Tuesday, February 23, 2010

The Case for Financial Reform, and How to Do It

If you read anything I write about the economy or the current recession, please read this. A lot of what I say is going to shock you, and will undoubtedly cause you to furrow your brow and scoff, so I've taken the liberty of painstaking including links and information to back up what I say. Read on and discuss!

Robin Hood Reversed

"The war against working people should be understood to be a real war.... Specifically in the U.S., which happens to have a highly class-conscious business class.... And they have long seen themselves as fighting a bitter class war, except they don’t want anybody else to know about it."
— Noam Chomsky

I think most Americans would agree that a prominent middle class is necessary in every true democracy. The extreme polarization of wealth, with a very few having everything while a great majority are impoverished, is reminiscent of oppressive societies in years past, in other parts of the globe. America, the land of opportunity, should be seen as a place where people who make median incomes can thrive comfortably, raise families, work good jobs, and be healthy. But don't take my word on that. Just ask Aristotle. Or Seymour Lipset, a known scholar on democracy.

But this middle class is being endangered by what I wouldn't hesitate to call a class war between the super-rich and everyone else. The bank bailouts, endless federal reserve money, zero percent interest rates, and tax dollars going toward extravagant Wall Street bonuses for the bankers who caused this mess is all Robin Hood in reverse. Take from the poor, give to the rich. I'm going to list some facts and figures that will shock you. These numbers come from the United States of America, the land of opportunity, and not a third world country.

-50 million Americans live in poverty.
-Half of all American children will depend on food stamps to eat at some point in their childhood.
-Hunger is at an all-time high in the USA.
-Of the 1.4 million Americans who filed for bankruptcy in 2009, 60% of them did so because of medical bills.
-Before the recession ends, 13 million more Americans are going to lose their homes.
-We throw more people in jail than any other country in the world.
-We open a new jail in this country every single week.

And in my own state of Mississippi, child poverty is rampant. It is oppressive. It is disgusting. And it is worsening. 6 out of 10 children in Holmes County are living in poverty. 56% of children in Issaquena County are impoverished. 54% in Coahoma and Sharkey Counties. 53% in Bolivar County. Even half of Leflore County's children are living in poverty. Washington, Yazoo, Sunflower, Jefferson Davis, Quitman, Tallahatchie, Noxubee, Pike, Wilkinson and Jefferson Counties are all also in the top 100 worst counties in America when it comes to child poverty. And these numbers aren't looking to improve anytime soon. If anything, they're going to get worse.

The class war against the working class has been going on a lot longer since the 2008 recession. If we go back to 1972, almost 40 years ago, and check the consumer price index, you'd see that the average worker made $738.48 per week. That figure in 2008 was %598.18.

And if you want to know the true depths of how deep the damage is to the middle class, just look at job creation in the last decade, where we had ZERO net job growth. Middle class families made less in 2008 than they did in 1999. It hasn't been this bad in 70 years.

But that's how the middle class is faring in this economy. Surely Wall Street is feeling the pain, too?

The Rise of the Oligarchs
It's REAL good to be rich right now. There hasn't been a better time to be in the rich 1% of this country since the Gilded Age, pre-1929.

While the poor and the middle class have been languishing since the 1970s, we've seen after-tax income TRIPLE for the top 1% since 1980. Likewise, the bottom 90% has seen their after-tax income go down by 20% in that same time period. Since 2002, this trend has rapidly increased.

Also, did you know that the richest 1% owns 70% of all financial assets? And that this is an all-time high throughout history?

Did you know that 40 years ago, the average CEO made 25 times as much as the average worker? And now, CEOs make 500 times as much as we do?

Here's one more for you. If you can stomach it.

400 people in this country have more wealth than 155,000,000 people COMBINED. And that gap is increasing as I write this sentence.

Obviously, one can see our tax structure, both in-state and nationally, is skewed against the poor and toward the richest 1%. It's easy to see how progressive taxation would create income equality, lower child poverty rates, and spur the rebirth of the middle class. However, being that taxing the rich is such a touchy topic for politicians who get their money from the rich people who would be taxed, nobody wants to talk about that. But if you don't raise taxes, budgets have to be cut. And budget cuts are devastating local governments.

Wall Street's Plunder of Main Street

"For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realize that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance."
— George Orwell

There's a little town in Alabama called Samson. It's a small town where, last March, a disgruntled worker at a chicken plant killed 11 people. While tragic, there was another happening in Samson that didn't reach the attention of the news media; the national guard was called in to keep order, and patrolled the streets. While this directly defies the Posse Comitatus Act, there was no other choice. Cuts made to the Sheriff's department were so deep that the local law enforcement had been rendered completely unable to do their jobs.

