Posts Tagged 'recession'

Fight Foreclosures and Evictions: Take Your Money Out of Wells Fargo

Indybay Media, December 18, 2012

Take Your Money Out of Wells Fargo

by Patricia Jackson

Gray Panthers leaving WF Bank after closing account

On Tuesday, December 18, two senior organizations took their money out of Wells Fargo and joined a protest rally outside at Grant and Market in San Francisco. James Chionsini of Senior Disability Action and Michael Lyon of Gray Panthers addressed the rally after they had closed their organizations’ accounts and called on other organizations to also take their money out of predatory banks. Prior to the rally and while members of Gray Panthers and Senior and Disability Action were inside closing their accounts, a Wells “undercover spy” approached several protesters and took our pictures. He then tried to pass himself off as “one of us.” All morning Wells Fargo customers had to show ID and Wells ATM cards before guards would allow them into the bank. Protesters engaged in conversations with customers and passersby to talk about alternative ways of banking, local credit unions. Speakers educated them about Wells Fargo’s foreclosures.

Senior & Disability Action is welcomed by WF Bank undercover men

Setting up for the protest

Tony Robles, a member of Senior and Disability Action and a 4th generation San Franciscan, started the rally citing case after case of folks who are in foreclosure, forced out of homes they have lived in for decades. Like Larry Fox being thrown out of his home he has lived since as a child when his father took him watch as it was being built.And Robert Moses, 92. year old WWII Veteran, refinanced his nearly paid-off loan with Deutsche Bank to bring his home up to city code. Deutsche raised his interest rate and payment to $3,400 a month. Many seniors living on Social Security and/or fortunate enough to have a pension usually average far less that that amount a month to live on.

Foreclosure Fighters speaking out

Another Foreclosure Fighter

Wells Fargo has been fraudulently processing mortgage documents with a practice called robo-signing for years. Placing quotas on employees and forcing them to sign a certain number of foreclosure files each day. While other documents required for homeowners to avoid foreclosure were ignored, left sitting on unattended fax machines. Wells Fargo has double the number of foreclosures of other banks- a despicable record of evicting record numbers of seniors, disabled and people of color with a $4.8 billion profit. Protesters call for them to negotiate with the 27 families who are in foreclosures.

Archbishop Franzo King, of St. John Coltrane African Orthodox Church and NAACP told us that Wells Fargo made money off trading slaves and now it is foreclosing on the African American decedents of slaves. These banksters have no morality if they continue to put seniors and poor people out of their homes and on to the streets!

Tommi Avicolli Mecca told us to come to a rally Wednesday, December 19th, at 8th & Castro to protest the evictions caused by the Ellis Act- currently 25 buildings in the Mission are being “Ellised”, throwing out people with AIDS, parents and children.

Henne Kelly of California Alliance of Retired Americans (CARA) warned us about the ads Wells Fargo is running in the SF Chronicle offering $20,000 loans, which would not have to be paid back if people stay in a home for 5 years. “Do we trust Wells Fargo?” We roared back, “No!” Chants followed- “Wells Fargo’s impunity Destroys Community!”

It feels good to fight back!

Speaking out against the Grinch that stole our homes.

All groups should take their money out of Wells Fargo!

John Stumpf, Wells Fargo CEO

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Food Capitalism and Global Warming Produces Starvation and Food Riots

Raj Patel, September 4, 2010

Food Rebellions: Mozambicans Know Which Way the Wind Blows

It has been a summer of record temperatures – Japan had its hottest summer on record.[1] Same with South Florida and New York.[2] Meanwhile, Pakistan and Niger are flooded, and the Eastern US is mopping up after Hurricane Earl. None of these individual events can definitively be attributed to global warming, as any climatologist will tell you. But to see how climate change will play out in the twenty-first century, you needn’t look to the Met Office. Look instead to the deaths and burning tyres in Mozambique’s ‘food riots’ to see what happens when extreme natural phenomena interact with our unjust social and economic systems.

The immediate causes of the protests and in Mozambique’s capital, Maputo, and Chimoio about 500 miles north, are a 30-percent price increase for bread, compounding a recent double-digit increase for water and energy.[3] When nearly three quarters of the household budget is spent on food, that’s a hike few Mozambicans can afford. So far, the death toll hovers around ten, including two children. The police claim that they had to use live ammunition against protesters because ‘they ran out of rubber bullets’.[4]

Deeper reasons for Mozambique’s price hike can be found a continent away. Wheat prices have soared on global markets over the summer in large part because Russia, the world’s third largest exporter, has suffered catastrophic fires in its main production areas. These blazes, in turn, find their origin both in poor fire-fighting infrastructure and Russia’s worst heatwave in over a century.[5] On Thursday, Vladimir Putin extended an export ban in response to a new wave of wildfires in its grain belt, sending further signals to the markets that Russian wheat wouldn’t be available outside the country.[6] With Mozambique importing over 60% of the wheat its people needs, the country has been held hostage by international markets.[7]

This may sound familiar. In 2008, the prices of oil, wheat, corn and rice peaked on international markets – corn prices almost tripled between 2005-8.[8] In the process, dozens of food-importing countries experienced food riots, one of which claimed the political scalp of Haiti’s Prime Minister Jacques Edouard Alexis.[9]

Behind the 2008 protests were, first, natural events that looked like an excerpt from the meteorological section of the Book of Revelations–drought in Australia, crop disease in central Asia, floods in South East Asia. These were compounded by the social systems through which their effects were felt. Oil prices were sky high, which meant higher transport costs and fossil-fuel-based fertilizer prices. Biofuel policy, particularly in the US, shifted land and crops from food into ethanol production, diverting food from stomachs to fuel tanks. Longer term trends in population growth and meat consumption in developing countries also added to the stress. Financial speculators piled into food commodities, driving prices yet further beyond the reach of the poor. Finally, some retailers used the opportunity to raise prices still further, and while commodity prices have fallen back to pre-crisis levels, most of us have yet to see the savings at the checkout.

