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In The 21st Century, A Replay Between Two Visions: Coolidge or TR/FDR

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Contrary to pundit analysis, the first half of Obama’s speech today in Cleveland reminded me of his old inspiring self. While the second half of his speech delved down into the weeds of policy differences between the current GOP and Democrats that became somewhat boring, even though completely true.

The first half of Obama’s speech clearly laid out his vision for the future of America. I might add, it’s a vision with which I completely agree, the essence of which is increased global competitiveness in every sector of the economy and greater economic rewards for labor – or actual work.

American Plutocrats take over the Economy for their own benefit

Nevertheless, the two visions of America going forward in this election replay the visions of Coolidge and of TR and his distant cousin, FDR.

Yes, it does seem strange that we’re even discussing the visions of presidents from a hundred or more years ago; yet, we are discussing the same essential policy visions again today.

While Coolidge, according to Wikipedia, had an essentially laissez-faire, hands off attitude towards business, believed that few regulations were needed and taxes should remain as low as possible, TR and FDR had another view based on their experiences with the so-called free market.

During the early 1900s when TR became President, the renowned Robber Barons dominated industry. Numerous books and magazine articles were written decrying the poor and often deadly state of American worker conditions under the heavy hand of corporate ownership: the high rate of deaths and physical dismembership among employees; the high rate of deaths in coal mines; and the overall low wages which prevented workers from rising above stark poverty and barely managed to provide roofs over their heads. Cold water flats, as cheap housing accommodations were known in the late 1800s, were not only common among workers but were miserly at best, providing only cold water and no heat except when the renter provided the coal to heat water and for cooking.

Yet, corporate businesses and Wall St boomed. Commodore Vanderbilt’s family regularly gave extraordinarily gaudy and lavish week-long parties. Wall St. magnates and other corporate leaders sought to compete in extravagance with the Vanderbilt’s.

In response to this disparity of wealth and opportunity, workers revolted. Street corner advocates called for massive worker revolutions against the corporate system. Unions formed. Workers struck, effectively shutting down businesses.

Businesses fought back with strike breakers and hired private police and army forces. Socialism and even Communism were on the rise amongst workers who saw the capitalistic system as supremely unfair and failing to live up to the promise of real democracy.

Violence was common…and threatened the country.

Into this era of violence, poverty and excess stepped Teddy Roosevelt. A rich kid from upper New York, TR quickly realized that to save capitalism he had to initiate reforms to save it from its worst excesses. That broadly spread economic benefits not only enabled the country to grow but maintained domestic order.

Thus, the GOP-created progressive era began as a consequence of unbridled free market capitalism that destroyed millions of families and businesses throughout the 1800s into the early 1900s.

TR realized that only the government could pull up on the reins of capitalism to prevent its largest horses from crushing underfoot the opportunities of millions of other citizens. He realized that if he and Congress did not put limits upon how trusts and other companies behaved, the likelihood of free market capitalism surviving was slim or, at the very least would fail to prevent revolution amongst the millions of American workers. After all, workers’ unions were the direct result of corporate management’s failure to address the wage, health and safety needs of workers.

FDR sought additional worker and consumer protections as well as for Social Security to lighten the burden on workers while enabling companies to grow. He understood that without a healthy, thriving middle class, real capitalism was doomed.

In 1936, GDP growth had reached a steady 45% degree angle upward throughout FDR’s Administration; yet, unemployment remained very high – even though accurate figures were not available. (The Fed. government did not begin keeping accurate unemployment data until the ’50s.) In 1937, the Fed. Government reined in its spending to balance the budget, thinking the economy had sufficiently healed. Those austerity policies sent the nation back into depression, increasing unemployment and federal deficits. Only the extraordinarily massive Federal spending for WWII, pulled the nation completely out of the Depression.

Oh, I know, some say that if FDR had not intervened the Depression would have ended much sooner. To them I say, read Rogoff and Reinhart’s book covering a century of global financial crises in which they report that financially caused recession takes up to 10 years before the economy returns to normal. Moreover, I would ask them to research what happened following each banking crash throughout the 1800s. What were the results for working Americans? How many working families lost everything? How many small business died? How much did the overall economy suffer as a result of banking crashes every 10 years. There is a reason why bankers asked for the Fed and the FDIC.

In between TR and FDR was Calvin Coolidge. His basic philosophy was hands off. He believed in light regulation, an almost unencumbered free market, and very low taxes. Business boomed under his administration during the 1920s. Unfortunately, his hands off approach led to massive speculation very similar to what occurred in the last decade. Hoover followed Coolidge’s economic philosophy and became the inheritor of a policy legacy that led to the worst depression in modern American history. When FDR was elected, the estimated unemployment rate was over 25%. Millions of businesses had shuttered. Millions more had lost their homes.

