Monday, November 28, 2011

Judge Rakoff does the right thing

It's about time that a judge has stood up for accountability by Wall Street. When Citicorp (parent of my least favorite bank, CitiBank) was sued by the SEC for betting against mortgages which it had mislead investors about, the company was quick to settle because it didn't have to admit guilt. (I wrote about this in a previous blog.) In other words, it had to pay money but didn't have to acknowledge its sleazy behavior, so typical of how Wall Street acted during and after the disaster it caused. Judge Rakoff was having no part of this whitewash. Because this is such a wonderful, clear and reasonable ruling, I have reproduced below (in red) some excerpts from the AP story -- check out especially the last paragraph (in bold). I haven't read the NY Times account yet, but I'm sure I will savor it

U.S. District Judge Jed Rakoff said the public has a right to know what happens in cases that touch on "the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives." In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.

Rakoff said he had spent hours trying to assess the settlement but concluded that he had not been given "any proven or admitted facts upon which to exercise even a modest degree of independent judgment." He called the settlement "neither fair, nor reasonable, nor adequate, nor in the public interest."

The SEC had accused the bank of betting against a complex mortgage investment in 2007 — making $160 million in the process — while investors lost millions. The settlement would have imposed penalties on Citigroup even as it allowed the company to deny allegations that it misled investors.
The SEC allowed the consent judgment settling the case to be filed the same day it filed its lawsuit against Citigroup, the judge noted.

"It is harder to discern from the limited information before the court what the SEC is getting from this settlement other than a quick headline," the judge wrote.

"In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers," Rakoff said. "Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."

"Contrivances" -- what a put down! Rakoff should be made an honorary member of the Occupy movement, and should be honored as one of the few in power who are not sucking up to the banks and their holding companies.

Friday, November 25, 2011

There is no symmetry between the major parties

Today's post on the blog Winning Progressive pretty much sums up my feelings about the superficial attempt to find "symmetry" between the parties. You know, the nonsense that they are both unbending and ideological, placing party "purity" before the common good. This is total hogwash, perpetrated by the apologists for the Republicans and pushed by the would be "wise men" -- pundits who would like us to believe that they transcend the common opinions and passions of ordinary "partisan" folks.

Let's just remember:

There is only one party that at least tries to limit the effect of campaign money in elections, and only one party committed to defeating any attempt at reform.

There is only one party committed to economic, social, racial and sexual equality and only one party that mocks these ideals and fights against any legislation to further them.

There is only one party that seeks compromise and only one party that is committed to obstructionism and making the other party fail -- even at the expense of the national good.

Democrats may not be perfect (in fact, far from it), but the Republicans are truly beneath contempt.

Saturday, November 19, 2011

Freddie and Fannie: a revision

Some financial commentators and several readers of this blog have claimed that the quasi-federal mortgage entities Fannie Mae and Freddie Mac were the real culprits responsible for the 2008 financial collapse. This view was rejected by 9 of 10 members of the congressional Financial Crisis Inquiry Commission appointed to determine the causes of the crash (3 of the 9 were Republicans). Only one commissioner wrote a separate report blaming Mae and Mac: Peter J. Wallison; the separate Republican dissent is not, in fact, much different from the full report, and does not place the blame on Mae and Mac: see analysis here. Also, see this fact check for further summary of the Commissions findings and rebuttal of the Chamber of Commerce's distortions. However, the idea of blaming Mae and Mac persists for several reasons.

1. Mae and Mac did, in fact, invest heavily in subprime and near-subprime motgages, beginning around 2000 and peaking around 2007.

2. Mae and Mac were under some federal pressure -- mostly during the Clinton administration -- to originate and deal in home mortgages (and mortgage backed securities) in a way that would make housing loans more available to low and moderate-income people -- part of their charge as GSEs (Government Sponsored Entities).

3. Mae and Mac supposedly had a leg up in this game because they were assumed to be protected in their investments (and speculations) by the federal government itself.

4. Besides being involved in an accounting scandal, their officers also had their bonuses tied to their performance in buying and selling securities.

 From what I read, these statements are largely factual. You can read an account with some facts and charts in a report prepared by the Cato Institute.

To be fair, the Cato report has its own definition of what constitutes a subprime mortgage; it also doesn't go as far as saying that Mae and Mac actually caused the crisis, although it does claim they played a major role and were responsible for nearly half of the market for subprimes during the height of the frenzy. This estimate has been contested.