So, is this 2008 all over again? The weather has gone wild, meat prices have hit a 20 year high, groceries are being looted, and heads of state are urging calm. The general view from commodities desks, however, is that we’re not in quite as dire straits as two years ago. Fuel is relatively cheap and grain stores well stocked. We’re still on track for the third-highest wheat crop ever, according to the Food and Agriculture Organization of the United Nations(FAO),[10] so even without Russian wheat, there’s no need to panic.

While all this is true, it misses the point: for most hungry people 2008 isn’t over. The events of 2007-8 tipped over 100 million people into hunger, and the global recession has meant that they have stayed there. In 2006, the number of undernourished people was 854 million.[11] In 2009, it was 1.02 billion – the highest levels since records began. The hungry aren’t simply in Africa. According to one survey, over Christmas 2009 in the United States, 57 million Americans weren’t sure where their next meal was coming from.[12] Among those hardest hit by these price rises, in the US and around the world, were female-headed households.[13] The relations and structures of power that produce gender aren’t exempt from the weather, after all.[14] That’s why 60% of those going hungry are women or girls.[15]

Not only are the hungry still around, but food riots have continued. In India, double-digit food price inflation was met by violent street protests at the end of 2009. The price rises were, again, the result of both extreme and unpredictable monsoons in 2009, and an increasingly faulty social safety net to prevent hunger.[16] There have been frequent public protests about the price of wheat in Egypt this year, and both Serbia and Pakistan have seen protests too.

Although commodity prices fell after 2008, the food system’s architecture has remained largely the same over the past two decades. Bill Clinton has recently offered several mea culpas for the international trade and development policies that spawned the food crisis. Earlier this year, he blamed himself for Haiti’s vulnerability to international price fluctuations. “I did that,” he said in testimony to the US Senate. “I have to live every day with the consequences of the lost capacity to produce a rice crop in Haiti to feed those people, because of what I did. Nobody else.”[17] More generally, Clinton suggested in 2008 that “food is not a commodity like others… it is crazy for us to think we can develop a lot of these countries [by] treating food like it was a color television set.”[18]

Yet global commodity speculators continue to treat food as if it were the same as television sets, with little end in sight to what the World Development Movement has called “gambling on hunger in financial markets.” The recent US Wall Street Reform Act contained some measures that might curb these speculative activities, but their full scope has yet to be clarified. Europe doesn’t have a mechanism to regulate these kinds of speculative trades at all.[19] Agriculture in the Global South is still subject to the ‘Washington Consensus’ model, driven by markets and with governments taking a back seat to the private sector. And the only reason biofuels aren’t more prominent is that the oil they’re designed to replace is currently cheap.

Clearly, neither grain speculation, nor forcing countries to rely on international markets for food, nor encouraging the use of agricultural resources for fuel instead of nourishment are natural phenomena. These are eminently political decisions, taken and enforced not only by Bill Clinton, but legions of largely unaccountable international development professionals. The consequences of these decisions are ones with which people in the Global South live everyday. Which brings us back to Mozambique.

Recall that Mozambique’s street protests coincided not only with a rise in the price of bread, but with electricity and water price hikes too. In an interview with Portugal’s Lusa News, Alice Mabota of the Mozambican League of Human Rights didn’t use the term ‘food riots’. The protests are far more subtle and politically nuanced. In her words, “The government … can’t understand or doesn’t want to understand that this is a protest against the higher cost of living.” The action on the streets isn’t simply a protest about food, but a wider and more political act of rebellion. Half of Mozambique’s poor already suffer from acute malnutrition, according to the FAO.[20] The extreme weather behind the grain fires in Russia transformed a political context in which citizens were increasingly angry and frustrated with their own governments. Although it’s hard to read it outside the country, that’s a story well known within countries experiencing these food rebellions.

Yesterday, I reached Diamantino Nhampossa, the Coordinator of the União Nacional de Camponeses Moçambique – the Mozambican National Peasants Union. “These protests are going to end,” he told me. “But they will always come back. This is the gift that the development model we are following has to offer.” Like many Mozambicans, he knows full well which way the wind blows.

[UPDATE FROM Mozambique: The protesters have scored a victory. The government has agreed to reel back the increases on bread and water, though the electricity price hikes remain in force, and the government will have to make cuts ‘elsewhere’. ]



[3] AFP puts it at 17% – Guardian at 30%, as do most other news sources.


[5] and


[7] My calculations using FAOSTAT for 2007 suggests Mozambique imports 64.4%, but the Independent has the figure at 70%.














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U.S. Income Inequality Is Frightening–And Much Worse Than We Thought

The Business Insider, September 30, 2009

U.S. Income Inequality Is Frightening–And Much Worse Than We Thought

The newest economic inequality numbers, which ran counter to the expectations of almost all experts, are frightening.

The Associated Press released an article titled, US income gap widens as poor take hit in recession. The opening paragraph of the article, based on recent census data, reads:

The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets.

The article, which then discussed the Census statistics that led to this conclusion, failed to mention that the Census Bureau considered the differences between 2007 and 2008, with regard to economic inequality, statistically insignificant.

But, whether the Census Data shows a meaningful increase, or not. is irrelevant. The Census Data reports that, contrary to the almost universal expectations of economists, economic inequality most likely did not decrease in 2008. Experts had anticipated that the declines in income of the rich would lead to a reversal in this groups ever–widening share of our national income. Instead, the Census reported that the 2008 income losses by the top 10% of Americans were offset by larger losses among middle class and poorer Americans.

MIT economist Simon Johnston appears to have been one notable exception to this expectation of a shrinking income gap.

Let’s review what we know about the measurement of income inequality before discussing the disturbing implications of this newest government report.

