Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Class Warfare Page 32 of 36

Not Fighting Alito and Roberts Mean the End of Your Democracy

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On June 12, 2010

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The NYTimes:

In a burst of judicial activism, the Supreme Court on Tuesday upended the gubernatorial race in Arizona, cutting off matching funds to candidates participating in the state’s public campaign finance system. Suddenly, three candidates, including Gov. Jan Brewer, can no longer receive public funds they had counted on to run against a free-spending wealthy opponent…

…

In 2008, the Supreme Court eliminated the Millionaires’ Amendment, which let Congressional candidates raise more money when running against candidates who pay for their own campaigns. In January, in the Citizens United case, the court eliminated limits to campaign spending by corporations. Both cases cited the First Amendment rights of the wealthy, and in that depressing sequence, state finance programs would be the court’s next conquest.

If the court pushes on with its chainsaw, cutting down programs that trigger matching funds, it would threaten systems in Connecticut and Maine, and judicial-race financing systems in Wisconsin, North Carolina and elsewhere. It might even shake New York City’s system, which provides higher matching funds when a well-financed opponent does not participate in the system. Candidates with no prospect of matching funds would be reluctant to join a system that limits their spending. Unless the court veers from its determined path, there will be no limit to the power of a big bankbook on politics.

I remember back when Alito and Roberts were nominated, I expected the Dems to fight.  They were both clearly radical right wingers (spare me about Roberts, it was obvious he was a judicial nutjob).  But hey, whatever…  Even most of my commenters thought I was being unreasonable to expect Democrats to fight, to force the Republicans, if necessary, to use the nuclear option.   It was unreasonable to expect a mutli-million dollar public campaign to the make the two of them noxious to the public (doing so with Alito would have been especially easy.

And if the nuclear option had been used would having done so hurt Dems in any way?  No.  But it would have given Dems one less argument to use against actually doing the right thing in this Congress.  Not, of course, that that would have stopped them from doing all the wrong things, since that’s what the majority of Senators want to do.

The NYTimes is full of it in one respect, though, the influence of money on politics in the US is already decisive.  This is just an attempt to hammer home that advantage, to make it permanent.

Doing so will make the US into a banana republic, of course, assuming one doesn’t consider it already nothing more than a powerful third world nation living on legacy investments from prior generations.

Cramming Down Social Security is not a partiticularly “politically difficult decision”

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On May 13, 2010

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It has been suggested to me that cramming down social security would be a way of letting the bond markets know that the US is capable of making “difficult decisions”.

A politically difficult decision would be, say, raising taxes on the rich.  Cramming down SS is just standard soak the middle class neoliberal claptrap. It is totally unecessary. Current projections show a problem 32 years in the future. Any projection out 30+ years is essentially a guess.  Add 1% to productivity increases and the entire SS “problem” goes away.

The US may have real spending problems, but they aren’t concentrated in social security.

However those actions which would really reduce those spending problems, like single payer (save 1/3rd per capita costs on health care), or slashing the military (there is no rational justification for spending 50% of the world’s military budget), or moving back to heavy progressive taxation, or increasing the estate tax, are on the table.  The only things on the table are actions which hurt the poor and middle class.

There is no crisis with social security.  If there is a deficit crisis (due to hot money’s desire for better returns than they deserve) it is because we refuse to do the things which would actually solve the problem.  Because anything that impacts the rich or the military or pharma is off the table, apparently all that’s on the table is making ordinary Americans take it in the neck.

So, just no to cramming down Social Security: no increase in the retirement age, no decrease in benefits.  If you must make changes, just uncap the FICA tax. There, “problem” solved.

Small Traders are Guppies for the Sharks (aka: banks)

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On May 12, 2010

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It wasn’t just Goldman who made money trading every single day in the last quarter, it was four banks.

I cannot emphasize enough: this is the sign of a fixed market.  It is impossible that this could happen in a free market.  Impossible.

This means they are extracting money from the markets, aka: from everyone who isn’t a market mover.  Small traders, pension funds, trading accounts of cities, etc…  Even if those actors aren’t actually in decline, they are making less money than they should as the banks make sure that their buy orders are filled at the highest price possible, and their sell orders at the lowest level possible.  And, in fact, many of them will be in outright decline as a result of these games.

At this point, if you are not a market mover, you can only make money in the market by anticipating the moves of the market movers.  This is now about guessing what a few people will do, so you can ride the tiger.  Just don’t fall off.

Goldman Sachs made money trading every single day last quarter

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On May 11, 2010

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Uh-huh.  Which means, as I said earlier, that the security markets are not free markets.  They are moved, at will, by the muscle, money and foreknowledge of a relatively small number of large traders.  The small time but professional traders (aka. people who used to make money) are livid, because systems which used to give reliable trading signals have become far less reliable.  This is why, on virtually every econo/market blog you will find that the commenters are angry.

This is an oligarchical society.  This is true whether you live in Europe, the US or China, it is only a question of who is a member of the oligarchy.

And, with maybe one or two exceptions, no one reading this is.

Clarifying The Dow Drop And Its Consequences

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On May 8, 2010

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Some folks seem to misunderstand what I wrote (which indicates I wasn’t clear enough.)  I do not know if the huge drop was a message, it certainly may have been.  But whether it was deliberate or not, it indicates that the big money CAN crash the market whenever it wants.  This is a sharper demonstration of what the 2008 crisis showed—that the hot money can crash the markets and the economy any time it wants.