But, of course, there is another side to the story. A recent article in the New York Review of Books gives a different take on the role of the GSEs:

Among other things, the authors (J. Madrick &  F. Portnoy) point out that Mae and Mac bought much less risky securities: few CDOs and few really low-rated bonds; they also had a much lower rate of default than other Wall Street speculators.Here's a brief quote:

"In fact, the rate of delinquencies for all GSE securities in 2004 was 4.3 percent, compared to a delinquency rate in private industry of 15.1 percent of mortgages. In 2005, the GSE rate was 7.8 percent compared to 28.7 percent, and in 2006 and 2007, the rates reached 13.2 and 14.9 percent in the GSEs and 45.1 and 42.3 percent in the private market ... [also] losses as a proportion of mortgages guaranteed or bought by the GSEs were far lower than in private industry."

Mae and Mac, as far as I could determine, did no trading in CDOs (derivatives based on, e.g., mortgage backed-securities -- and worse). CDOs -- and especially so-called "synthetic" CDOs --  were the most dangerous of the lot. These were the instruments that were fraudulently mis-rated by supposedly reputable rating agencies. GSEs also had nothing to do with credit default swaps -- the "insurance" policies on CDOs whose sale did in AIG.

All in all, I think it is fair to say that the GSEs behaved irresponsibly during the recent fiscal crisis. However, those whose ideology is anti-government -- especially when government regulates business or aids the less fortunate -- have used the transgressions of Mae and Mac to attack the role of government in housing (see the Cato statement below), and, further, to let major private-capital culprits off the hook. While Mae and Mac definitely need stronger regulation, this goes double for the the rest of Wall Street, and blaming Mae and Mac for the crash is simply revisionist history.

Finally, I think the underlying ideological position of conservatives and libertarians is well summed up by this quote, also from the Cato report mentioned above.

"Ultimately taxpayers and the broader economy will only be protected from future bailouts by a full withdrawal of the federal government from housing policy. Policy interventions, such as those by the Federal Housing Administration and the Federal Home Loan Banks, continue to distort capital toward the housing market, while our commercial banking system remains vulnerable to downturns in the housing market. Our financial system would become considerably more stable were Washington to abandon its attempts to direct capital to politically favored segments of the economy."

There is simply no evidence for the claim in the last sentence -- it is merely an item of conservative belief. When left to its own devices, without government intervention, the "free (capital) market" has historically created one unstable disaster after another. However, there is a larger principle. The preamble to our Constitution asserts that one of the essential tasks of our government is to "promote the general Welfare". There is no mention of free markets or the superiority or desirability of what is now our capitalist system. Our government, in order to promote the general welfare has intervened repeatedly to ensure that all of our citizens have the opportunity to lead decent and productive lives. Many times this intervention is necessary to prevent the wealthy and powerful from taking unfair advantage of the less powerful.  Although I have doubts about the desirability of home ownership for all, I have no doubt about the desirability of dignified shelter for all. Sometimes attaining this involves directing capital to certain segments of the economy -- not because they are "favored" but because they simply have been dealt a raw deal and need help from their fellow citizens to insure their welfare.

Fannie and Freddie

A few readers -- including an "Anonymous" several times -- have claimed that the quasi-federal mortgage entities Fannie Mae and Freddie Mac were the real culprits responsible for the 2008 financial collapse. Although these two organizations did invest heavily in subprime and near-subprime mortgages, they were, as I pointed out in the Comments section of this blog, fairly late though substantial participants in the bubble. A recent article in the New York Review gives a whole bunch more facts about the story:

Among other things, the authors (J. Madrick &  F. Portnoy) point out that Mae and Mac bought much less risky securities: few CDOs and few really low-rated bonds; they also had a much much lower rate of default than other Wall Street speculators. Also, though they were asked by the Clinton administration to help finance less affluent (hence presumably riskier) home-buyers, they pretty much fulfilled this obligation without resorting to subprimes.

While Mae and Mac definitely need stronger regulation, this goes double for the the rest of Wall Street, and blaming them for the crash is bad, revisionist history, cooked up to take the real culprits off the hook. The best thing we can do is support and strengthen Dodd-Frank, and help Elizabeth Warren defeat Scott Brown in Massachusetts.

Alas I fear that the "Occupy" movement, by failing to produce a constructive program, politics or ideology, will become irrelevant to the cause of containing Wall Street's inherent greed. The very real force of corporate money, in the climate of the Citizens United court decision, is making loosely organized idealism a luxury that we will not be able to afford. I hope that the many creative and militant people in the Occupy ranks will salvage from it a real movement that can be politically effective -- at least as a prod to Democrats and a producer of useful political statements (propaganda, if you will).