About two weeks ago, I critiqued a Sept 10, 2009 front page story in the Wall Street Journal titled, Income Gap Shrinks in Slump at the Expense of the Wealthy. My critique had three central points:

First, economists have, with few exceptions, agreed that Census Data is inappropriate for measuring income inequality because it consistently understates the income of the wealthiest families. To protect the privacy of reporting individuals, the Census “top-codes” income, which means that no one is ever recorded as making more than about $1.1 million in a single year. So, oil traders, hedge fund executives and anyone else at the super-high end of the income strata who might earn $100, $50 or $5 million in a single year, always earn $1.1 million or less in this Census Data. In addition, the Census Data does not include capital gains income, which is typically a large source of income for the wealthiest Americans.

Two economists, Professors Emmanuel Saez and Thomas Piketty, developed a method for measuring income inequality using IRS data, which avoided the problems inherent in using Census Data. This data was recently updated in response to the IRS release of 2007 information, and found that: Economic inequality in 2006 was, by some measures at the highest levels, ever found in the data available for the past 95 years. In 2007, these same measure showed a further jump further bringing America to it it’s highest levels of economic inequality in recorded history.

As a consequence of Census top-coding and the lack of capital gains data, the Saez-Piketty methodology has consistently shown that the Census substantially understates the extent of economic inequality in the nation. This means that, there is a real possibility that the the new Census Data understated the extent to which income inequality grew in 2008, and that the relative losses of the wealthiest families, versus less fortunate Americans, will be more than statistically insignificant.

It is possible that losses in reported capital income by the wealthiest Americans, if captured by the Saez-Piketty methodology, will be larger than the the incomes above $1.1 million that were not reported and offset the Census findings, leading as economists anticipated to a decline in the share of income going to the rich. However, I view this as unlikely. In considering this possibility, its important to remember that the IRS works on reported income gains, not gains which were never captured as taxable income. For income reporting purposes, the question is not whether the market value of capital assets declined but whether they were sold at an actual loss from their purchase price.

We will not know the answer to this question until July or August 2010, but in weighing the available evidence my working hypothesis is that as demonstrated by this new Census Report, income inequality did not decrease from 2008 to 2007.

Second, the original Journal article expressed a strong expectation that, as a result of the Great Recession, the ongoing growth of income inequality would decline substantially through 201o. My critique indicated that this was “far from clear.” The conventional economic wisdom, based on historical data, is that income inequality decreases, at least temporarily, as the richest Americans lose income faster than less-well-off Americans during a downturn. In contrast, this new data suggests that the dangerous cycle toward increasing income at the top of America has become even more self-reinforcing than previously recognized. We are now at the point where the pure market forces, which many economists told us would eliminate this issue, are no longer effective.

Third, the Journal article implied that the decrease in economic inequality it incorrectly predicted might be the start of a long-term trend. Instead, I demonstrated that, even if income inequality did decline in 2008 and 2009, it would almost certainly be “temporary.” The historical evidence shows that economic inequality frequently declines in a downturn, in the absence of strong government action, but that it will almost inevitably rebound and continue its march forward.

Now, let’s return to our main point:

Early next week, my new book It Could Happen Here will be released by HarperCollins. The book is an in-depth look , based on a historical analysis, of the implications of our historically high levels of economic inequality for the nation’s ultimate, long-term political stability. As economic inequality grows, nations invariably become increasingly politically unstable: Should we complacently believe that America will be different?

A central conclusion of the book is that once economic inequality reaches a self-reinforcing cycle it is halted only by inevitably controversial, hard-fought, bitterly opposed government action. Senator Jim Webb encapsulated this idea, when he wrote in his book, A Time to Fight: Reclaiming A Fair and Just America:

“No aristocracy in history has decided to give up any portion of its power willingly.”

In 1928, economic inequality was near today’s levels. Franklin Roosevelt succeeded in reversing the trend toward the continuing concentration of wealth, but it was a turbulent battle. In 1936, while campaigning for his second term and speaking at Madison Square Garden, FDR told the crowd:

“Never before in all our history have these forces [Organized Money] been so united against one candidate as they stand today. They are unanimous in their hate for me and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said, wait a minute, I should like to have it said of my second Administration that in it these forces met their master.”

In FDR’s era and in our own, money brings power: both explicitly and implicitly, in hundreds of different ways, both large and small. Today, the wealthiest Americans, together with a number of financial and corporate interests that act on their behalf, protect their ever-increasing influence through activities that include, among others, lobbying, supplying expertise to the councils of government, casual conversation at dinner parties, the potential for jobs after government service, the power to run media advertisements that influence public opinion. Indeed, MIT economist Simon Johnston, writing in The Atlantic asserted that the U.S. is now run by an oligarchy:

The great wealth that the financial sector created and concentrated [ from 1983 to 2007] gave bankers enormous political weight–a weight not seen in the U.S. since the era of J.P. Morgan (the man) … Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

The new inequality data suggests that the potential problems for the nation associated with the concentration of wealth and power are even more severe than previously recognized. Two weeks ago, I wrote that “Once income concentration becomes a reinforcing cycle of the kind we are witnessing, it is never stopped by pure market forces.” This mechanism is now in full swing. The market forces associated with the Great Recession, which many economist had expected to stem the growing, corrosive gap between the rich and the poor, appear to have become ineffective.

The great strength of American democracy has always been its capacity for self-correction. However, Robert Dahl, the eminent political scientist, recognized that political power fueled by wealth may ultimately neutralize this central aspect of our democracy. In his 2006 book, On Political Equality, Dahl wrote:

As numerous studies have shown, inequalities in income and wealth are likely to produce other inequalities..