The lesson of 2008, as understood by political elites, was that this hot money MUST be appeased.  The money wants high, risk free returns, and if it doesn’t get them, it will make everyone hurt.  This is why, instead of taxing the rich, which is where the money is and which has essentially no economic costs (a 20% tax on purchases of luxury goods or services over 1.5 million would have essentially zero cost to the real economy) what is happening instead is talk of slashing entitlements, or in edge economies like Greece, austerity.  (Britain will soon be getting cuts at their national level  and States and Cities have already had cuts in the US.)

Instead of appeasement, the 2008 crisis offered an opportunity to break the rich, by forcing them to recognize their losses, by refusing to bail out the financial institutions so that shareholders AND bondholders got smashed.  At the same time, to reduce the effect on the real economy, either the FED could have loaned directly to businesses and consumers or the FDIC could have taken over major banks which were dead, like Citigroup, and pushed out Fed money through the newly nationalized banks.

The end result would have been the power and wealth of the rich broken, and the real economy in not much worse shape, but able to recover much better, since the recovery wouldn’t be hobbled by the need to prop up insolvent banks, by crippled lending by effectively insolvent banks and by the need to provide above market returns to banks and the hot money rich.

This is explicitly what I was proposing in 2008, but of course, it didn’t happen.  So, instead, we get a decade of suck, if we’re lucky, the EU gets multiple failed economies and austerity plans, and the rich get 80%+ of the profits of the coming economic cycle.  If we’re unlucky (or maybe if we’re lucky) it crashes out sometime before then, since it is teetering on the edge.

Here is the basic thing you need to understand:

You can have lots of rich people, or you can have widespread prosperity.  You cannot have both.

Top Marginal Tax Rates

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On May 2, 2010

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Because there seems to be some confusion, here’s a chart of the top marginal income tax rates. *

Top Marginal income tax rates

Top Marginal income tax rates

You’ll notice that as the rate has dropped, the economy has worked worse and worse for ordinary people.  Correlation (though I believe strongly in causation in this case) but also it shows that high marginal progressive tax rates do not hurt the economy, contrary to what some think.

(*35% is still the top rate as of this writing).

Tax Cuts are wasted

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On April 29, 2010

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when ordinary people don’t have pricing power (aka, there isn’t a labor shortage and lots of competition offering the products and services they need.)  Thus, this:

And that tax cut you got me?  Thanks, a lot.  Didn’t even cover the jumps in the price of gas and my monthly minimum payments and my insurance premiums and my grocery bills.  Didn’t offset the amount I lost in reduced hours and no more overtime and did I mention I haven’t gotten a real raise in ten years?”

Stated this would happen back when everyone was spewing about the biggest middle class tax cut.  What Americans need isn’t tax cuts, it’s a working economy, which tax cuts will not lead to.  Period.

Insuring Shadow Banks Without Proper Regulation Is Asking For Disaster

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On April 20, 2010

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A correspondent suggested to me that what needs to happen is to create a system like the FDIC for the shadow banking system (largely unregulated financial institutions which act like banks without being regulated like them.) The argument is that this mitigates against hysterical herd behavior and that the shadow banking system is necessary because it’s where a lot of institutions put their money.  And no one is willing to insure this system but the government.

Shadow banking didn’t always exist at these levels, institutions found places to put their money.

As I understand this, it means insurance without equivalent regulation to ordinary banks—because if you used equivalent regulation you’d just make them into banks who have to follow the same rules as retail banks.  This means investors being insured who engage in extraordinarily risky behaviour in order to get returns which normal banks can’t and don’t provide.

I should note that, in fact, other people were willing to provide the insurance.  AIG did.  They just couldn’t pay up, because only the government could afford to pay up.

So therefore shadow banks, who can’t find anyone who could possibly afford to insure their risky business model, need governments to do it?

The question is if they are willing to charge the full price for the insurance?  I’ve worked in insurance, real insurance where we worry about having enough money to pay off when the loss event occurs, and here’s the way it works: it costs more than the value of the insurance.  If there’s going to be a crisis every X years because of these fools, then we need to charge enough money to not only cover the cost of their insurance every X years, but to cover the cost of things like the stimulus to clean up their messes, the unemployment insurance costs, and so on.  Or we could move to 90% taxation on all income over a million, which would only be fair, if we’re going to have to bail the rich out again and gain.

Either way, the high cost of real insurance would mean a lot lower profits.  It isn’t going to happen that way, the real cost is not something the shadow banking system is willing to pay.

And if they know they’re insured, without proper regulation, what they’ll do is drive over the cliff again.  Why not, if they know they’ll be bailed out, and in the good times they get to pay themselves massive bonuses and wages?  Moral hazard 101: heads they win, tails the taxpayer bails them out.

Maybe there are better solutions.  Like reinstituting Glass-Steagall, forcing everyone to 10:1 leverage ratios with nothing off the books, and shutting down the majority of shadow banking, which has shown that it costs the real economy more than it can possibly be worth.  What we don’t need is investors putting money into shadow banks in attempts to pursue 15%+ returns, thus ignoring putting money into the real economy.

As for hysterical herd behaviour, the real problem was the herd behaviour involved in CDOs, CDSs and the housing bubble.

Behaviour which should simply never have been allowed to occur.

If you don’t want bad behavior, don’t insure it, just outlaw it.

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