When FDR was elected the first time, he won all but 59 electoral college votes. In the 1936 election, he lost only 8 electoral college votes.

It’s that knowledge of history, including economic history, that informs my politics. You cannot have a thriving, broad-based economy without a thriving middle class who shares in the economic benefits of commerce. This nation has not had that sharing for at least the last 12 years – actually it’s been declining for 30 years as even Reagan acknowledged in the ’80s.

Right now, I think we’re once again caught up in a fight between the vision of Calvin Coolidge and TR/FDR. These are two very disparate visions of America. For myself, I fall on the side of a modernized version of TR/FDR because I believe their visions work better for America on the whole. And, indeed, because the TR/FDR model relies upon a muscular – even a Hamiltonian model – of a strong central government and the tax revenues need to meet the costs of government we need and over the last 100 years have chosen.

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GOP Senators Push to Overturn Financial Regulations

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Ezra Klein of the Washington Post notes in his blog today that Republican Senators plan to dismantle or overturn the recently approved financial regulations.

Senator Jim DeMint (R-SC)

Republicans aren’t content with blocking anyone and everyone from leading the Consumer Financial Protection Bureau. Next week, they’re planning to attach a series of anti-Dodd-Frank amendments to a noncontroversial economic development bill. One amendment would neuter the CFPB, of course. Gotta keep trying, I guess. Another would repeal the whole law. A third would stop the government identifying too-big-to-fail firms and regulating them more tightly. And that doesn’t even get into the ongoing efforts to defund the agencies that need to implement the various regulations, or the language in the GOP budget repealing the government’s authority to dismantle firms that are about to detonate the financial system.

While those regulations were mild, to say the very least, most regulations have not yet been written and those that have been written are far from strict. Yet, Wall St. hates them and has lobbied hard to overturn the regulations. Jamie Dimon took up the cause for looser regulations when he challenged Fed. Chairman Ben Bernanke earlier this week, saying the regulations might be too stiff and that higher capital requirements would harm the banks.

Sheila Bair, FDIC Chairman, when asked to about Dimon’s comments defended higher capital buffers for the biggest banks and said U.S. regulators must guard against pressure to ease up on oversight as the nation recovers from the 2008 credit crisis.

“I see a lot of amnesia setting in now,” Bair said today during a question-and-answer session at the Council on Foreign Relations in New York, where she discussed her tenure at the FDIC and the government’s response to the worst financial crisis since the Great Depression.

“On obvious things like higher capital standards, I say full speed ahead and the higher the better,” Bair said. “Banks are not doing a lot of lending now, and the ones that are doing the better job of lending are the smaller institutions that have the higher capital levels.”

I’ll go with Ms. Bair assessment rather Mr. Dimon’s. The nation’s financial system will be a great deal safer when banks are regulated again. The nation doesn’t need another financial meltdown, caused by out of control bankers.

Associated stories:
Senate Republicans Hijack Non-Controversial Bill To Push Pro-Wall Street Agenda

Written by Valerie Curl

June 10, 2011 at 2:23 PM

House GOP Want to Unleash Financial WMDs on Public AGAIN!

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Chris Dodd, Barney Frank and President Obama Merrill Goozner, of The Fiscal Times, reports that House GOPers are attempting to stifle any new regulations and rules on derivatives. Derivatives are the very financial instruments that, essentially, caused of the financial collapse nearly 3 years ago. Under the new financial legislation, commonly called Dodd-Frank, banks and other major financial institutions that engage in two-party derivatives transactions will be required to register those trades, set aside capital for potential losses, and post margin for leveraged deals. End-users, like farmers, are exempted in the legislation. But the GOP doesn’t think that’s good enough. They want to exempt Goldman Sachs and AIG too.

[L]ast week, Rep. Spencer Bachus, R.Ala., chairman of the House Financial Services Committee, and several colleagues introduced legislation that would delay rulemaking under Dodd-Frank for at least 18 months.

Specifically, the Alabama Republican, who raised more money from financial sector interests than any other member of the House in the last election cycle, proposed postponing enactment of new derivatives rules until mid-January 2013. For those not attuned to the political calendar, that’s a few weeks after the next inauguration, and about the time a new Congress will be sworn into office.

“The derivatives provisions of Dodd-Frank will impact every segment of the economy,” Bachus said in a press release. “The bill reflects the concerns of thousands of U.S. businesses, i.e., end users, that use derivatives to manage the risks they face every day.” The House Agriculture’s risk management subcommittee, chaired by Rep. K. Michael Conway, R-Tex., held a hearing in mid-April that aired similar complaints.

