mostly the big banks, like JP Morgan Chase or Citicorp, eager for loans that they can “securitize” and sell off.
Purchasers of securitized loans. These are also mostly pension funds, seeking super-safe passive investments for the bulk of their portfolios.
US federal and state taxpayers.
The game:
Step one. A PE firm lines up investors, who typically commit to supply funds over a period of up to 10 years. The PE firm promises spectacular returns.
Step two. The PE firm bids for a target corporation. It may put up 5% of the bid while its investors supply the rest. For the balance of the purchase price, some 70% to 80% of the total, it arranges a huge bank loan, which it puts on the target’s books. The target essentially assumes the debt to buy itself out. Under terms of the deal, the target may pay interest only on the loan for five or six years, before the principal becomes due.
Step three. Because interest on the loan is deductible, federal and state taxpayers pick up a big piece of the loan interest, 35% federal, plus whatever state tax piggybacks on the federal.
Step four. The bank securitizes the loan, combining it with other loans to create what are called “collateralized loan obligations,” or CLO’s. CLO’s are equivalent to the “collateralized debt obligations”, or CDO’s, which banks created from mortgages. As with the CDO’s, the bank divides the CLO’s into “tranches”, gets Standard & Poor’s or Moody’s to rate the top tranches AAA, and sells them to further investors.
Step five. The PE firm installs its own management, which starts raising prices and cutting costs, including laying off employees and scaling back R&D. The PE firm has three objectives here: first, it must enable the target to pay the interest on its debt. Second, it must make the target look profitable in the short run so it can sell it when the debt principal comes due in a few years. Third, it seeks to liberate cash to reward itself and its investors during the few years it owns the target.
Step six. The PE firm starts extracting money. It charges its investors a 2% annual fee. It charges the target a 15% “management fee.” It may pay itself a huge dividend. Cerberus Capital Management, which bought Mervyn’s department stores, split the company in two: a real estate division and a Mervyn’s store division. The real estate division promptly jacked up the rent on the store division.
Step seven. The PE firm sells the target, now crippled by debt and underinvestment. Or the target goes bankrupt, like Mervyn’s.
Consequences.
Within a few years, fees and dividends have earned the PE firm many times its original small investment. The PE firm’s investors sometimes do well, but often not, especially when the target goes bankrupt. The buyers of CLO’s from the banks also lose when the target goes bankrupt. Employees lose, both during initial cutbacks and eventual bankruptcy. Customers lose vital services, as when PE-owned hospitals cut nursing staff. The whole economy loses, as once-competitive firms are weakened or destroyed.
But there’s worse to come. The PE firms went on a feeding frenzy during the bubble years leading up to 2008. They now own over 2000 target companies whose loan principal comes due around 2012. If half these go bankrupt, Kosman estimates, some 2 million of the 7.5 million PE firm employees could lose their jobs. And the collapse of CLO’s could wreak further havoc on the banking system.
Reforms?
An end to interest deductibility, or at least deductibility for buyout loans, would stop PE firms in their tracks. So would limits on corporate debt, or requirements that buyers of corporations hold them for at least five years. Eliminating the “carried interest” loophole, which allows financial managers to pay only the 15% capital gains rate, would also weaken PE firm’s tax advantages.
Kosman isn’t optimistic. Four of the past eight Treasury Secretaries now lead PE firms. New York Senator Chuck Schumer, the “senator from Wall Street,” raises buckets of money from PE firms for Democratic candidates. Efforts over the years to modify interest deductibility have gone nowhere. Even President Obama’s barely-controversial proposal to close the carried interest loophole did not make it into the final financial reform bill.
Meanwhile, with bank lending frozen, the PE firms have found new games. They still have $450 billion in committed funds from their investors. They are using these, with government help, to buy failing banks and tap into cheap government credit. They are also buying from one another, enabling them to charge their long-suffering investors new management fees.
Wages Up or Down?
(1) Possibly Irrelevant Image:
It's Going to Get Worse
Which New York Times article are we to believe?
