#OccupyWallStreet: The precursors to the occupations?

I was just reading Christina Romer’s very well-done piece in Sunday’s New York Times, making the case that announcing nominal GDP targeting should be the Federal Reserve’s next policy move (I encourage you to read the article for the details).  Here’s the key section I’d like to highlight:

HOW would this help to heal the economy? Like the Volcker money target, it would be a powerful communication tool. By pledging to do whatever it takes to return nominal G.D.P. to its pre-crisis trajectory, the Fed could improve confidence and expectations of future growth.

Such expectations could increase spending and growth today: Consumers who are more certain that they’ll have a job next year would be less hesitant to spend, and companies that believe sales will be rising would be more likely to invest.

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Though announcing the new framework would help, it probably wouldn’t be enough to close the nominal G.D.P. gap anytime soon. The Fed would need to take additional steps. These might include further quantitative easing, more forceful promises about short-term interest rates, and perhaps moves to lower the exchange rate. Such actions wouldn’t just affect expectations; they would also be directly helpful. For example, a weaker dollar would stimulate exports.

How many of you reading this article feel that our government is “willing to do whatever it takes” to get us out of this persistent unemployment crisis, with all of its attendant suffering and economic misery?  I’d bet not a one of you – I certainly don’t think our government is trying its best to fix things.  Of course, it depends on how one defines “government” I suppose, but if you initially think of our elected branches, since we voters have the most direct control over the executive and the legislative, then no, the “government” in that sense is definitely not working on our behalf! 

And really, how ridiculous is it that the government of the wealthiest country that has ever existed can’t even act in a coordinated manner to stem the suffering of a massive segment of its population?  Or perhaps even more sinister, it appears that the government won’t act to stem the suffering.  Our elected officials have abdicated virtually any and all responsibility until after November 2012 in order to best position themselves politically and rhetorically for the electoral battles to come.  Sure the President is still hammering away on his newfound populist message, his “jobs proposal,” and is taking actions on behalf of homeowners, student loan borrowers, and prescription drug patients, among others, but let’s be honest folks, his track record on the “following-through-on-populist-sentiments” score ain’t that great…(see option, public for an example).

So now we face the absurd reality that the Federal Reserve, the quasi-governmental entity that is perhaps the least-democratic, most-opaque, and most removed from the basic economic reality of most Americans is being pushed to solve our jobs crisis through pure monetary policy.  The Federal Reserve has a dual mandate of preserving price stability as well as maintaining full employment, and the main critique of the Fed for many years has been that it has focused virtually exclusively on the former (in the form of interest rate targeting) while wholly neglecting the latter.  Despite the fact that it has been broadly apparent that allowing interest rates to rise somewhat would facilitate the creation of more jobs, the interest rate hawks within the Fed have consistently put a stop to any of those practices, warning of mythical “bond vigilantes” who will decide that US Treasuries are no longer worth investing in if the interest rate rises even a smidge, despite massive evidence to the contrary.  (The counterpoint, of course, is that investing in Treasuries represents the safest investment one can make in the troubled and volatile world markets, as while the state of the US debt and economy overall might cause debt holders concern if the rest of the world were in better shape, the relative position and strength of the US economy in the current world economy makes it a better investment vis a vis other sovereign bonds.)  But I digress.

Why are people occupying so many public spaces in so many cities across the United States and abroad?  I think it is precisely as a response to the massive systemic failure we’ve witnessed at all levels of our government to actually make a positive impact on the vast majority of Americans’ lives.  This is not to say that Americans en masse are waiting for government aid or action or anything like that, rather that the silliness we are witnessing playing out on Capitol Hill and in the White House, the constant tit-for-tat, is leading Americans to see their government as willfully sitting on its perfectly-capable hands, rather than deigning to lift a finger to tilt the scales of justice even minutely back on their side. 

A significant portion of these Occupiers likely played a large role in electing President Obama in 2008 – the sense of triumph in that election was not simply due to the historical nature of electing the first African-American president, but because Obama appeared to represent a turn of the page, or perhaps, a close of the book, from the utter depredation of the Bush Administration, hollowed out to a shell of itself in the end due to its sheer lack of competence.  Post-Katrina America had scars, deep scars affecting the national sense of whether the government was truly acting in our interests or not if it could bungle emergency management so completely. 

