Ian Welsh

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

Category: Financial Crisis Page 6 of 13

Comments on the S&P Downgrade

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On August 6, 2011

35 Comments

Aside from hysterical laughter, here are the key points:

  1. Obviously the US isn’t even close to insolvent.  The gold in Fort Knox is held on the books at $37/ounce, for example.  Most Federal lands are held on the books at 19th century valuations.  Not to mention that the US’s debt is denominated in its own currency, which means it could simply be printed, and that the US government has a lot of unused room to tax, should it ever deign to use that on people with money, as opposed to those without.
  2. As everyone is pointing out, the idea that S&P, who rated all the subprime trash as AAA, has any credibility, is a joke.
  3. However, Obama and Democrats refused to destroy S&P when they had the opportunity and every reason to do so.  The submprime crisis could not have been nearly as bad without S&P and the other rating’s agencies rating trash AAA so that investors who must buy AAA by law could do so.  To put it simply, S&P engaged in systematic fraud.  They, like everyone on Wall Street and in the major banks, have not been indicted for this.  The choice to not indict is policy.  Obama’s policy.
  4. If Obama did not want this to happen, it would not happen.  Could you imagine what LBJ, Nixon or Truman (or, hell, Bush Jr.) would have done if a rating’s agency tried this?  The President has the necessary tools to utterly destroy S&P and every senior analyst working for them.  You could use terrorism statutes or RICO, just as two examples.  Send the FBI into their offices, seize all the assets of both the company and everyone working for it, and then got through their records.   I guarantee, as absolutely as the sun will rise tomorrow morning, that there is enough evidence of fraud in those records to put them away for life.  In the meantime, RICO laws are used to seize all the assets of everyone involved, meaning they will be using public defenders (don’t like a bad law? Use it against real people.)  When S&P informed the White House they were going to downgrade, the White House could have quietly let them know what the consequences would be.
  5. The US has effectively unlimited drawing rights from the IMF.  Those drawing rights mean that if any of the core economies have an AAA rating, in effect, so does the US.  (ie. if Germany is AAA, so is America.)
  6. S&P knows all this.  They are doing this because they know the President and Congress and the real people in the oligarchy want it done.  Remember, a downgrade increases rates, and that is a direct increase to their income.  And they know the US can pay, they aren’t fooled by idiotic talk about a default.  The US may default at some point, but that will be a political decision.
  7. This is another manufactured crisis, on top of the original manufactured debt ceiling crisis.  The oligarchy wants the opportunity to buy federal assets at dimes on the dollar. They believe they don’t need the poor or middle class anymore, so they are good with getting rid of SS and Medicare.  And Obama is, as he always has been, onside with this.

These people, are, however, playing with fire.  Just because it’s a crisis that didn’t have to happen, a crisis, that is manufactured as another looting opportunity, doesn’t mean that it won’t have real consequences.

What the Debt Limit Crisis Should Have Taught You

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On July 31, 2011

118 Comments

This is not primarily about the Tea Party

It is about what rich donors want.  The Tea Party does not even have the amount of muscle progressives do.  Progressives can bring tens of thousands of people out, the Tea Party can rarely even get above 1,000.  They are a convenient excuse to do what the Beltway and the oligarchs already want to do.

Where are you going to go?

Both Dems and Republicans are onside with cutting Social Security and Medicare. They are only third rails if there is someone else to vote for.

The deals being offered will cause a second downleg of the Depression and a worse one

We’re in a Depression.  This is fact.  Anyone who doesn’t call it that is gutless, stupid or uninformed.  This will make it worse, not just for the US, but for the entire developed world.

Representatives work for the people who pay them

That isn’t really you.  They don’t become multi-millionaires on their salaries, you know.  It’s their donors, the people who hire their wives and children, the people who fund their campaigns, the people who give them good jobs when they leave government.  If you want Reps and Senators to work for you, you must pay them better, you must fund their campaigns (and sharply limit outside funding) and you must make it illegal for them to EVER make more money in a year than their government salary (index it to an average of the median wage, the minimum wage, and CPI).  You should do what Canada used to do and give them a good pension after 6 years.  You DON’T want them worrying about their next job, or what they’ll do if they’ll lose.

Point being, they don’t work for you.

This is a representative plutocracy

I believe Stirling Newberry, in the early 90s, pointed this out first.  Politicians are paid by people other than you.  You are the product.  Think of this as the Facebook rule, if you aren’t paying for something, then you are the product.  The rich pay politicians to rangle you.  The amount of salary and public funding most Reps get is trivial compared to how much money they get from donors, even during their time in elected office, let alone after they leave.  You are the product, not the customer, of DC politicians.  They do not represent you, and you should not expect your interests to be looked after except as an afterthought.  When the oligarchs all agree that something needs to be done (like cut entitlements), it will be done, no matter how unpopular it is.