This same chicken plant got hundreds of billions from former Wall Street giants Lehman Brothers and Merrill Lynch to buy out a rival manufacturer. This deal was put together by a banker hired by J.P. Morgan & Chase. And J.P. Morgan came up with the derivatives that bankrupted Jefferson County, Alabama over a sewer project. In that instance, the sharp increase in sewer rates caused people to have to choose between having water or having heat.

In order to make this purchase and hand out subsequent executive bonuses, workers' wages at the chicken plant were cut. However, the debt the company incurred forced it to declare bankruptcy. Thus, the greed of predatory capitalism caused massive layoffs at the plant, completely dismantling the local tax base of Samson. Meanwhile, Wall Street gets richer, fattening their own pockets on the backs of unemployed, disadvantaged middle class workers. And this continues today. Sounds eerily similar to what the corporatocracy (World Bank, IMF, USAID) has done to Latin America for the past 40 years, no?

But this isn't just in America; British officials are saying that their bankers are fueling a "doom loop," and that massive reforms will be necessary to end the plundering that has been victimizing the middle class.

As we continue to coddle the rich 1% and cut public sector budgets that the majority of Americans depend on for jobs and services, we risk putting ourselves in situations like Samson, or in Colorado Springs, CO, the home of Ted Haggard and the Tea Party movement.

From the article:

More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.

The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter.

Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that. Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero.

No land-use planning, building inspection, zoning, transportation, parks & recreation, community centers and public pools. Because of drastic budget cuts. States across the union can expect similar situations if progressive taxation continues to be ignored in favor of budget cuts.

The Myth of the Free Market
(It gets a little complicated here, so bear with me.)

The last duty of a central banker is to tell the public the truth."
-Alan Blinder, former Federal Reserve Vice Chairman

Banks started pulling the same stunts here in 2008 that they've been pulling for 40 years in Latin America, Africa, Asia and the Middle East. After the $700 billion bailout and interest rates being slashed to zero by the Fed with money being printed in abundance, banks like Goldman Sachs used that free cash from taxpayers to buy all of our foreclosed property for pennies on the dollar. They then took advantage of the poor real estate market (hampered by the bubble which they caused through predatory lending and excessive subprime loans) and made thousands of percent of profit selling those properties back to us. This is all because the Fed literally has our economy in a stranglehold. Societe Generale Chief Strategist Albert Edwards is openly accusing the Federal Reserve and England's central bank of robbing the poor and middle classes of the USA and the UK.

But we can't completely blame the Fed for the financial meltdown; when Goldman Sachs said they needed $700 billion of our money to stay afloat and loan capital to small businesses, they refused to lend any of it out. The Fed was then forced to slash interest rates and print even more money for the banks. This causes speculation, which leads to more reckless trading and lending, which leads to bubbles that inevitably burst to create another recession. Bubbles exist to move wealth from the working class to the richest .01% through risky investments and toxic asset trading.

Big investment banks also operated as commercial banks, which allows them to get even more money from the federal government. While Goldman got $10 billion in TARP (bailout) money, that's a drop in the bucket when compared to how much federal aid they qualified for as a commercial lending bank. JP Morgan, Citigroup and Bank of America were among some of the other financiers who lined up at the federal trough to stuff our tax dollars into their wallets to continue doing the same things that caused the global meltdown in the first place. In fact, without the Fed, all of these banks would have been rendered insolvent.

However, a deregulatory policy called the Temporary Liquidity Guarantee Program allowed nearly-insolvent banks to shed their disastrous credit histories and borrow on a clean slate, on top of all of the TARP money and Fed money. They were also allowed to gain interest on reserve accounts they are required to keep with the Fed. Basically, our government gave banks more money to reward the banks for existing.

These banks, in turn loaned money back to the Fed through the purchase of treasury bills, paying a 3 to 4 percent interest rate. Sort of like attaching an ATM to the federal reserve, to be used exclusively by Wall Street bankers. Collectively, these big banks borrowed trillions of dollars, sat on it, and refused to loan it out to small businesses and entrepreneurs once the money was given out. In fact, they demanded even MORE money. Essentially, money is going from the government back to the government, but the banks step in every once in awhile and fill their hands with our money.