The unequal accumulation of political resources points to an ominous possibility: political inequalities may be ratcheted up, so to speak, to a level from which they cannot be ratcheted down. The cumulative advantages in power, influence, and authority of the more privileged strata may become so great that even if less privileged Americans compose a majority of citizens they are simply unable, and perhaps even unwilling, to make the effort it would require to overcome the forces of inequality arrayed against them.

In the chapter following this quote, Dahl notes “that we should not assume this future is inevitable.” He’s right. But, was clearly concerned. Three years late, we should be even more concerned.

Many current Executive Branch initiatives deserve our support and praise: However, nothing proposed to date will effectively halt growing economic inequality, and its corrosive impact on our economy and the long-term future of the nation. (In a future post, I will explicitly discuss the proposed regulatory reform of the financial sector.)

My analysis in It Could Happen Here concludes that without a vibrant middle class, the the American democracy as we know it, is not sustainable. Before the Great Recession, the middle class was in far worse shape than was generally acknowledged. In an economy with a record number of job seekers for every available job, the potential for nearly one-half of all home mortgages to be underwater, and increasing foreclosures, the collapse of the middle class will accelerate. With each job loss and each foreclosure, another family becomes a member of the former middle class.

America has never been a society sharply divided between have’s and have not’s. Unfortunately, this new data says to me we continue to head in that direction. Economists assumed that the Great Recession would be a circuit breaker that would halt this advance, at least temporarily. It did not.

With no new legislation, it appears we are potentially on course for 13 million foreclosures, almost one in every four mortgages in the nation, from the end of 2008 through 2014. Do we really believe that we can turn such huge numbers of Americans out of their homes with no consequences for the health of our system of governance? Could our democracy survive a transformation into a nation composed principally of a privileged upper class and an underclass which struggles from paycheck to paycheck and lacks basic economic security?

We will only stop the growth of economic inequality if the President and the Congress are ready to fight in the style of Franklin Roosevelt. FDR was a divider not a conciliator. Before World War II, he fought an all-out war at home. Today, “There’s class warfare, all right,” as Warren Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”

I fervently hoped that we have not passed the point of no return, described by Professor Dahl. The recent news shows we are one step further on this road. If we continue down it, our nation may be on the path to becoming a House divided against itself, which ultimately cannot stand.

How the Democrats might privatize and cut Social Security

After Bush’s 2005 fiasco, Democrats and Republicans will join hands to privatize and cut Social Security, Medicare, and Medicaid in a more subtle way. Don’t let your guard down!

Note: This was written in June and July of 2008, before Obama was even a presidential candidate, let alone elected. It was also written before the economic meltdown and the bailout of the financial sector, leaving working families with high, long-term unemployment and reduced wages. But even in the Summer of 2008, you could see the direction of things from Obama’s choice of economic advisors, largely Clinton-era banking and finance officials whose deregulation led to the recent meltdown. Conclusion: after Bush’s 2005 fiasco, Democrats and Republicans will join hands to privatize and cut Social Security, Medicare, and Medicaid in a more subtle way. Don’t let your guard down!

Also see the video “William Greider on the Looting of Social Security” and Greider’s more extensive article in The NationLooting Social Security.”    (Thanks to Dandelion Salad.)

Kinder, Gentler Privatization of Social Security Is Still Privatization!

By San Francisco Gray Panthers, Summer, 2008

Working-class Americans, with Democratic Party help, beat back Bush’s 2005 attempt to take future payroll taxes from the Social Security Trust Fund and put them into private market-based retirement accounts for individual workers, and then scale back Social Security benefits.  (See San Francisco Gray Panthers demonstration in January 2005) The current Democratic and Republican candidates both insist they are against Social Security privatization, but if you look more closely, they are pushing a new form of privatization, gentler, and more gradual that the Bush version, but privatization all the same.

This discussion focuses on the Democratic Party for several reasons: (1) they seem more likely to win in November because McCain is associated with discredited Bush policies and because Obama has so much more money, (2) most of our allies perceive the Democratic Party as more friendly to Social Security, Medicare, and Medicaid, and (3) the Democrats’ plans for gradual privatization of Social Security are more explicitly articulated by the powerful policy-making think tanks associated with the Democratic Party and with Obama. (McCain’s is ambiguous on Social Security, sometimes calling for 2005-Bush style private accounts and sometimes calling for 2005-Pelosi style private accounts in addition to traditional Social Security. McCain did, however, replace Phil Gramm as economic advisor with Martin Feldstein, considered the chief intellectual force of social security privatization.)

This discussion should not degenerate into a into a dead-end discussion of whether we are pro-Obama or anti-Obama, which would be confusing, and needlessly divisive. Instead, we should concentrate on informing ourselves and others about the likely threats to Social Security, no matter who wins the Presidency. It must be emphasized that both Obama and McCain, both Democrats and Republicans, and their associated policy-forming institutions insist that after the polarizing gaffe of 2005, restructuring Social Security must be a bi-partisan, co-operative effort based on compromise between the parties. Neither party has the power to force through its complete agenda. Neither party is willing to accept the blame for privatizing Social Security, and cutting back its benefits. Democrats and Republicans are together on this. If we want to save those programs, we’ll have to do it ourselves, and it will be a bigger job than in 2005.

Obama’s Links

Advocates for seniors and people with disabilities have good reason to be disturbed over the implications for Social Security of Barrack Obama’s strong association with the centrist Brookings Institution, and particularly with Obama’s appointment of Jason Furman as his top economic advisor.

Jason Furman is closely linked to Robert Rubin, a Wall Street insider and a current director of the giant Citigroup, the world’s largest bank. As Clinton’s Treasury secretary, Rubin promoted NAFTA, the 1990’s deficit reductions that decimated so many social programs, and banking deregulation. In the end, Clinton worked behind the scenes on a bi-partisan plan to splice private accounts into Social Security so government would only have a safety-net role, and was stopped only by the Lewinsky scandal. (A new book, “The Pact,” by Steven M. Gillon, describes the confidential meetings of Clinton and Newt Gingrich that initiated the effort to restructure Social Security.)