(2) Bernanke Says Rising Wages Will Lift Spending, from yesterday’s New York Times (check out the goofy pic of Geithner):
Federal Reserve Chairman Ben S. Bernanke said rising wages would probably spur household spending in the next few quarters, even as weak job gains dragged down consumer confidence.
Ben S. Bernanke, the Federal Reserve chief, spoke in South Carolina.
…
While the United States has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth,” Mr. Bernanke said on Monday in a speech in Charleston, S.C. “We are maintaining strong monetary policy support for the recovery,” he said in response to an audience question, without discussing any further action the Fed could take to aid growth.
Read the full article.
or (3) More Workers Face Pay Cuts, Not Furloughs, from today’s Times:
The furloughs that popped up during the recession are being replaced by a highly unusual tactic: actual cuts in pay.
Local and state governments, as well as some companies, are squeezing their employees to work the same amount for less money in cost-saving measures that are often described as a last-ditch effort to avoid layoffs.
A new report on Tuesday showed a slight dip in overall wages and salaries in June, caused partly by employees working fewer hours.
Though average hourly pay is still higher than when the recession began, the new wage rollbacks feed worries that the economy has weakened and could even be at risk of deflation. That is when the prices of goods and assets fall and people withhold spending as they wait for prices to drop further, a familiar idea to those following the recent housing market.
The article includes a picture of a worker from the Mott’s (apple juice) plant in Williamson, NY, where workers have gone on strike rather than accept pay cuts.
This article says that there’s a risk of deflation, whereas the other article, from happier, more optimistic times (viz., earlier this week) has the goofy Geithner saying that the economy is “healing,” and that the economy is “in no danger of confronting a deflationary threat like the challenges that have faced the Japanese economy.”
(4) Employers Strike–Because They Can, John Miller’s column from the current issue of Dollars & Sense. Same reason they cut wages–unless the sisters and brothers at Mott’s have something to say about it.
–Chris Sturr
PS: Ok, I couldn’t resist Photoshopping today’s Potentially Irrelevant Image with the goofy picture of Geithner:
I hope I’m not violating anyone’s intellectual property rights…
Surveillance
(1) Possibly Irrelevant Image:
I've Got My Eye on You
(2) Top Secret America: The series of articles by Dana Priest and William M. Arkin in the Washington Post about the growth of the national security sector, and especially of private contractors doing surveillance work for the government, has made a splash. (I like how WashPo has given the series its own dedicated multimedia website–very cool.)
Our feature article by Tom Barry, Synergy in Security, in our March/April 2010 issue, covers some of the same ground, though without the investigative resources. Both tell about the vast growth of the security sector, overlap between military contractors and security contractors, unaccountability, and how contractors have become so intertwined with the military and government departments that the latter are dependent on the former, and the former end up performing “inherently government functions” (which they aren’t supposed to). (I don’t like the way that phrase is constructed–shouldn’t it be “inherently governmental functions”? But that’s the phrase they use, according to the series’ second article National Security Inc.)
Here’s an interesting tidbit from the third article in the series, The Secrets Next Door, whose subtitle reads: “In suburbs across the nation, the intelligence community goes about its anonymous business. Its work isn’t seen, but its impact is surely felt.” The counties where security contractors are concentrated are among the wealthiest in the country:
“These are some of the most brilliant people in the world,” said Ken Ulman, executive of Howard County, one of six counties in NSA’s geographic sphere of influence. “They demand good schools and a high quality of life.”
The schools, indeed, are among the best, and some are adopting a curriculum this fall that will teach students as young as 10 what kind of lifestyle it takes to get a security clearance and what kind of behavior would disqualify them.
Outside one school is the jarring sight of yellow school buses lined up across from a building where personnel from the “Five Eye” allies – the United States, Britain, Canada, Australia and New Zealand – share top-secret information about the entire world.