End users are companies or individuals who use derivatives to hedge the risks that arise during the normal course of business: a farmer who hedges against a sharp drop in price for his crops, for instance; or a manufacturer trying to lock in the price of steel; or any company trying to avoid currency losses from its dealings abroad. Dodd-Frank recognized the extra burden these businesses would face if required to post capital and margin for derivatives deals, so it exempted them from those requirements.

Lobbying groups in Washington, ranging from the U.S. Chamber of Commerce to the National Association of Manufacturers, are pushing for changes in the law. A companion bill to Bachus’ legislation, which was also introduced last week by freshman Republican Congressman Michael Grimm of New York, finally spelled out what those changes would be.

According to Grimm’s bill, neither party in a swaps deal would have to post margin if “one of the counterparties is not a swap dealer or major swap participant.” In other words, the major banks and financial institutions like AIG, whose failure posed a systematic risk to the entire financial system and required bailing out, would also be exempt from posting margin on leveraged deals, not just the farmer or steel-user or currency hedger.

“What they’re essentially doing here is making financial dealers end users,” said Michael Greenberger, a law professor at the University of Maryland who previously served as chief counsel at the CFTC under Brooksley Born, who tried but failed to regulate two-party swaps in the late 1990s. “It’s outrageous. It’s not the CFTC’s intent. And it’s not Dodd-Frank’s intent.”

As I read recently, just walk by the [legislator’s] table and leave a $20 bill to get what you want in the way of legislation.

Written by Valerie Curl

April 27, 2011 at 3:09 PM

Why Do Americans Protect the Really Rich?

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Modern Day Robber Barons

Illustration by Victor Juhasz

For months, I’ve tried to figure out why Americans have such a schizophrenic relationship with the super rich.

On the one hand, American people hate elites who attend prestige private universities, live in private gated communities, and make more money that they can ever spend. One the other hand, Americans vote to protect low tax rates on the uber wealthy as well as the radical income disparity that threatens our nation’s stability and economic progress even while denying millions of hard working middle income Americans extended unemployment.

Some national surveys suggest that the reasons Americans simultaneously hold these split attitudes regarding the rich is because thy either see themselves as rich or they believe they will become rich on day. Yet, well publicized new U.S. data refutes both of those beliefs. Still, even when American voters are aware of this new data, they continue to ignore it favor of old beliefs systems.

So, today I had one of those epiphany moments when I read NY Times columnist Nicholas Kristof who has traveled the world to all of the poorest countries and seen the worst governments in action.

The top 1 percent of Americans owns 34 percent of America’s private net worth, according to figures compiled by the Economic Policy Institute in Washington. The bottom 90 percent owns just 29 percent.

That also means that the top 10 percent controls more than 70 percent of Americans’ total net worth.

Emmanuel Saez, an economist at the University of California at Berkeley who is one of the world’s leading experts on inequality, notes that for most of American history, income distribution was significantly more equal than today. And other capitalist countries do not suffer disparities as great as ours.

“There has been an increase in inequality in most industrialized countries, but not as extreme as in the U.S.,” Professor Saez said.

One of America’s greatest features has been its economic mobility, in contrast to Europe’s class system. This mobility may explain why many working-class Americans oppose inheritance taxes and high marginal tax rates. But researchers find that today this rags-to-riches intergenerational mobility is no more common in America than in Europe — and possibly less common.

I’m appalled by our growing wealth gaps because in my travels I see what happens in dysfunctional countries where the rich just don’t care about those below the decks. The result is nations without a social fabric or sense of national unity. Huge concentrations of wealth corrode the soul of any nation.

And then I see members of Congress in my own country who argue that it would be financially reckless to extend unemployment benefits during a terrible recession, yet they insist on granting $370,000 tax breaks to the richest Americans. I don’t know if that makes us a banana republic or a hedge fund republic, but it’s not healthy in any republic.

This seems inconceivable at a time when millions of American families risk losing their homes as a result of outright mortgage scams and the ability feed and clothe their children – poverty rates are at their highest since the early ’60s – and millions more have seen their savings and retirements accounts decimated by an unregulated derivatives market in which all the players had a hand in pushing these highly complicated products that no one understood onto unsophisticated buyers worldwide. Communities all across America have been fiscally destroyed by the havoc these products wreaked, leading to significant higher tax rates and/or far fewer services at the local and state level.