Furman himself was special assistant to the president for economic policy under Clinton, and was a staff economist at the Council of Economic Advisers. He has also been a senior economic adviser to the chief economist at the World Bank.

More recently, Furman directed the Hamilton Project, which Rubin founded and largely funds, and is a part of the Brookings Institute, one of the most powerful policy think-tanks in the country with deep connections with Wall Street. Obama’s economic team includes consultants such as Lawrence Summers, who succeeded Rubin as Treasury Secretary, former Federal Reserve vice-chair Alan Blinder, William Daley, who was Clinton’s NAFTA Task Force Chairman and still supports NAFTA, and long-term Obama advisor and Democratic Leadership Council Senior Economist Austan Goolsbee. Goolsbee favors achieving Democratic Party objectives through market mechanisms, such as promoting free trade (trade agreements where US business can freely exploit foreign labor, and then freely move its factories abroad), but with ameliorations such as compensations for damaged workers and communities. Obama’s economic team includes Paul Volcker, former Federal Reserve Chair under Carter and Regan, who countered the 1960s-1970s workers’ offensive of strikes by raising the prime rate to a record rate of 21.5%, in December 1980, deliberately causing the worst recession since the 1930s, throwing millions out of work, and beginning a sustained attack on workers and their families that persists to this day. The Obama team also includes more left-leaning economists like Joseph Stiglitz, Jared Bernstein, and James Galbraith. Nevertheless, Furman’s position as team leader and his closeness to Rubin, Wall Street, and the Brookings Institute, Volcker’s power as former Federal Reserve chair, plus Goolsbee’s closeness to the Democratic Leadership Council, makes it all but certain that those will be the dominant voices on Obama’s economic team, especially since Obama is raising prodigious corporate contributions ($6 million from securities and investment companies, including $544,000 from Goldman Sachs, the world’s largest investment bank) as well as smaller personal contributions (over 90% of total donors). As the economy melts down, Obama’s response has been increasingly aligned with Wall Street.

Jason Furman has achieved notoriety for praising globalization and NAFTA-type free trade agreements, praising Wal-Mart for lowering consumer goods prices (See Furman’s paper on this), for saying workers are better off than 20 years ago, and for excusing massive layoffs. However, our concern here is that Furman advocates a kinder and gentler form of Social Security privatization. This may seem surprising from someone who in 2005 worked for the Center on Budget and Policy Priorities and provided the economic analysis to defeat the Bush plan for Social Security privatization, but as early as 2006, Furman was on CNBC off-handedly advocating mandatory private accounts on top of traditional Social Security accounts, and benefit cuts for traditional Social Security accounts.

Bi-Partisan Efforts to Restructure Social Security

An extensive Internet search for particulars on Furman’s Social Security proposals fails to show much that is specific, but Furman’s parent think-tank, the Brookings Institute, has published considerable detail, which is probably more significant anyway, as it represents a consensus of powerful government and corporate policy-makers with close connections with Obama. Brookings and Obama’s advisors will propose a more gradual Social Security privatization with a few protective or compensatory measures thrown in, much as these same policy advisors promoted NAFTA with a few protective or compensatory measures thrown in.

“Taking Back Our Fiscal Future,” a combined report authored by the Brookings Institute and the Heritage Foundation found that despite overall differences, both groups agreed that “Unsustainable deficits in the federal budget threaten the health and vigor of the American economy,” and that “the first step toward establishing budget responsibility is to reform the budget decision process so that the major drivers of escalating deficits—Social Security, Medicare, and Medicaid—are no longer on autopilot.”

In other words, a way must be found to drastically cut costs on “entitlement programs” like Social Security, Medicare, and Medicaid, where all retired or poor Americans have been guaranteed certain benefits. (Note the Iraq-Afghanistan war being fought on borrowed money and rapidly increasing “regular” military expenditures are not even mentioned as major drivers of escalating deficits.)

The joint report recommends

(1) “Congress and the president enact explicit long-term budgets for Medicare, Medicaid, and Social Security that are sustainable, set limits on automatic spending growth, and reduce the relatively favorable budgetary treatment of these programs,” (meaning eliminate the current budget process whereby guaranteed benefits for retired and poor Americans receive first budget priority), and

(2) “significant long-term deviations from budgeted amounts trigger automatic adjustments in benefits, premiums, provider payments, or other revenues.”

(3) The report further comments: “This requirement would give the public and their elected representatives a chance to decide explicitly how much they want to spend on these three entitlements, and how much on other priorities – such as national defense, education, and scientific research – and what level of taxes they are willing to pay to support these programs.”

Similar themes are echoed in another Brookings Institute piece “Next President and Congress: Tackle Social Security First”, where Alice Rivlin and John Kingdon argue “Of course, everyone has to compromise to accomplish a comprehensive Social Security reform. Republicans have to give up diverting existing revenues into private accounts. But they can preserve private accounts on top of Social Security and strengthen incentives for individual retirement savings without going to “privatization.” Democrats have to accept future benefit cuts, but they need not be drastic and can spare current retirees and lower-income beneficiaries. The package could include future gradual increases in the retirement age and concentrate benefit cuts on higher income people.”

The Possible Democratic Plan for Privatizing Social Security

A more detailed outline of a possible Democratic Party version of Social Security reform is in a June, 2008 piece “Bridging the Social Security Divide: Lessons From Abroad” by Brookings Institute Senior Fellow R. Kent Weaver. Weaver is professor at the Public Policy Institute at Georgetown University, and has written extensively on economic policy, including a Government Accountability Office (GAO) advisory document to the Senate Budget Committee on Entitlement Reform, including Social Security. Weaver describes the Bush Social Security Privatization Plan to break up funding for the existing Social Security Trust Fund into individual private accounts as counter-productive, since it generated anger, hardened positions, and made compromise harder. Instead, this Brookings paper advocates bi-partisan compromise on Social Security reform to produce gradual privatization.