****The buses deliver children to neighborhoods that are among the wealthiest in the country; affluence is another attribute of Top Secret America. Six of the 10 richest counties in the United States, according to Census Bureau data, are in these clusters.****
Loudoun County, ranked as the wealthiest county in the country, helps supply the workforce of the nearby National Reconnaissance Office headquarters, which manages spy satellites. Fairfax County, the second-wealthiest, is home to the NRO, the CIA and the Office of the Director of National Intelligence. Arlington County, ranked ninth, hosts the Pentagon and major intelligence agencies. Montgomery County, ranked 10th, is home to the National Geospatial-Intelligence Agency. And Howard County, ranked third, is home to 8,000 NSA employees.”
Hat tip to our intern Elizabeth Murphy for finding this passage. Read the whole series. Read our article, Synergy in Security.
(3) Gleen Greenwald on Project Vigilant: Hat-tip to Aslam K. for pointing us to Glenn Greenwald’s piece at Salon.com about a “highly secretive group called Project Vigilant”; the group played a role in the discovery of the source of the Wikileaks leaks about Afghanistan:
Forbes‘ technology writer Andy Greenberg reports that at the Defcon Security Conference yesterday, an individual named Chet Uber appeared with revelations about the case of accused WikiLeaks leaker Bradley Manning and government informant Adrian Lamo. These revelations are both remarkable in their own right and, more important, highlight some extremely significant, under-examined developments unrelated to that case. This is a somewhat complex story and it raises even more complex issues, but it is extremely worthwhile to examine.
Uber is the Executive Director of a highly secretive group called Project Vigilant, which, as Greenberg writes, “monitors the traffic of 12 regional Internet service providers” and “hands much of that information to federal agencies.” More on that in a minute. Uber revealed yesterday that Lamo, the hacker who turned in Manning to the federal government for allegedly confessing to being the WikiLeaks leaker, was a “volunteer analyst” for Project Vigilant; that it was Uber who directed Lamo to federal authorities to inform on Manning by using his contacts to put Lamo in touch with the “highest level people in the government” at “three letter agencies”; and, according to a Wired report this morning, it was Uber who strongly pressured Lamo to inform by telling him (falsely) that he’d likely be arrested if he failed to turn over to federal agents everything he received from Manning.
So, while Lamo has repeatedly denied (including in his interview with me) that he ever worked with federal authorities, it turns out that he was a “volunteer analyst” for an entity which collects private Internet data in order to process it and turn it over to the Federal Government. That makes the whole Manning case all the more strange: Manning not only abruptly contacted a disreputable hacker out of the blue and confessed to major crimes over the Interent, but the hacker he arbitrarily chose just happened to be an “analyst” for a group that monitors on a massive scale the private Internet activities of American citizens in order to inform on them to U.S. law enforcement agencies (on a side note, if you want to judge what Adrian Lamo is, watch him in this amazing BBC interview; I’ve never seen someone behave quite like him on television before).
(I love that this guy’s name is “Uber.”) Someone should crosscheck to see whether Project Uber, I mean Project Vigilant, is mentioned in the WashPo series. Elizabeth?
Read the whole post.
–Chris Sturr
Arizona Injunction; Baker on CBO and SS
(1) Possibly Irrelevant Image for today:
What? billboard
(2) Judge Blocks Az. Law S.B. 1070. Breaking news–U.S. District Court Judge Susan Bolton blocked key parts of Arizona’s restrictive and invasive immigration law, which was to go into effect in a couple of days. Here’s what the New York Times has to say:
In a ruling on a law that has rocked politics coast to coast and thrown a spotlight on the border state’s fierce debate over immigration, United States District Court Judge Susan Bolton in Phoenix said some aspects of the law can go into effect as scheduled on Thursday.
But Judge Bolton took aim at the parts of the law that have generated the most controversy, issuing a preliminary injunction against sections that called for officers to check a person’s immigration status while enforcing other laws and that required immigrants to carry their papers at all times.
Judge Bolton put those sections on hold while she continues to hear the larger issues in the challenges to the law.
Read the judge’s order. Read the rest of the Times article.