As Investigative Reporter Matt Taibbi of Rolling Stone reports:

[T]he state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This “rocket docket,” as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and laby­rinthine derivative deals of a type that didn’t even exist when most of them were active members of the bench. Their stated mission isn’t to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me, as taxpayers) in the guise of AAA-rated investments. Selling lead as gold, shit as Chanel No. 5, was the essence of the booming international fraud scheme that created most all of these now-failing home mortgages.

and

Birmingham [AL] became the poster child for a new kind of giant-scale financial fraud, one that would threaten the financial stability not only of cities and counties all across America, but even those of entire countries like Greece. While for many Americans the financial crisis remains an abstraction, a confusing mess of complex transactions that took place on a cloud high above Manhattan sometime in the mid-2000s, in Jefferson County you can actually see the rank criminality of the crisis economy with your own eyes; the monster sticks his head all the way out of the water. Here you can see a trail that leads directly from a billion-dollar predatory swap deal cooked up at the highest levels of America’s biggest banks, across a vast fruited plain of bribes and felonies — “the price of doing business,” as one JP Morgan banker says on tape — all the way down to Lisa Pack’s sewer bill and the mass layoffs in Birmingham.

The point Kristof makes in his recent columns on the growing income inequity is one I’ve tried to make, albeit perhaps less well, in previous blogs from my studies of world history. The point Kristof makes is that you cannot have a stable and growing economy as well as a stable political system when so few recognize the benefits at the expense of so many. The reason the French, the Russians, the Chinese, and so many others worldwide revolted was income disparity, wherein the populace began to see through the the rhetoric and propaganda of the rich to the result of their own miserable lives.

This country has never believed in class superiority so it’s hard to believe one is growing within its borders. Yet, it does exist now just as it did during the era of the Robber Barons. Americans once voted to break the back of the Robber Barons and can do so again if and only if the voters choose not to become yet another banana republic. But they haven’t, even as other countries once considered “banana republics” left that status behind.

As Kristof writes,

Earlier this month, I offended a number of readers with a column suggesting that if you want to see rapacious income inequality, you no longer need to visit a banana republic. You can just look around.

My point was that the wealthiest plutocrats now actually control a greater share of the pie in the United States than in historically unstable countries like Nicaragua, Venezuela and Guyana.

The question is Americans wake up to what these other countries decided?

Micheal Hirsh, of National Review, Explains the Financial Meltdown & Housing Crisis

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It appears that a great many people are still confused over the causes of the 2008 financial meltdown and housing crisis. Partisans are still claiming it’s the opposing party’s fault or have limited knowledge. What is true of everyone is angry at a system that permitted the destruction of the economy, the mass loss of jobs, and the ruination of savings and retirement accounts.

Micheal Hirsch, of National Review, has published a new book, Capital Offense: How Washington’s Wise Men Turned America’s Future Over To Wall Street, that takes a hard look at the causes of the financial crisis, going back to President Reagan’s initial decision to deregulate the financial markets.

Republicans, Democrats and Independents will be as surprised as I was after viewing this video. Please watch:

Vodpod videos no longer available.

Written by Valerie Curl

October 14, 2010 at 8:58 AM

Who does the media work for?

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Fact: In 1983, 50 corporations owned a majority of the news media. In 1992, fewer than two dozen owned 90% of the news media. In 2006, the number fell to a total of four corporations: Time Warner, Disney, News Corporation, and Bertelsmann.

Documentary - Orwells Rolls in his Grave  I don’t ordinarily promote products on my blog. That’s not what my blog is all about. But today I’m making an exception. The reason? Today while channel surfing, I stopped at Link TV because the network was airing a documentary on the media. Orwell Rolls in his Grave is one of the most important documentaries produced in recent years – and one every voter in the U.S. must watch – because it paints a clear picture of how the so-called “free” media has been taken over by Corporate America to the point that those running the corporations decide what stories are covered, how stories are covered, and the failure of of true investigative and honest journalism.

Over the last several years, the media landscape has changed dramatically. FCC Chairman Kevin Martin pushed through a radical new change in the rules: For the first time in 32 years, television broadcasters in the top 20 markets can also own a newspaper and a radio station in the same area. Michael Copps, one of two FCC Commissioners to vote against the rule, called it “a decision that would make Orwell proud.” It allows even greater media consolidation, and makes independent media even rarer.

Can a media system controlled by just a few corporations really deliver on the promise of the First Amendment? Or is this just the beginning of an Orwellian nightmare where lies can become truth? […]

From the very size of the media monopolies and how they got that way to who decides what gets on the air and what doesn’t, Orwell Rolls in his Grave moves through a troubling list of questions and news stories that go unanswered and unreported in the mainstream media. Are Americans being given the information a democracy needs to survive or have they been electronically lobotomized? Has the frenzy for media consolidation led to a dangerous irony where in an era of more news sources the majority of the population has actually become less informed? Orwell Rolls in his Grave reminds us that 1984 is no longer a date in the future.