While this has all been going on, the Fed and the Treasury have been frequently consulting with private advisory boards comprised mainly of Wall Street fat cats. Take, for example, the Treasury Borrowing Advisory Committee, where a J.P. Morgan executive and a Goldman-Sachs executive sit as chairman and vice chairman, respectively. the board advising the Fed includes major players from Bank of New York Mellon and from Capital One. Basically, these big bankers know when they'll be getting truckloads of free money so they can put themselves in position to make the most profitable investments. Kind of like a rigged poker game where the dealer and other players are all in on the scheme, and don't stop until they've taken all of your money.

The Fed has even become brazen in their openness about tight associations with Wall Street bankers. In the above articles, the Fed has been exposed in covering up their role in the AIG bailouts, and about their involvement in the Lehman Brothers bankruptcy debacle.

Now, the nation's six largest banks have set aside a collective $140 billion in bonuses while 14.8 million Americans stand in the unemployment line, and while one fifth of this country is out of work or looking for more work that can actually pay for things like rent, food and bills. We need to care about this, because underemployed people spend 36% less than gainfully employed Americans. This quickly takes a toll on local economies and small businesses, affecting even more jobs and cash flow.

So really, there is no "free" market. Not when our economy is in the hands of a few greedy bankers who have free access to our tax dollars, who can hold businesses that need credit hostage, and who can claim to be "too big to fail" when their unscrupulous practices catch up to them.


"A corporation cannot be ethical; its only responsibility is to turn a profit!"
—Milton Friedman, Economic Adviser to Ronald Reagan

Through the rape of the free market with the help of big banks, Fed Chairman Ben Bernanke, and Treasury Secretaries Hank Paulson (TARP guy, former Goldman-Sachs executive) and Tim Geithner, we have essentially privatized government in and of itself. Our economy is no longer under popular control, and our businesses and jobs are completely at the mercy of the Wall Street fat cats who hold all the cards. But there are things that we can do.

Reinstate the Glass-Steagall Act.
This legislation from the 1930s drew a clear line between commercial banks and investment banks. When Clinton repealed it in 1999, that gave the big Wall Street banks the green light to do what I've just described. Obama putting this back in place would reign in how much federal support big banks are allowed to get. And hopefully keep them honest so they won't rely on the Treasury to fill their pockets.

Institute a Robin Hood Tax
This would be a .05% tax on all bank transactions that don't include members of the public, i.e. bonds, currencies, speculation, derivatives. This would generate hundreds of billions of dollars each year to be used for shoring up the public sector. Essentially, by keeping the banks honest, and taxing them for engaging in risky behavior, it'd be like a new stimulus package every year, directly from Wall Street to Main Street.

Reform our Tax Structure to include a "Fat Cat/Rich Brat" Tax Bracket
When 50 to 60 percent of Americans can't keep up with rising inflation, health care costs, energy costs and grocery costs, it's time to turn the tables against those earning $5,000,000 per year, rich brats thriving off of trust funds, and other wealth that gets passed down through generations that builds simply because it is there.

Did you know that up until Reagan was president, our top income tax rate was never lower than 70%? Or that 2007 (pre-recession) tax returns never showed more than 46,000 earning $5,000,000 or more per year? This tax would effect about half of one percent of this country, and would generate over $100 billion per year in revenue. The total taxable income on all of those tax returns was $670 billion, and about $150 billion of that was income tax, at a 23% rate.

23%. That's the most glaring reason why we need a Fat Cat/Rich Brat tax. If you have taxable income exceeding $10 million, you paid at a lower tax rate than anyone with taxable income between $200,000 and $9,999,999. We could also tax all non-wage income. Why should people who work hard be taxed higher than those who are sitting on their butt, getting money off of accumulated wealth that most people don't have the luxury to have?

The Fat Cat/rich Brat tax could also be a makeup of the estate tax, and we could even exempt family businesses and family homes, as well as farms. The catch would be that the home has to have been lived in 5-10 years before death, lower the threshold and make it a tax on inherited and untaxed wealth. And if the rich brats and fat cats don't like the name of the Rich Brat/Fat Cat tax, we can call it the Trust Fund Baby tax, or the Leech on Society Tax, or the Lazy Brat tax. This would only effect the wealthiest of the wealthiest of the wealthiest, as there were under 14,000 taxable returns filed in 2008. It would be 1/6th of 1% of all income earners. And it would generate billions. Besides, stock, cash, and cash-type assets make up the bulk of all taxable income, so exempting businesses, homes and farms would even further single out trust fund babies.

And what's more, this tax would only apply to 5,000 to 10,000 families in the entire United States. It would force lazy trust fund brats to do something with their lives while allowing homes and businesses to be passed down without worry. Fat cats and rich brats should have to step up and pay their fair share, at least while the rest of us are working two or three jobs so we can pay rent and have food in our fridge.

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