This “Crisis” is what Obama wanted

Again, if he didn’t, he would have raised the debt ceiling in the lame duck.  Nancy Pelosi was always very good at getting those sort of basic housekeeping bills through. It would have passed.  Period.  Obama wanted to cut SS and Medicare, and he needed a “crisis” in order to do it.  He also needed a Republican House, which he had, because his policies during 2009 and 2010 didn’t fix the economy.

You should have been working on nothing but primarying Obama since the day after the midterms

If you don’t understand why, I can’t help you.

There is no war but class war

Break the rich, or they will finish institutionalizing aristocracy.  Period.

More Notes on the Debt Ceiling “Negotiation”

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On July 21, 2011

101 Comments

If Obama didn’t want it to happen, if he didn’t want to “negotiate”, he would have:

1) raised the debt limit during the lame duck Congress.  He could have raised it enough to get him through 2 years.

2) Accepted the clean debt-ceiling bill, offered by McConnell, as noted by Stewart M.

3) simply refuse to negotiate.  “I cannot say what bills will or will not be paid if the US Congress does not increase the debt ceiling, but whether the debt ceiling is raised or not is a matter for Congress.”  I am quite sure that Wall Street and other corporations would bring the Republicans to heel so fast your head would spin.

This is all Kabuki.  Obama wants massive cuts.  He always has.  This “negotiation” is occurring because he wants it to, and would not occur if he did not want it to.

Further, if something like the Gang of Six suggestion passes, Obama will only win reelection if the Republicans nominate someone completely and utterly beyond the pale.  And maybe not even then.  Cuts of that magnitude will be to the economy what a nuclear bomb is to a city.

Wow, A Sherrif Who Does His Goddamn Job Even Against Banks

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On November 20, 2010

9 Comments

I’m flabbergasted.  How they hell did this man slip through the system?

Cook County Sheriff Tom Dart said he is only ordering evictions to resume because county prosecutors told him that he was legally bound to carry out foreclosure eviction orders signed by a judge.

“For the people who have been involved with this and think now that because the (Cook County) State’s Attorney’s office has ordered me to go ahead with the evictions that everything’s fine . . . No, we are going to be looking at you for criminal violations,” Dart said. “You may have got through one storm now, the other one is coming.”

Dart singled out Bank of America, JP Morgan Chase and GMAC/Ally Financial last month for problems with eviction notices. He said Friday that investigators continue to find problems with bank employees signing off on foreclosure documents they haven’t read, although he did not single out individual companies.

“When we asked a month ago . . . send me an affidavit to say that everything was done legally, not one organization, law firm handling these cases, not one of them sent in one document,” Dart said. “Not one, and they had over a month to do it.”…

I suppose I should point out that this is what EVERY Sherrif’s office in the US should be doing.  We know fraud is widespread, they should not just serve.

And I’ll note that this may well boomerang back on corrupt and/or lazy judges.  Investigations are bound to turn up that they didn’t do their jobs.

Apparently Axelrod and the Administration Want a Democratic Wipeout

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On October 11, 2010

63 Comments

Seriously, when the Administration says they oppose a countrywide freeze on foreclosures only weeks before the election, it’s hard to interpret their statements any other way.

I’m guessing the calculation is that Obama’s squeeze of entitlement spending for the middle class is more likely to pass if there are more Republicans in Congress.  (ie. they are completely corrupt and utterly in the pocket of bankers who are giving more money to Republicans.)

Or they could be complete and utter morons with an out of control drug habit.  I mean anyone who says, like Axelrod did, that ““I’m hoping that with more seats, Republicans will feel a greater sense of responsibility to work WITH us” is clearly not just in denial, he is as Peter Dauo said, hallucinating.

How the Foreclosure mess would play out in an actual Republic Of Law and an actual Free Market

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On October 11, 2010

14 Comments

Here’s how this plays out in an actual free market society which follows the law (ie., not this one.)

You go through and figure out if you can prove title to the property. If you can’t, those who were insured go to the title insurance companies.  A huge legal battle ensures, with the title insurance companies claiming that they were the victims of fraud from their clients, the banks.  Eventually, the title insurance companies pay out whatever they have to pay out that they can pay out, and most of them probably go bankrupt.

The banks then go bankrupt, which, well, they already are anyway, so maybe we should stop pretending.

The title insurance companies did not do their due diligence.  They deserve to be destroyed for not doing their jobs.  The banks engaged in and colluded with systemic fraud, they deserve to go out of business and their executives should go to jail.