Tuesday, November 15, 2011

" ... none of them could be identified"

Here is one of my favorite old Mad cartoons. It's by the late Ernie Kovacs (draw by Wally Wood) and is part of Kovacs' series called "Strangely Believe It" (a satire of Ripley's "Believe it or not"). It's from issue #33, June 1957:

I looked it up because it reminded me of some of the "factoids" that the current crop of Republican presidential candidate have come up with. Just look at the various "fact check" features in newspapers and the Web after a Republican debate.

Monday, November 14, 2011

Waterboarding and torture

Look, when does a physical punishment qualify as torture?  If waterboarding is not torture, then why does it, supposedly, work -- in the sense that it is a physical punishment that gets people to give information (true or otherwise) that they would not ordinarily give?

I know that logic is not a strong suit for Republicans, but isn't that, in fact, a workable definition of torture? Sure, there is the phony assertion that torture only occurs when the pain inflicted is the equivalent of a life-threatening injury. But that is nonsense, or at least not serviceable. Some life-threatening injuries are not, in fact, that painful (e.g. snapping ones neck, or OD-ing on some narcotic). On the other hand, genital electric shocks are well-known tortures, yet are not life-threatening.

If a prisoner will not "talk" until he/she is waterboarded, then waterboarding must be a pretty powerful incentive. Isn't it rather perverse to say that it isn't torture? Especially when all branches of the U.S. military say that it is? Remember: waterboarding was done not by the military -- as some Republicans seem to think -- but by the CIA. After all, the CIA does not exactly occupy the honorable place in our affection and patriotism held by the Army, Navy, Marines or Air Force. John McCain, who knows something about at least this issue, says that waterboarding is torture.

 What is the matter with these would be presidential candidates anyway? Is there any aspect or meaning of "beneath contempt" for which they don't qualify?

(BTW: Several of these candidates seem to think torture is OK anyway. It's an interesting judgment since the Israelis, who know a thing or two about terrorism as well as torture, have determined, after a lot of soul-searching, to reject torture as immoral.)

Friday, November 11, 2011

Perry's "senior moment"

My first reaction upon watching the video of Perry's "2 out of 3" slip-up at the debate a few days ago was to ask: How could he forget something he cared deeply about and supposedly understood?. It's not like forgetting a line from the Gettysburg address or a few notes from a Chopin etude. If he really had thought about which agencies he wanted to eliminate and understood that the Dept. of Energy oversees, for gosh sakes, military nuclear reactors, he would certainly be able not only to name it but to explain why he wanted to get rid of it. (Why didn't one of the moderators question, in the light of the disastrous Japanese melt-down, why anyone would want to sidestep government regulation of military reactors.)

The guy is a phony, reading from a script pandering to right-wing Yahoos who hardly know the Department of Energy from Planned Parenthood. And besides, he would lose the primary to Ron Paul who seems to want to eliminate -- count them -- FIVE departments, not just Perry's three. I mean, these departments are job killers: let's get rid of ALL of them (except, just maybe, Defense).

Ooops, sorry, there I go again: What part of beneath contempt don't I understand?

Thursday, November 10, 2011

The nature of "conservatism" on the U.S.

What this whole flap concerning Herman Cain is all about is what U.S. conservatism has always been about: sexism, racism and class warfare. All of these were used to try to defeat the unions in the early (and not so early) days of the labor movement. They were used to keep women "in their places" and non-whites in the back of the bus. Remember: it was the self-described conservatives who opposed the civil rights movement, the women's equality movement, and every other attempt to achieve social justice. Name a cause that is anti-people, anti-equal opportunity and anti-equal justice and it is a cause the conservatives have supported. They loved poll taxes, they refused to condemn apartheid, they have been and still are soft on fascism (corporatization of the state) and "authoritarian" regimes: it wasn't the liberals who pushed to finance the military dictators and "disappearers" in Central and South America.

Rush Limbaugh, who far from being an outlier, is the voice of conservatism in the U.S., sneers at the concept of sexual harrassment -- so does Fox TV. The Republican debate audience thinks that it's fine for Cain to refer to Nancy Pelosi as  "Princess Pelosi" -- the same way they applaud Perry's record of executions in Texas.

These things are not isolated, or unusual or unrepresentative. The conservative propaganda machine has determined that there is enough sexism, racism and intolerance remaining in America that it is worth speaking and pandering to it in order to eke out the extra votes needed to win close elections. And, of course, they are correct.