Obama represented a shift towards competence, towards smart folks who looked at the data to get things done and make decisions…and yet, after the health care debate, the pyrrhic victory of an apparent giveaway to the health insurance industry, combined with the Wall Street-friendly nature of the new Administration, and the declaration that many of the high-level prosecutions that many desired for actors both inside and outside of government were to be strictly off-limits by Obama and Attorney General Holder marked a certain continuity between the Bush and Obama Administrations: elites are coddled, bailed out, and constantly regaled, no matter their transgressions.  The little people, the 99%, have no place in this insular Washington-Wall Street-Pentagon calculus.

The election of Obama, in this narrative, represents not the shift, the hope, the change that people were hoping for, but the continuation of the perpetual insult to the nation’s sense of values and fairness – an insult that, prior to the rise of the Occupy movement was largely undefined and nameless for many Americans.  Guantanamo, Abu Ghraib, bank bailouts, auto bailouts, the death of the public option, no Wall Street prosecutions, no torture prosecutions, warrantless wiretapping, unmanned drone strikes on countries and civilians we aren’t at war with, wars that are declared against enemies that are largely undefined…whose heads roll for any of these awful decisions? 

The failure of our institutions, and the growing widespread understanding of that fact, as I alluded to a few weeks ago, and more obliquely, in the title of my last blog post “Don’t think it’s not bipartisan, it is,” is profoundly bipartisan.  It had to be to manifest itself so clearly to so many at just this point in time.  Just as you would likely not have a Tea Party had John McCain won, the nature of the Occupy movement, if it were to exist in an alternate world under a McCain Administration, would be very different to what we see today.  It took the failure of Obama, the landslide-elected change agent to bring justice, to bring accountability to the corrupt elites of this country, for the Occupy movement to spring up.  In this case, perhaps the Change that is thus far unrealized will be the catalyst for the realization of the true Change, whatever that may be. 

The bipartisan failure is a wholesale indictment of the entire construct of democracy in this country, and has likely soured many in the Millenial generation on the act of voting itself.  Perhaps democracy, as it is now constructed, is not in fact the method for enacting the change we wish to see in the world?  Could it be that the leverage points upon which the entrenched interests and powers can bring their influence to bear on candidates and nominating parties in our democratic system are simply too numerous and too porous?  The vast constellation of special interests funding candidates these days ensures the ascendance of a certain type of candidate: one who must be conversant in the ways of money, though preferably not “of” money (they’re easier to control with the promise of high-paying post public service jobs, you see) and who have hewn lines that conform to the dominant economic and social memes of the day, thus ensuring the continued preservation of the entrenched classes.  Any “change” will thus be marginal, minimal, the scraps thrown to those too poor to afford their own public affairs divisions or hired-gun lobbyists to press their case in the halls of power. 

Ultimately, though, it doesn’t matter whether Obama speaks the right words, or even whether he follows through on his newly populistic leanings with actual substantive legislative victories; the narrative is no longer his to drive, nor is it the GOP’s or the Tea Party’s.  They are reacting, all of them.  Consider:

Occupy Wall Street has already achieved a stunning victory – a victory that is easy to overlook, but impossible to overstate. In just one month, the protesters have shifted the national dialogue from a relentless focus on the deficit to a discussion of the real issues facing Main Street: the lack of jobs -- and especially jobs with decent benefits -- spiraling inequality, cash-strapped American families' debt-loads, and the pernicious influence of money in politics that led us to this point.

To borrow the loosely defined terms that define the Occupy movement, these ordinary citizens have shifted the conversation away from what the “1 percent” -- the corporate right and its dedicated media, network of think-tanks and PR shops -- want to talk about and, notably, paid good money to get us to talk about.

What were you reading about daily in the newspapers as recently as 6 weeks ago?  Austerity austerity austerity.  What did the Occupy movement bring to the table?  Non-manufactured talking points that actually speak to people.  Something you can bring home to your family and discuss at your kitchen table as a concept that everyone understands, intuitively.  Fair wages, decent jobs, non-criminal banks, supporting your neighbors and your community.  These are American values, no matter what the cable news pundits say who myopically search for the “demands” of the Occupy movement despite the hundreds and thousands of protest signs shouting demands right at them. 

People want a fair shake, for themselves, their children, their coworkers, their neighbors, their fellow churchgoers.  That’s pretty much all I’ve come up with, at the end of the day, and it’s pretty simple.  How we get to the fair shake for all is the more complicated problem.