(2) Dean Baker on the CBO and Social Security: Dean Baker suspects the Congressional Budget Office is joining in the frenzy to target Social Security as a way to deal with deficits (or rather, the frenzy to use deficits as an pretext for targeting Social Security). At issue is the way the CBO models the effect of deficits on private investment:
CBO changed its modeling of the impact of deficits and
debt on the crowding out of private investment. As a result, the 2010
projections show that deficits in the near future will crowd out far more
investment than the 2009 projections. This leads deficits to have a far more
negative impact on GNP growth.
Read the full issue brief. For more on “crowding out,” see this article by our own Alejandro Reuss.
(3) Financial Reform, Round Two: As we reported yesterday (item two), the banks have already moved on to figuring out how to influence rule-making related to the new financial regulations–by hiring former regulators. Mary Battari of BanksterUSA has pointed out a second sense in which we are in Round Two of financial reform: the opportunity to push for further changes like a transaction tax.
Are you ready for Round Two? Our friend Paul Wellstone used to say, “sometimes you have to pick a fight to win one.” Bankster has been working with colleagues in the consumer movement, labor movement, Netroots and grassroots to figure out some fights worth picking. In addition to continued work on breaking up the banks, groups are coalescing around two big issues.
Repo the Dough: The Banksters crashed the economy and $14 trillion in wages, college savings, retirement saving and housing wealth disappeared. We want it back. The best way to do this? Nobel Prize-winning economist Joseph Stiglitz, the AFL-CIO, SEIU and many others are calling for a teeny tiny Bankster tax, 0.25 % or less on the sale or purchase of a share of stock, bond or derivatives would allow us to recoup our losses and put the money to work rebuilding America. The idea is called a “financial speculation tax.” It would not affect the average investor, but would throw sand in the wheels of the high-speed, high-volume traders and rake in $100 billion a year to create jobs and help provide essential services.
The Rising Tide: A tsunami of foreclosures is sweeping across America. Millions of homes are underwater and the government hasn’t done a single thing to stop it. Where are the helicopters, the aid brigades, the food drops? Why haven’t President Clinton and President Bush been tapped to raise funds for suffering families? A Rising Tide of mighty pissed off Americans is starting to notice and fight back. We will be working with groups like National People’s Action to end the housing crisis and hold big banks accountable for the damage done to our communities.
More interesting posts by Mary and others at BanksterUSA, including a recent one on efforts to make sure Elizabeth Warren is named head of the Consumer Financial Protection Bureau.
(4) Employers on Strike: Last but not least, we just posted John Miller’s latest column, Employers Go on Strike–Because They Can, from our current (July/August) issue. Enjoy!
–Chris Sturr
Black on Dodd-Frank; USAS Victory; etc.
Various items:
(1) New Blog Feature: Possibly Irrelevant Images. With this post I inaugurate a new feature for the D&S blog (or at least my posts here): Possibly Irrelevant Images, random images I have come across on the Internets (as I like to call them, in tribute to GWB). An inspiration for this feature is the “Antidote du jour” feature that is part of the daily links posts at Naked Capitalism. But I’ll be aiming for images that are visually interesting and possibly leftist, vs. cute animal pictures. As the name of this new feature implies, the images may or may not have anything to do with the posts they introduce or with left economics. If there is a connection, it may be obvious, but it may also be oblique, or downright recondite–it is up to you to decide. Blog readers are encouraged to submit interesting images; if I post yours you’ll get my gratitude and a hat-tip. For now two of my main sources for interesting images will surely be This Isn’t Happiness and Eric Becker’s “Today” over at Design Observer. (I also welcome suggestions for good sources of groovy or weird or beautiful images.) I will include a link to the source where I found it.
Here is today’s Possibly Irrelevant Image:
Boxes on Heads
(2) Bill Black on Frank-Dodd at Real News Network: The New York Times just posted an article, Army of Ex-Regulators Set to Lobby on New Financial Rules, suggesting that the revolving door between the banks and their regulators is in full operation. William K. (“Bill”) Black is one former regulator not going that route. Regular readers of this blog will know that Bill Black wrote a great article for our Nov/Dec 2007 issue about the then-nascent banking crisis. There’s a nice series of interviews with him over at the Real News Network. The fourth installment, posted today, is Who Regulates the Regulators?