Left to their own devices, people would vote to keep their air clean, their roads paved, and their family members safe from predators. Americans want Social Security to be there for them, as well as Medicare and equal-opportunity employment. Since this is the natural and normal state of things, it takes an extra measure of cynical nastiness to try to get them to sneer at the very things they deeply want. It is precisely this nastiness that the American "conservative" movement is all about.

Shame on them.

There is no there there (in the Republican debates)

Watch them if you like gossip: Rick Perry having a senior (or alcoholic or drug) moment e.g.

But, there is no reality there: see the fact check on last night's debate. What they're saying is phoney baloney, meant to get cheers from their Yahoo audience.

Wednesday, November 9, 2011

A dose of reality for the Yahoos

There has been so much publicity surrounding the PTR's (formerly GOP's) interminable and seemingly unavoidable nominating circus, that it one forgets that the candidates and issues involved are basically beneath contempt. Yesterday's elections restored a bit of reality. Life goes one, and there are still large numbers of people out there who aren't brain dead.

Mississippi, for example, rejected a truly idiotic chaos-inducing plan to declare fetuses persons from the moment of conception. This is so fraught with unintended -- and intended -- consequences that even Mississippians, right in the heart of the bible-thumping-belt, had more second thoughts than affirmative votes, sending the measure to well-deserved defeat. It is a testament to the Yahoo-ness of the state that the vote was even remotely close. But: A miss is a good as a mile (as they say in Miss.)

Voters in Ohio thoroughly rejected an anti-union bill that had been passed by its Republican governor (Kasich) and legislature.

Maine, which elected a Yahoo governor last big election -- mostly because people who despised him split their vote, so he got a small plurality -- turned on a vote suppression bill that he and the Republican legislature passed. Mainers restored same-day registration, rejecting the phony voter-fraud arguments that had been used to pass it.

Finally, a fairly conservative Appeals Court in D.C., in a 2-1 decision, supported the constitutionality of Obama's health care bill by declaring that the Commerce Clause of the
Consitution gave Congress the right to legislate the "individual mandate." Maybe even Scalia and Thomas will buy their argument, but who knows what will happen with the radically activist Supremes.

Anyway, nothing succeeds like success. I hope these results will tone down the Republican sideshow, but I doubt it. Bring on more Cainonized victims of the Hermster! (That guy really gets around.)

Tuesday, November 8, 2011

Social Security and income inquality

Merrill Goozner makes a point about Social Security in a recent essay that I've made in this blog as well; however, it is a crucial point that often goes unreported, so I will repeat it again.

The Social Security program, a wonderful  --and, at the time, truly progressive if not radical -- social compact between generations, was set up with the expectation that 90% of American wages would be subject to the withholding tax (FICA). And, indeed, this was the case -- at first. However, the tendency in American capitalism is for more and more wealth to be concentrated in fewer and fewer hands. Since the FICA tax is capped at a certain level -- which is currently about $106,800 per year -- the very wealthy don't pay taxes on a lot of their income. The result is that now only about 83% of American income has SS taxes withheld. This is responsible for a good chunk of the negative imbalance between SS payments and SS income.

Most of the rest of the imbalance can be attributed to the population bulge of the "baby-boomer" generation, longer lifespans, and, of course, the grim recession we are now experiencing and will most-likely continue to experience for years. (Yes, I know, professional economists say it's not technically a recession any longer, but they are not out of work -- yet.)

If we can substantially raise the cap on FICA wages and get the economy going in a few years, we can weather the storm of the baby-boomer bulge and have SS emerge once again as a strong program.

Medicare -- and healthcare in general -- is another story.

Friday, November 4, 2011

Brinkley on Cheney on Cheney

NY Times book review has an article by Alan Brinkley on Cheney's take on history as expressed in his recent book: check it out here.

At one point Brinkley asks (about Cheney): "What had turned this capable, pragmatic, respected figure into the harsh and belligerent man who seemed toward the end to believe that only he understood the world of his time?" I guess Brinkley is trying to be fair, but amongst people whose judgement I trust (including me), Cheney was always suspect. He was a big Reagan supporter and opponent of sanctions against apartheid in South Africa; in fact, he classified Nelson Mandela's party as terrorist (but never the apartheid parties). He was a military hawk in most matters except for certain programs (e.g. the Osprey helicopter) in which his fiscal conservatism came into play. Of course, as the representative from Wyoming, he championed mining and ranching interests -- but that is to be expected after all.

Anyway, Brinkley gives a pretty good account of Cheney and Rumsfeld in this Times piece.