A Reinvigoration

It's been quite a long time since I've posted anything here, due to many factors, not least of which is a new, very intense quarter of studies that began shortly after the New Year.  In that time there have been scads of news stories that are of major interest to me, and potentially to some of my (admittedly few) readers out there.  A few of those stories include the election of Scott Brown to the U.S. Senate in Massachusetts and the subsequent wrench that has been thrown into the White House and Congress' plans to pass health care reform; Paul Volcker's elevation by President Obama through a new drive for financial reform; and the reconfirmation of Ben Bernanke as Federal Reserve Chair.  I hope to cover these other stories, at least in passing, in subsequent posts.

While I have missed the opportunity to comment on those major stories, I thought tonight would be an appropriate time to at least restart this blog in the new year by pointing your attention to a video of President Obama's fascinating Q&A session with the House Republican Caucus at their annual retreat in Baltimore today.  It's unclear how much of this historic and enlightening event the mainstream media will cover in their newscasts, however I can't recommend watching the clip in its entirety enough.  I read somewhere today that the last time a sitting president took questions from members of Congress was in 1974 when President Ford addressed Congress about Nixon's resignation.  This is democracy in action folks, the sharing and debating of ideas.  President Obama absolutely makes mincemeat out of the Republican talking points while at the same time remaining respectful of their ideas.  Beyond that, however, in a few of his answers Obama engages his meta-themes of criticizing sensationalist media coverage and calling for a return to respectful, vigorous discourse between the parties.  He most skillfully demonstrates how to have vigorous yet respectful discourse by systematically dismantling the false assumptions and facts that underlie the questions the Republicans pose to him (including one from Rep. Jeb Hensarling of Texas that claims that Obama's monthly deficits are larger than any of President Bush's annual deficits!  Insane!)  The President calmly yet firmly argues that when Republicans demonize the opposition and make claims that Obama is trying to create a "Fascist" or "Socialist" government, the politicians paint themselves into a very small corner with their constituents, message-wise.  Once they are stuck in that corner, they will not be able to negotiate with the White House very easily, as their constituents will accuse them of having sold-out to the White House.  He's a very deft politician, our President, and that deftness was on full display today.

Between the State of the Union and today, I wonder if we're getting Candidate Obama back?  The fighting, tough-talking candidate who won a landslide election?  Now that we have President Obama, we need him to follow the talking up with doing, but this is a good start, nonetheless.

Time to make banking boring again

Yes! Vindication is nigh! Well, that's what Simon Johnson at the Baseline Scenario thinks, anyways. Johnson is convinced that Paul Volcker will be victorious in his quest to re-regulate the banking industry, and dare I say it, make banking boring again through reinstituting the Glass-Steagall reforms. What a concept, right? It's funny to me that when I read classic fiction, the bankers are portrayed as the staid, conservative types, who are well-off, but never considered the captains of industry as they are today (well, except perhaps in The Great Gatsby). And what is humorous to me is that that classic image of the banker is very much divorced from the one we have witnessed over the past decade, when banking became one of the most, if not the most, freewheeling industries in terms of risks taken and sums of money made.

The topic of banking and financial reform has become quite compelling to me of late (as is clear from the substance of my recent posts) as I believe that the problems we are witnessing strike at the heart of the American approaches towards money and morality. "More is always better" is the stereotypical American ethos, and yet there should be consequences for wrong actions (witness America's continuing fascination with the death penalty as a form of crime control, despite widespread statistical studies that show the death penalty does not deter crime). However, the financial titans pursued wealth with a single-minded focus, playing with other peoples' money, and when the house of imaginary wealth they built came crashing down, they suffered few, if any, consequences. There is a basic unfairness to this matter, and a sense that the outrages will not stop, given the current weaknesses in the financial reform plans the House passed last week and that are now before the Senate (and sure to be watered down there even further). Johnson notes the fairness issue in the context of Volcker's proposed reform measures:

This strategy is partly about timing – and in this regard Volcker has chosen his moment well. The economy is starting to recover, but this process is clearly going to take a while and unemployment will stay high for the foreseeable future. At the same time, our biggest banks are making good money – mostly from trading, not much from lending to small business – and they are lining up to pay very big bonuses.

Not only is this contrast – high unemployment vs. bankers’ bonuses – annoying and unfair, it is also not good economics. Bankers are, in effect, being rewarded for taking the risks that created the global crisis and led to massive job losses. And they are being implicitly encouraged to do the same thing again.