Basically, the plan is to (1) increase Social Security payroll tax revenue, (2) require employers to set up private retirement accounts for individual workers and apply the additional payroll tax revenues to the private accounts of low and medium income wage earners, (3) gradually diminish the guaranteed benefits paid by traditional Social Security so the private accounts become a major source of retirement income, and (4) invest the current Social Security Trust Fund in private securities. Here are the elements of the Brookings Institute plan with its explanations in quotes:

Social Security Payroll Tax Increase: “Increase the payroll tax from 2.0-2.5%, to be split between workers and employers.” (Obama has already proposed a “doughnut hole” tax increase: continuing the current payroll tax exemption for incomes from $102,000 to $250,000, but taxing payrolls above $250,000, (3% of taxpayers) probably at 2-4%, as opposed to the 6% paid by employees earning less than $102,000. It is estimated this would raise less than half the shortfall expected over the next 75 years.)

Mandatory Individual Private Retirement Accounts on top of traditional Social Security. “All of the new contributions (see above) would go into individual accounts that would be mandatory for all workers, but no existing payroll taxes would be diverted to individual accounts. Workers would choose from a modest range of index fund options managed by private sector fund managers. … The Social Security Administration would manage the collection and flow of money from individual accounts into those funds … At retirement, individuals could choose between annuitizing the funds in their individual accounts to guarantee a steady income stream or drawing the funds down by a set schedule. Lump-sum withdrawals would not be permitted.” (Obama has already said that he wants to make private saving easier, cheaper, more automatic for middle-class workers, and will require employers to set up IRAs for each worker. The payroll tax increase would be used to match 50 percent of the first $1,000 of savings for families that earn less than $75,000. More recently, automatic enrollment in Individual Retirement Accounts, IRAs, was proposed in a joint Brookings Institute-Heritage Foundation paper.)

Gradual Reductions Defined Benefits of Traditional Social Security: “The initial Social Security-defined benefit would be reduced for future cohorts of retirees over time as the new individual accounts are phased in. Replacement rates will be set so that the combined “old” Social Security benefits and new mandatory savings accounts will roughly equal current benefits, given moderate estimates on rate of return for the mandatory savings component. Given the progressive nature of the current Social Security benefit formula, some changes in the Social Security benefit formula or injection of general revenues to finance benefits of low earners would be required. Workers would also need to receive better information about how working longer can lead to higher benefits, and about the increased risk posed by having their Social Security benefits depend partially upon the performance of individual investment accounts.”

Investment of the Traditional Social Security Trust Fund in Corporate Investment: “Currently, Social Security trust fund surpluses are invested only in U.S. Treasury securities. Canada, New Zealand, Norway and Sweden all invest part of the public pension funds in equity, corporate bonds and other assets through independent entities in order to gain higher returns. These funds are clearly charged with maximizing fund assets for retirees rather than social investment criteria. The U.S. should consider doing the same thing. As in other countries, these funds should have a strict legislative mandate to maximize return for retirees. The U.S. could use multiple funds of limited size with heavy reliance on private fund managers, to prevent any disruption of capital markets. This approach not only would increase returns on Social Security contributions, it would ease the cash flow transition expected to occur in 2017 as Social Security shifts from serving as a source of financing for the federal government to being a drain on government revenues.” (Obama has said money people put into (traditional) Social Security should not go into the stock market.)

Emergency Fast-Track Congressional Powers to Deal with Anticipated Shortfalls: “ … automatically putting in place a combination of automatic tax increases and benefit cuts in specified proportions if the alarm bell is triggered … The president would be required to make a report to Congress within a specified amount of time proposing specific legislative steps to address that shortfall. Each house of Congress would then be given a window of time to consider the president’s recommendations under special rules limiting debate and prohibiting amendments. This procedural vote would require a special majority of 60 percent of members voting in each chamber. Final approval of the president’s plan would require a normal majority vote in each chamber. The procedural vote hurdle would hopefully encourage the president to submit a plan that could win broad support.” (Dianne Feinstein’s S-355, calls for a permanent, bi-partisan Social Security and Medicare Solvency Commission, with power to propose legislation that would be fast-tracked on an emergency basis in Congress. Senior and disability advocates opposed S-355.) The Brookings paper, in fact, proposes a Social Security Commission structured along the same lines as Feinstein’s Commission, involving Democratic and Republican chairs of relevant House and Senate Committees, to insure buy-in of its recommendations by all legislative groupings.

Some ameliorating features:

Improvement of Minimum Benefit: “ … the U.S. has one of the highest rates of relative senior poverty among the advanced industrial countries. Poverty is especially serious among elderly widows. … Congress should include in a Social Security reform package a more generous minimum benefit for retirees who have worked (or whose spouse has worked) long careers at low wages in the United States. This benefit should be paid for out of general revenues. The current safety net income program for the elderly, Supplemental Security Income, serves very few people because its benefit levels are low and its assets tests are extraordinarily stringent. … In Canada, close to 40 percent of seniors receive the Guaranteed Income Supplement, which has moderate income tests, no assets tests, and streamlined re-application procedures …

Contributions to compensate for wages lost while caring for children: “…A requirement that government make contributions to Social Security and mandatory savings accounts on behalf of a custodial parent of very young children who is out of the labor force or has only minimal labor force participation during his or her children’s first years of life. These contributions would be paid at (or topped up to) a flat rate, perhaps 60 percent of average earnings, and paid for out of general revenues.

What’s wrong with this plan?

Mandatory individual retirement accounts, as proposed by Obama, Pelosi, and others, work against retirees even when the accounts do not replace traditional Social Security, because they accelerate the replacement of employer-sponsored guaranteed-benefit retirement plans with plans dependent on workers’ ability to save and the stock market’s ability to continuously grow.