And no, the real economy does not take it too hard on the chin.  You wipe out a ton of debts, those people are no longer underwater and can buy.  The banks are taken over by the FDIC, the shareholders are wiped out and the bondholders take a bath.  The Fed refloats the banks (after breaking them up) and they go back to lending the way they should have.  It costs LESS in the long run to do this than it does to keep extending and pretending, and non-zombie banks can actually lend.

Yes, the investor class takes it on the chin and this includes some widows and orphans, and that’s bad (throw in some undoing of “welfare reform” if you feel bad for them. Not that “slash food stamps” Obama is likely to.)  But it’s better than eternal zombie banks and illegal foreclosures up the wazoo.  And the investor class is essentially worthless anyway, they have spent the last 30 years investing in asset bubbles and offshoring industries and jobs, not in the useful productive domestic economy.  Letting them take their losses (and these are their losses) is a good thing, and is the free market thing to do.

It also wipes out a class of people who are driving the buying of politics, and who tend to prefer Republicans, if you want to do some crass political calculation.  Which, frankly, would be nice, since apparently Dems crass political calculations are done with an abacus they don’t know how to work.

Addendum: a friend sends me this suggested course of action by Karl Dennniger, which I think is a good one.  Odds of being pursued?  Minimal.  But we can hope.  As Denninger points out, if private interests steal the homes of millions of citizens with the collusion of government, well, that doesn’t lead anywhere pretty.

Tax Cuts for the rich create jobs outside the US

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On September 19, 2010

9 Comments

The standard right wing talking point that tax cuts for the rich and for corporations create jobs is true: Tax cuts for the rich create jobs overseas.

The tax cuts’ two bills, in 2001 and 2003 – changed laws so that personal income tax rates were reduced, exemptions for the Alternative Minimum Tax increased, and dividend and capital gains taxes also cut.

Yet in the debate, it seems of no moment to either side whether the tax cuts were effective in achieving their goal of spurring business investment and making the US economy more competitive.

Our own examination of US non-residential investment indicates that the reduction in capital gains tax rates failed to spur US business investment and failed to improve US economic competitiveness.

The 2000s – that is, the period immediately following the Bush tax cuts – were the weakest decade in US postwar history for real non-residential capital investment.

Not only were the 2000s by far the weakest period, but the tax cuts did not even curtail the secular slowdown in the growth of business structures.

Rather, the slowdown accelerated into a full decline.

The logic of this is simple enough.  If you have money to invest, you’re going to invest it where it’ll return the most.  Right now and in the past couple decades that is either in leveraged financial games, or it is in economies which are growing fast and have low costs.  The US does not have high growth compared to China or Brazil or many other developing countries.  It has high costs compared to those countries as well.

If you can build a factory overseas which produces the same goods for less, meaning more profit for you, why would you build it in the US?

Until that question is adequately answered, by which I mean “until it’s worth investing in the US”, most of the discretionary money of the rich will either go into useless speculative activities like the housing and credit bubbles, which don’t create real growth in the US, or they will go overseas.

There are a number of ways this question can be answered.

  • You could slap taxes on foreign capital flows;
  • you could slap tariffs on foreign goods produced in low cost domiciles so that companies have to produce in the US to have access to the US market;
  • you could push industries which are hard to outsource but don’t actually decrease American competitiveness.  The housing bubble increased the cost of doing real business in the US by inflating real estate costs.  A massive buildout making every building in the US energy neutral or an energy producer would increase US competitiveness.
  • you could try and do what America once did: have a tech boom.  If the future is being produced in a country then everyone has to invest there and when things are changing fast you can’t offshore production, because speed matters and offshoring is slow. This is why real wages increased during the tech boom of the 90s.

There are other answers as well, but the point is simpler: you must answer the question “why invest in the US instead of a low cost, high growth country?” Until you answer that question tax cuts will not only not do any good, but in a sense will do harm, by increasing the speed at which jobs are offshored out of America.

Geithner and the White House’s Panglossian Never-Never Land

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On July 16, 2010

18 Comments

Amazing:

Geithner endeared himself to Obama and senior White House advisers by advocating a response to the financial crisis that later proved correct.

Seriously, the White House lives in some alternate dimension, some reality known only to the initiates of their esoteric cult, a world where the banks aren’t still lending less, aren’t hurting the recovery by gouging customers, where small banks aren’t still going belly up at a frantic rate, where foreclosures aren’t hitting new highs and where unemployment isn’t still through the roof.

Must be nice to live in the White House’s Panglossian alternate dimension.

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