(3) Nonprofit Compensation: The Times had an interesting article about how much CEOs and other bigwigs at nonprofits make (Lawmakers Seeking Cuts Look at Nonprofit Salaries). The article has a heart-warming picture of “Roxanne Spillett, the chief executive of Boys & Girls Clubs, [who]was paid $988,591 in 2008,” tending to a boy and a girl at one of the clubs and looking more like a teacher’s aide than a gazillionaire. She actually tears up when she tells the reporter: “I have worked in the organization for 32 years, and I’ve never been motivated by a dime, not for a single minute.” A Boys & Girls Club board member calls the suggestion that Spillett makes too much money “offensive,” citing the growth of the organization under her leadership. “Do they really think we’d waste their money? Or anyone’s money?” Scrutiny of the organization raised other concerns; Senate investigators are now “are now questioning Boys & Girls Clubs investments in private equity and offshore funds and its use of its endowment.”
The funniest bit was from the head of the American Heart Association, M. Cass Wheeler, who is eager to emphasize that his reported compensation of $995,424 is misleading, because it includes supplemental retirement payment. “If you peeled all that back, you’d get to a base salary less than $600,000.” Well, in that case… How on earth does he get by?
An item from the Dealbook blog at the Times reports on a new study of compensation, according to which corporate boards “use peers to inflate executive pay.” Find that blog post here; find the abstract for the original study, which appears in the Journal of Financial Economics, here.
(4) Laying off Workers and Squeezing the Ones You Keep Is Good for Profits. According to the New York Times: Industry Finds Surging Profits in Deeper Cuts. This relates to the article we are likely to post to the D&S website tomorrow, John Miller’s “Employers Go on Strike–Because They Can.” But…
(5) Huge Victory Against Nike for United Students Against Sweatshops. Nike finally agreed to compensate Honduran workers who were fired by Nike subcontractors several years ago. Here’s the press release from the USAS campaign website. Here’s the Wall Street Journal story; here’s the Democracy Now! story. Of course $1.5bn is chump change for Nike, but it is a nice precedent, and good for those workers.
–Chris Sturr
G20, Deficits, etc.
A few items about the G20 meetings have been languishing on my desk (or rather as tabs in my browser). It is time to liberate them (and my browser) by turning them into a blog post. But first: on deficits, etc.:
On deficits: Our intern Julie Herlihy put together a deficit page for the D&S website, listing all of our articles on budget deficits from the past few years.
Also on deficits: Former D&S editor Abby Scher had a piece at Truth-Out earlier this month about activism in New York for more progressive taxation.
On other topics: Simon Johnson on the Dodd-Frank Financial Reform Law (aka the new finance reform law), here; hat-tip to Tim Sullivan of United for a Fair Economy. And Nouriel Roubini on why there will be a double-dip recession, here; and a Financial Times piece on the Basel Committee’s initial proposals for international banking regulation, here. We will be covering Basel for the magazine and for the new edition of Real World Banking and Finance, due out in October.
Now, on to the G20–I will keep this brief, because some of these are stale:
The alarming news from the G20 (aka the Group of 20 Finance Ministers and Central Bank Governors) meetings late last month in Toronto was that Europe seems to be forging ahead with the plan of initiating austerity measures to deal with the European debt crisis. Several related items (some not so related):
Here is Paul Jay, head of the Real News Network, arguing that this is a very bad idea.
And here is Paul Jay interviewing Bob Pollin, D&S pal and head of the Political Economy Research Institute; Bob also argues that this is a very bad idea and could lead to a double-dip.
Here is the Financial Times‘ Martin Wolf sounding similarly pessimistic about the G20′s policies, and comparing them to the children’s game “Pass the Parcel.” (I don’t remember that one…)
Meanwhile, most Europeans polled seem to have drunk the deficit-reduction Kool-Aid, the Financial Times reported last week:
European governments have solid public support, at least for now, for the spending cuts they are making in an effort to boost economic recovery, according to the latest Financial Times/Harris opinion poll.
