What The Right Wing Radicals Would Like To Do For You Now

Let's start close to New York - right across the mighty Hudson in New Jersey - where the wolf-in-sheep's-clothing governor, Chris Christie, recently vetoed, (the N.J. legislature failed to override it) a renewal of a provision in the state tax code that calls for a 10.75% tax on income over $1 million per year. That means that if you earned $1 more than $1 million you would pay 10.75 cents in taxes on that dollar.

The poorly-described "millionaires' tax" would have raised $637 million for rebate checks of up to $1,295 for some 600,000 senior citizens who would otherwise face steep increases in their property taxes during fiscal 2011.

And this in a state where there is a budget shortfall of over 37% in relation to revenues.

All over the news: oil industry's darling Representative Joe Barton's comparison of the BP compensation fund with a "shakedown," comparing it to the worst in Chicago's checkered political payoff past. It is bad enough that Barton, the ranking minority member on the House Committee on Energy & Commerce, would say such a thing. But other Republicans have chimed in, particularly candidates in swing seats running for election against Democrats this fall. Two candidates to run against Russ Feingold in the Wisconsin Senate race have this to say.

Ron Johnson:

It is very troubling when we circumvent the rule of law. I think they would have been held liable, and that would be the way to do this.

Dave Westlake:

Shaking BP down for $20 billion doesn't do anything to further that end [stopping the leak] or to get the oil cleaned up faster.

In Colorado, an aide to former front-runner Jane Norton (Ken Buck now leads in some polls for the GOP's U.S. Senate nomination) called the rescue cash a "slush fund."

They have all taken their lead from a Republican Party memo and from the unofficial head of the party, Rush Limbaugh, who has termed the extraction of the promise to compensate financial losses for the working class and small business entrepreneurial class in the Gulf region, "thuggery."

No mention of the negligent thuggery that created the explosion that essentially murdered 11 people and is creating environmental chaos throughout one of the world's most beautiful bodies of water.

If this weren't enough, conservative J.D. Hayworth who is challenging John McCain in the Senate primary in the Nut Bin State, Arizona, served as an infomercial shill for "National Grants Conference," one of those scam companies that promises people - desperate people - a chance to get "free money" from the government through grant money that happens to be lying around doing nothing. The cost of the seminars for information that is available free from many traditional sources - $1000.

So, J.D., what's this about the government being too big and wasting taxpayer money?  

The Wall Street Journal reports today:

"Now the Florida-based firm that produced the infomercial, National Grants Conferences, is facing bankruptcy. The company racked up hundreds of consumer complaints that led many Better Business Bureau chapters around the country to give it an "F" rating."

Meanwhile, right wing Republicans are blocking an extender bill for unemployment benefits. The bill would extend benefits for 12 million people who have been out of work for over a year.

At the same time, Governor Haley Barbour of Mississippi, the most backward state in the Union, has been mentioned as a possible GOP presidential candidate in 2012.

He has been a skeptic about the effects of the oil catastrophe in the Gulf states, except for Louisiana to which his heart goes out, and now blames the national press for economic hardships the fisheries and tourist industry are suffering. What's IN that gumbo in Mississippi? He also has blasted the President's moratorium on deep water drilling, claiming that the economic impact of that will be more devastating than the slump other business in the Gulf will experience.

Tim Scott, invariably described as a "charismatic black man," is poised to win the GOP nomination to run for a Congressional seat in South Carolina. Scott, however, is somewhere right of Clarence Thomas, and is "black" in skin tone only. He's more the kind of guy who would have been serving mint juleps at a lynching of his fellow African-Americans in the 1870s. Right wing is right wing, dangerous is dangerous, no matter what your skin color, gender, or religion. 

Back up north, Scott Brown is lobbying furiously behind the scenes to give big banks a bye on trading of derivatives. Keep in mind that Brown received $450,000 from banks in the last 6 days of his successful Senate run. He who pays the piper calls the tune.

Welcome to the Republican future.

The Financial Fire Next Time

Limit leverage. Mandate transparency. Criminalize behavior and seize assets.

Everyone knows some version of the military maxim, "Don't prepare to fight the last war, prepare to fight the next war."