Most Americans are familiar with this Jefferson quote,

“The basis of our governments being the opinion of the people, the very first object should be to keep that right; and were it left to me to decide whether we should have a government without newspapers or newspapers without a government, I should not hesitate a moment to prefer the latter. But I should mean that every man should receive those papers and be capable of reading them.” –Thomas Jefferson to Edward Carrington, 1787. ME 6:57

but rarely is this Jefferson quote noted:

“A coalition of sentiments is not for the interest of printers. They, like the clergy, live by the zeal they can kindle and the schisms they can create. It is contest of opinion in politics as well as religion which makes us take great interest in them and bestow our money liberally on those who furnish aliment to our appetite… So the printers can never leave us in a state of perfect rest and union of opinion. They would be no longer useful and would have to go to the plough.” –Thomas Jefferson to Elbridge Gerry, 1801. ME 10:254

For anyone concerned with the media and media stories, viewing Orwell Rolls in his Grave will reveal how badly the media serves the voters as a result of “corporatism.”

On creating new financial regulations

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This morning while scanning the NY Times for news and interesting, little known information, I discovered an abstract by Jennifer Taub of the University of Mass. at Amherst. In Enablers of Exuberance: Legal Acts and Omissions that Facilitated the Global Financial Crisis, Ms Taub argues that the financial market crash of 2008 is the direct result of a deregulation based more on an ideological idea that on sound and realistic fiscal policies. In the abstract, she writes:

After the bust, these Legal Enablers helped the middlemen to not just walk away unscathed, but wealthier than ever, and to leave the rest of society bereft. Uncertainty about the bankruptcy treatment of complex instruments and transnational structures made commercial bankruptcy through Chapter 11 less viable, thus the “middlemen” financial firms received massive taxpayer-funded bailouts. Meanwhile, Chapter 13 after the 1993 Court decision, prevented consumers from down-sizing underwater mortgages. Finally, the ability for ultimate investors to seek redress has been eroded through securities laws changes and legal doctrines shielding fiduciaries from liability.

This paper contends that if we wish to restore investor confidence and sustain a stable financial system, we must stop enabling the excessive leverage and speculation that create cycles of irrational exuberance followed by financial panics. Specifically, it recommends that we eliminate the loopholes that allow unregistered investment pools broad discretion to operate in the shadows, without transparency or supervision, to engage in self-dealing or related-party transactions, to inaccurately value and inadequately protect assets and to take on excessive leverage and illiquid portfolio holdings. This surpasses the Obama Administration’s proposal to bring hedge fund advisers under the Investment Advisers Act. In addition to the disclosure and enforcement that would affect hedge funds and advisers under that bill, this paper recommends revisiting the substantive protections of the Investment Company Act that apply to mutual funds. While the federal securities laws generally used mandated disclosure and enforcement as tools to regulate conduct, the country learned in 1929 and again in 2008 that regarding investment pools, disclosure is not enough. Substantive restrictions are more effective tools to protect pools of other people’s money. As part of this recommendation, the myth of the sophisticated investor and the private offering are confronted.

Second, this paper suggests that we avoid allowing devices, like credit default swaps, initially designed to minimize and distribute risk to be used for speculation or gambling. Third, it advises that we change our Bankruptcy Code to allow lien-stripping under Chapter 7 and 13, thus discouraging poor underwriting and inflated home valuations and protect the most vulnerable from the impact of the financial system abuses. Fourth, we should remove the obstacles that shield corporate officers, directors and others from liability for enabling destructive behavior.

This paper will also address the arguments that might be offered that would resist these reforms. These include, among others: (1) that we should not regulate hedge funds because they did not cause the GFC; (2) sophisticated investors can take care of themselves; (3) human nature (i.e. greed) cannot be successful constrained; (4) government regulation is ineffective and undermines business growth; (5) lien-stripping is too expensive and creates moral hazard; and (6) one should not second guess the behavior of corporate directors and managers trying to operate in the midst of a market-wide correction or collapse.

The crisis has passed but the problems that caused the crash remain. Nothing has changed and Wall St. has returned to the same old behavior that led to the crash. And the gatekeepers still don’t know what to do.

With all the Tea Parties crowds screaming about the deficit, the ruination of the economy, the loss of jobs and retirement funds and socialism, the time to revise regulatory laws is ripe to restore confidence in financial markets and the power of the government to keep the players honest.

Written by Valerie Curl

September 17, 2009 at 12:02 PM

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