In the Brookings plan outlined above, over time, less of retirement benefits comes from traditional Social Security and the Social Security Trust Fund, and more is dependent on income from a worker’s private retirement account. This is a highly uncertain income since it depends on (1) how much money the employer has been willing to put into a worker’s private account, (2) how much money a worker has been able to save during his lifetime , and (3) how well the stock market is performing.

Employer contributions, instead of being fixed by law and the same for everyone, will be negotiated between worker and employer. Employer contributions will be driven down, just as private company pensions have been driven down over the last three decades, and more vulnerable employees’ contributions will be driven down even more.

Workers are already unable to save, and will be less able in the future. According to the Center for Economic and Policy Research, the current recession is expected to have over 4 million jobs lost, result in 5-10 million more living in poverty, and cause a $2,000 – $3,750 reduction in annual median family income. Meanwhile, food, gas, health, and rental prices are rising sharply, and social and safety-net services are decreasing.

These individual market-based private accounts are being proposed at a time of great instability in financial markets. The sub-prime loan crisis has not only lead to unprecedented mortgage foreclosures, but also to credit crunches and even failures of major banks like Bear-Sterns. The still-expanding US economic crisis, puts added pressure for government to put money into the private accounts in hopes that the stock market can use the money to inflate the next fiscal bubble.

For the same reasons as above, the Social Security Trust Fund must not be invested in the stock market. The fall of Bear Sterns is estimated to cost the Massachusetts Pension Reserves Investment Management Board $24 million, the New York State Common Retirement Fund $30 million, and CalSTRS, the California State Teachers Retirement System, lost $84 million of its $85 million invested when Bear Sterns folded.


Obama has already adopted aspects of the Brookings plan for privatizing Social Security for campaign purposes, but he may not adapt them all during the presidential campaign. Nevertheless, the Democrats’ close association with Rubin, Furman, Goolsbee, the Brookings Institute, and the Democratic Leadership Council makes it likely that the Democrats will adopt the Brookings plan once he is elected.

As Robert Pollin writes, “But keep in mind that Bill Clinton advanced similar goals in 1992, under his economic program of “Putting People First.” Yet Clinton’s economic program changed drastically even during the two-month interregnum between the November election and his inauguration in January 1993. During this time, Clinton decided that the first priority of his administration would be to serve the interests of Wall Street. The Clinton years were defined by across-the-board reductions in government spending as a share of the economy’s total spending, virtually unqualified enthusiasm for free trade, tepid and inconsistent efforts to assist working people in labor markets, and the deregulation of financial markets.” Clinton made his “decision” based on the same advisors as Obama’s.

We need to remember that the non-partisan Congressional Budget Office projects that Social Security can pay all scheduled benefits for nearly 40 years with no changes whatsoever. And even if nothing is ever changed, Social Security will always be able to pay future retirees a higher benefit (adjusted for inflation) than current retirees receive. If government promises to repay the Social Security Trust Fund are “worthless IOUs” because the money was spent financing past wars, then the war-makers must repay the Fund, not us.

Democratic and Republican forces, both allied with corporate and financial interests, are agreed that the economy cannot sustain the promises made to recipients of Social Security, Medicare, and Medicaid, given the arrival of 70 million new retirees, the requirements of rebuilding the military for current and future wars, and requirements to compete with China, India, and Europe in the future.

As the Brookings-Heritage report says, “Our political leaders have been avoiding this enormous issue—largely because it requires that the public be told that not all past promises can be met. Our group has come together, from diverse points on the political spectrum, to sound an alarm: if America is to remain strong, such evasions must end. “

We must be there to send a different message: past promises CAN be met, and MUST be met. But it was action in the streets and the workplace that won us those promises, and it will have to be action in the streets and the workplace that protect them.

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After Bush's 2005 fiasco, Democrats and Republicans will join hands to privatize and cut Social Security, Medicare, and Medicaid in a more subtle way. Don't let your guard down!After Bush's 2005 fiasco, Democrats and Republicans will join hands to privatize and cut Social Security, Medicare, and Medicaid in a more subtle way. Don't let your guard down!

Federal tax revenue drops the fastest since the Great Depression

Associated Press, August 3, 2009

AP ENTERPRISE: Federal tax revenues plummeting

By STEPHEN OHLEMACHER, Associated Press Writer Stephen Ohlemacher, Associated Press Writer – Mon Aug 3, 8:51 pm ET

AP – Graphic shows change in federal tax receipts from 1980

AP – Graphic shows change in federal tax receipts from 1980

WASHINGTON – The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation’s plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession’s impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government’s revenues were this bleak, the year was 1932 in the midst of the Depression.

“Our tax system is already inadequate to support the promises our government has made,” said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.

“This just adds to the problem.”

While much of Washington is focused on how to pay for new programs such as overhauling health care — at a cost of $1 trillion over the next decade — existing programs are feeling the pinch, too.

Social Security is in danger of running out of money earlier than the government projected just a few month ago. Highway, mass transit and airport projects are at risk because fuel and industry taxes are declining.

The national debt already exceeds $11 trillion. And bills just completed by the House would boost domestic agencies’ spending by 11 percent in 2010 and military spending by 4 percent.

For this report, the AP analyzed annual tax receipts dating back to the inception of the federal income tax in 1913. Tax receipts for the 2009 budget year were available through June. They were compared to the same period last year. The budget year runs from October to September, meaning there will be three more months of receipts this year.

Is there a way out of the financial mess?

A key factor is the economy’s health. The future of current programs — not to mention the new ones Obama is proposing — will depend largely on how fast the economy recovers from the recession, said William Gale, co-director of the Tax Policy Center.