Congress is preparing us to fight the last financial war, the one based on the bundling, manipulating and trading of derivatives. But the next financial war will be about something very different.

What might it be? Look to the hottest and/or emerging sectors of the economy.

The Internet is still an under-ripe crop; the green economy is a nascent opportunity for the pirates; cap and trade scenarios are the perfect imaginary commodities; and don't forget our old "frenemy," oil. Maybe even water futures. How about bonds, the stodgy investment? I'd also keep an eye on Baby Boomer pensions and annuities; the biggest pot of gold in the private world is the $27 trillion dollars in assets held by American Boomers.

No one knows exactly what the next market bubble or grand maneuver will be. But we can be sure one will come as soon as regular companies, recovering now at a fevered pace, slow down and the big money looks for yields that can be conjured out of thin-air. (E.g., Ford stock has gone from roughly $1.50 to around $14 in the last 2 years. Chances are it's not going to $28 soon. Where can the hungry investor double his money now?)

And the crisis will absolutely, positively entail over-leveraging in some new, nefarious way.The mechanism is being assembled like a top secret rocket as you read.

Leverage was what the 1929 Crash was all about. In fact the entire Roaring 20's roared and vamped on cheap, unbridled credit. Big investors bid up the stocks of regular companies then colluded with banks to lend money so smaller and smaller investors could jump on the band wagon until corporate stock prices were in stratospheric ranges. At one point, AT&T was selling for $304 per share. That's about $6000 per share in 2010 money. And guess who bought at $290 or thereabouts per share? The johnny-come-latelys. Small time suckers, farmers, credit unions, and weak-economy foreign governments looking to cash in. Only a few weeks later, AT&T sold for $197, then eventually fell to the $60 range.

In the 20s, too, there was something called the Florida Land Boom. Again, some worthwhile but mostly worthless land in the Miami area was sold to investors up north with banks exhibiting nary a care about the buyers' financial positions. Parcels that went for $3000 in 1922 were selling for $60,000 in 1926. All on borrowed money, both buyers and their banks becoming overleveraged in the process. So when the music stopped... all fall down.

We've seen this before too many times. The Savings and Loan crisis, the Hunt Brothers' attempt to corner the silver market in the 80s, the Internet Bubble. Thousands of people saw it in the eyes of Bernie Madoff. Going back further, there were the South Sea Bubble in the early 1700s and Tulipmania in 1637. Everyone wants in on the big casino. And everyone gets their freak on when the casino slams them.

So, what can the government actually do? What laws can be passed?

1) Highly-leveraged paper has to be limited to some rational share of a financial company's investment portfolio. We know now that margin buying in the 20s was part of a larger delirium. But buying a purely speculative instrument for 10% down (margin buying) was utter madness.

Imagine a friend saying to you, "Lend me $5,000 so I can go to Vegas," when in fact she only had $500 to her name. You'd call an asylum. But in our public market speculations we lend that $5,000 all the time, the theory being that if I lend enough bundles of 5 grand, one of my friends will come home a millionaire and I cover my bad investments plus make a big belly profit. But when none of the friends come home, I'm in big trouble.

Our housing bubble was more complex, but it operated on the same principle. People with poor credit went to banks to borrow money to buy houses for which the banks didn't have money to underwrite mortgages so the banks went to "investment banks" or insurance companies which handed over money and then re-sold the bundled (worthless) paper. As the number of institutions upon which those bundles could be fobbed off on dwindled, the interest rates on the original mortgages had to climb so the banks could cover expenses. All well and good when the economy rode high, but once these marginal house buyers began losing their jobs their variable rates went up, and up and...

2) Absolute transparency has to be maintained, not just on the consumer level, but the institutional level. J.P. Morgan-Chase has to know that it shouldn't be underwriting some other institution that is leveraged to the max. If there is absolute transparency, no individual or institution can make the childish argument, "I wouldn't have done it if I could have helped it."

3) Criminalize certain behaviors in the world of finance. While what a charlatan like Madoff did clearly merits hard time in the slammer, how different is what he did from what the likes of Goldman's Blankfein, Citi's Charlie Prince, Stanley O’Neal of Merril-Lynch, et al?