The survey also indicates that a majority of people in the European Union’s five largest countries disagree with the decision of governments to let their budget deficits rise in order to combat the financial crisis that erupted in 2008.
But in Spain, according to The Guardian‘s Martyn Richard Jones, is having “a Socialist moment” in response to its economic woes.
And the New York Times reported just yesterday that after all the fuss in the bond markets about Europe’s debt crisis, “Debt Worries Ease in Europe.”
Just two months ago, Europe’s sovereign debt problems seemed grave enough to imperil the global economic recovery. Now, at least some investors are treating it as the crisis that wasn’t.
Spain held an auction of 15-year bonds last week that went off without a hitch, raising 3 billion euros, or about $3.8 billion, at a relatively favorable interest rate of 5.116 percent. That was up from 4.434 percent on a debt sale in late April, though the latest one was far more heavily subscribed.
Also last week, Moody’s Investors Service downgraded Portugal’s credit by two notches, citing the nation’s debt burden and poor growth prospects, a sign that the country’s underlying problems are not over. Yet investors, rather than punish assets linked to Portugal’s economy, seemed to take the news in stride.
Go figure. Let’s see whether that keeps Europe’s leaders from proceeding with potentially disastrous, double-dip-inducing austerity measures.
–Chris Sturr
Three Big Headlines: BP, Banking, Goldman
Wow–three big headlines today:
(1) BP supposedly manages to cap the Deepwater Horizon well–for now, at least–after 87 days of oil gushing into the Gulf of Mexico. It is clearly far from over. Not only are we not really sure whether the well will stop spewing oil (as indicated by this article posted to the NYT website today), the environmental, economic, and legal fallout from the spill will last for decades. Consider the Exxon Valdez spill. That one happened on March 24th, 1989; more than twenty years later, oil is still bubbling up in Prince William Sound. As Antonia Juhasz points out in our current issue, the legal case against Exxon took almost that long to unwind:
In 2008, after nearly 20 years during which time more than 3,000 of the claimants died, the U.S. Supreme Court ruled in Exxon’s favor and imposed a highly restrictive limit on putative damages–a one-to-one ratio–yielding damages for Exxon of a measly $507.5 million. Exxon’s total Valdez payouts were therefore less than $3.5 billion (about $4.5 billion in today’s dollars).
Click here to read the whole article, which points to lessons from the Valdez spill for the current situation with BP. (We haven’t publicized this article yet on our home page, so blog subscribers and readers are getting a first peek (after subscribers, who got to read it two weeks ago).
(2) Congress finally passes the financial reform law, with the Senate passing the bill by a vote of 60 to 39. (The missing vote was Robert Byrd’s, I am guessing. The governor of West Virginia, Joe Manchin, apparently just said who Byrd’s interim replacement will be; apparently a 36-year-old pretty boy named Carte Goodwin, the governor’s general counsel, will hold the seat until a special election in November, when Manchin will run. Trivia: the website of the family law firm where Goodwin works, lists something called “the Order of the Coif” under the “Education” section of his resume–an honorary society for law school grads, nothing to do with his Scott-Brown-perfect hairdo.)
Anyhow, we posted earlier on the mixed merit of the new regulation, and we will continue to report on it. For now, check out this article in today’s NYT about how banks have already been figuring out how to accommodate the new law’s provisions. Jamie Dimon’s arrogant remarks about how the banks will keep profits up by passing increased costs on to consumers:
“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, the chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter on Thursday. “Over time, it will all be repriced into the business.”
One example the article gave was increased fees on checking accounts, fees for using tellers vs. ATMs, incentives to do online banking, monthly charges unless you have a (high) minimum balance, etc. Sounds to me like an opportunity for credit unions to push to compete against banks. Who on earth would have an account at BoA these days? There are other interesting–and disturbing–bits about how they plan to get around the restrictions on derivatives trading, proprietary trading, etc. Read the full article.
(3) Goldman settles with the S.E.C., agreeing to pay a fine of $550 million, which I read (I think in this article) is equivalent to nineteen day’s profit for Goldman (going by their 2009 profits).
–Chris Sturr