“The numbers for 2009 are striking, head-snapping. But what really matters is what happens next,” said Gale, who previously taught economics at UCLA and was an adviser to President George H. W. Bush’s Council of Economic Advisers.

“If it’s just one year, then it’s a remarkable thing, but it’s totally manageable. If the economy doesn’t recover soon, it doesn’t matter what your social, economic and political agenda is. There’s not going to be any revenue to pay for it.”

A small part of the drop in tax receipts can be attributed to new tax credits for individuals and corporations enacted in February as part of the $787 billion economic stimulus package. The sheer magnitude of the tax decline, however, points to the deep recession that is reducing incomes, wiping out corporate profits and straining government programs.

Social Security tax receipts are down less than a percentage point from last year, but in May the government had been projecting a slight increase. At the time, the government’s best estimate was that Social Security would start to pay out more money than it receives in taxes in 2016, and that the fund would be depleted in 2037 unless changes are enacted.

Some experts think the sour economy has made those numbers outdated.

“You could easily move that number up three or four years, then you’re talking about 2013, and that’s not very far off,” said Kent Smetters, associate professor of insurance and risk management at the University of Pennsylvania.

The government’s projections included best- and worst-case scenarios. Under the worst, Social Security would start to pay out more money than it received in taxes in 2013, and the fund would be depleted in 2029.

The fund’s trustees are still confident the solvency dates are within the range of the worst-case scenario, said Jason Fichtner, the Social Security Administration’s acting deputy commissioner.

“We’re not outside our boundaries yet,” Fichtner said. “As the recovery comes, we’ll see how that plays out.”

The recession’s toll on Social Security makes it even more urgent for Congress to address the fund’s long-term solvency, said Sen. Herb Kohl, D-Wis., chairman of the Senate Aging Committee.

“Over the past year, millions of older Americans have watched their retirement savings crumble, making the guaranteed income of Social Security more important than ever,” Kohl said.

President Barack Obama has said he wants to tackle Social Security next year, after he clears an already crowded agenda that includes overhauling health care, addressing climate change and imposing new regulations on financial companies.

Medicare tax receipts are also down less than a percentage point for the year, pretty close to government projections. Medicare started paying out more money than it received last year.

Meanwhile, the recession is taking a toll on fuel and industry excise taxes that pay for highway, mass transit and airport projects. Fuel taxes that support road construction and mass transit projects are on pace to fall for the second straight year. Receipts from taxes on jet fuel and airline tickets are also dropping, meaning Congress will have to borrow more money to fund airport projects and the Federal Aviation Administration.

Last week, Congress voted to spend $7 billion to replenish the highway fund, which would otherwise run out of money in August. Congress spent $8 billion to replenish the fund last year.

Rep. Richard Neal, D-Mass., chairman of the House subcommittee that oversees fuel taxes, is working on a package to make the fund more self-sufficient. The U.S. Chamber of Commerce, which doesn’t back many tax increases, supports increasing the federal gasoline tax, currently 18.4 cents per gallon.

Neal said he hasn’t endorsed a specific plan. But, he added, “You can’t keep going back to the general fund.”

Schwarzenegger and the budget crisis: it’s easy to target those least able to fight

Los Angeles Times, August 1, 2009

Schwarzenegger and the budget crisis: easy to be hard

Funny, isn’t it, that when the governor scours the state budget for waste, fraud and abuse, he only seems to find it in programs for the old, the young, the poor and others unable to raise campaign funds or muster political opposition.

Like those seniors and disabled people in the state’s In-Home Supportive Services program. IHSS allows them to stay out of nursing homes or other facilities far more expensive for them, their families and ultimately the state and its taxpayers. Clients don’t get direct state payments, just basic care such as meals and changes of clothes and linens. But beware; there could be hundreds of seniors scurrying from county to county under assumed names, trying to rack up as many sponge baths as possible. So California will now crack down by fingerprinting them.

Or those CalWorks recipients, who probably just signed up for welfare to get job training. Well, there are no jobs out there right now, so they must be abusing the system. We showed them — by cutting funding for job training. And then there are the people raking in all that subsidized Medi-Cal and Healthy Families care. They just want to get the state to pay for cheap preventive care so it doesn’t have to pay for expensive emergency care. Nice try. We’ll cull recipients by centralizing the eligibility process, because everyone knows it’s better to run government from Sacramento rather than closer to home.

California had to cut. But there’s a double irony at work. First, the point of the social safety net is to be there when it’s most needed — to ensure that during times of widespread unemployment and financial distress, the people on the edge can avoid falling into an abyss; that’s vital to them, of course, but good for the rest of us too, because it costs more to retrieve the fallen than to keep them out of the abyss in the first place. And second, after they are cut, human service programs get branded as wasteful and fraudulent and get cut again, because they don’t have a California Teachers Assn. or a California Chamber of Commerce standing up for them.

Certainly there are instances of waste and fraud in government. Fingerprinting IHSS providers, who are paid with taxpayer funds, makes some sense. But fingerprinting the home-bound clients? If that’s not an example of new wasteful government spending, it’s hard to know what is.

Meanwhile, instead of cracking down on tax fraud, California is furloughing its tax workers, who will have less time and fewer resources to collect taxes owed. It’s retaining redundant Cabinet offices, which oversee fully staffed state agencies. And in the name of erasing waste, fraud and abuse, it’s leading a devastating march through the path of least political resistance.

When Will The Recovery Begin? Never.

CounterCurrents, July 11, 2009

When Will The Recovery Begin? Never

By Robert B. Reich

The so-called “green shoots” of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.

Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.

That’s where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.

Personally, I don’t buy into either camp. In a recession this deep, recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water — owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements. Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.

My prediction, then? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.

The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t “recover” because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

Robert Reich is professor of public policy at the Richard and Rhoda Goldman School of Public Policy at the University of California, Berkeley. He was secretary of labor in the Clinton administration.



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