The threat of 20 to 40 years behind bars and loss of all but subsistence assets for their families should scare almost anyone into honesty.

We don't get the three guarantees, we don't get protection.

Even now, time bombs are ticking that have been planted by the financial sector terrorists.

Which one will go off next time? Anyone have any ideas?
...

College Loan Revamping Threatened By Greedy Lobbyists and Complicit Senators

From The New York Times February 5, 2010 (Click here for full article):

"Sallie Mae, a publicly traded company that is the nation’s biggest student lender with $22 billion in loans originated last year, led the field in spending $8 million on lobbying in 2009, more than double the year before, and other lenders spent millions of dollars more, according to an analysis prepared for The New York Times by the Center for Responsive Politics." 

As discussed on New York Liberal State of Mind, January 29, 2010, the revision/rehabilitation of the way Federal college loans are administered is being threatened by self-serving lobbyists. (See original blog post).

The projected savings in the bill over 10 years would be $80 billion dollars.

The private lenders are often enormous institutions like Sallie Mae, Citi, and Wells Fargo, although there are many mid-size competitors, many of which are not household names unless you're in the market for a student loan.

Industry lobbyists claim that some, although they can't or won't say how many, of the 35,000 jobs will be lost if the government takes the reins of the out-of-control profits the companies are making. Let's make an extreme case: one quarter of those 35,000 jobs will be lost under the new plan, or 8750 jobs.

By distributing that $80 billion dollars in savings amongst those theoretical 8750 workers if they are not laid off, each of those jobs would be subsidized by taxpayers at the rate of $91,000 per year, every year over the ten year cycle. Who wouldn't love to run a company with that kind of government subsidy? I volunteer immediately to receive my $91,000.

Put another way, the financial institutions will be receiving $266 from every man, woman and child in America in order to save these pointless jobs. (We know that children don't pay taxes, and we also know that about 1/4th of all adults pay little or no taxes, so you can figure your real share is more along the lines of $400 to support big banks and the like. Great, isn't it?)

There are many alternatives to the current system leaving aside straight up federal administration. States could administer the loans, as could colleges, or scholarship foundations. Direct grants could be made to students using the savings.

Interestingly, Sallie Mae, while it was spending $8 million in lobbying last year maintains a "scholarships" program. The amount they give away? $250,000 - about 3% of what they spend for lobbying. Click here for their "scholarships" page.

There has also been a shocking degree of corruption and lack of oversight of the program as now administered. Educational institutions are entwined with the lenders on an unimaginable scale. Click here to read some highlights - or low-lights, as the case may be.

Speaking of NO - right wing says no to more efficient college loans

Bill ending banks' role in student loans stalls in Senate  from the Washington Post 1/29/10

The breadth of the effects of the right wing's nay saying is sickening. As millions of aspiring kids and their families struggle to figure out how to finance college tuition, the Senate Republicans are saying NO to a bill passed by the House last year that would save families $80 billion dollars over the next ten years, largely by eliminating bank fees and profits. What's not to like? 

Ask Republican Lamar Alexander of Tennessee who said, in some sort of Orwellian double-speak, "Relying on budgetary gimmicks to stage another Washington takeover, this time of 15 million student loans, is not good for college students. The Department of Education in Washington will not be able to serve students as well as 3,000 lending institutions."  Mr. Alexander has been the recipient of more than $500,000 in contributions from the securities and banking industry since 2005, by the way.

Now, those institutions range across a broad spectrum of size and kind. But let's take an average. This average bank would, if the legislation fails, earn $26,667,000 over that ten year period, or roughly $2.7 million per year. Alexander claims this is a government "takeover." Senator, this is a federally funded, federally guaranteed program. The banks have been used to administer the funds but, because of their dubious records over the last 10+ years and their excessive profits torn from the skin of the backs of the middle-class, they have lost their privileges. Direct lending of taxpayer money back to taxpayers seems to make eminent good sense. And, as the right wing is so fond of trumpeting, it would cut inefficiencies. 

Who is really for the American people when millions of struggling kids need college financing?

Certainly not the right wing, which wants to wring every last nickel out of the middle class, and has no moral compunction about doing so.