And there's the rub; bankers are being incentivized, to use the economics term, to take massive short-term risks again if we keep the basic banking structure the way it has been since the repeal of Glass-Steagall. The bonuses will not stop, and the government will continue to be expected to backup the banks when they fail, because they've done it once, and the banks now have an incentive to ensure that in the future they will once again be "too-big-to-fail" so that the government will be forced to backstop their losses when the next recession hits. The core business of banking, saving and lending money, is being short-changed in what ought to be our country's economic recovery in favor of the massive profits (and risks) of the financial innovations of the past decade. Until Obama and his Administation get a grip on the need for fundamental reform and a return to the basics, the Wall Steeters will continue to put all of our nation's money in harm's way.

UPDATED: Remember the Titans (of Industry are Not Friends of Yours)

Image via Wikipedia

Allow me, if you will, to paint a layman's picture of the economic crisis and unbridled greed through the use of some headlines that have caught my eye in the last few days.

Headline 1: With Wall Street Shorting the Dollar, It is Time for Congress to Pursue Fundamental Change by David Paul, President of the Fiscal Strategies Group. This article provides some insight into how it is that Wall Street is managing to have one of its best years ever, despite the fact that the rest of the economy is in the grip of a major recession brought on largely by Wall Street's criminally risky behavior. Outrageously, after having been bailed out by US taxpayers, the banks are making their billions right now by shorting the US dollar and thereby effectively weakening the US' international position further than it would be otherwise. I won't excerpt from this article, as the entire piece is well worth a read, and has sadly been overlooked by the continuing popular outrage against the billion-dollar bonuses the banks intend to pay out this month, but suffice it to say that the banks are committing financial treason, if not outright treason, in pursuit of their profits at all costs.

UPDATE: Turns out that the Federal Reserve will allow the bet-against-the-dollar party to continue through the rest of the year by keeping the interest rate between 0% and 0.25%.  Sounds swell.

Headline 2: Obama Blasts Banks for Opposing Financial Reform: Here Obama comes out with some populist lines trying to get ahead of public sentiment against the excesses of the banks, and those banks ignore him, since he officially has no leverage over the banks' practices now that virtually all of them have paid back their TARP funds to the government. The banks are now free to continue to reduce business lending and to actively oppose any sort of reform that puts a damper on their radical activities. The lack of lending is slowing the economic recovery as businesses aren't able to hire workers as easily, and the banks know that they have the power to hamper any sort of recovery through cutting down on lending, effectively vetoing the President's initiatives from the private sector.

Headline 3: Bailout Banks Keep Tax Breaks As They Repay Loans: Yes, Citigroup and others are going to cash in on massive tax breaks, even as they repay the TARP funds that put caps on compensation practices early, to better engage in the type of compensation practices that preceded the economic collapse. The IRS appears, for all intents and purposes, to be in collusion with the banks on first glance, however by allowing for these tax breaks, the Treasury Department is actually increasing the value of the banks' shares, so that taxpayers get a better return on their TARP investments. Still, it's just an extremely sketchy way of going about increasing a company's worth, when the underlying fundamentals are still so weak. It is never a good thing for a company to rely on tax breaks to increase its value, rather than on sound business practices (say I who support tax breaks alternative-energy companies...)

All that being said, there appears to be hope on the horizon in terms of financial reform. Yes, the House passed a reform bill last week, but that effort was weakened by bank-friendly Democrats, and as noted in the above link, the Senate will now be the main battleground over financial reform going forward, with bank lobbyists gearing up for a major fight. But the Senators may have some tricks up their sleeves, and a voice from the past may play a larger role in the reform movement still to come.

Hopeful Headline 1: McCain and Cantwell Want a New Glass-Steagall Law by Michael Hirsh for Newsweek. Glass-Steagall is a post-Depression-era law that worked to separate the investment arms of banks from the commercial lending sides (what we know as the regular bank you set up checking and savings accounts with, and that provide loans for cars to homes). The idea behind Glass-Steagall is that the investment sides of banks can take the risks, but the lending sides should be more well-regulated, and they will be provided for by the newly-created Federal Deposit Insurance Corporation (FDIC) with the government as "lender of last resort" should a bank fail. With the 1999 repeal of Glass-Steagall, the banks were allowed to merge their lending and investment arms, and some, such as Sens. McCain and Cantwell, believe that the risky bets the banks took with depositors' money, such as derivatives, laid the groundwork for the mess we're in today. While I'm no economist (I've only taken one micro class thus far) and I'm certainly not a financial market expert, it would appear to me that if the banks could get back to their core business of banking that would be a welcome return for many. Which leads me to my next point...

Hopeful Headline 2: Paul Volcker: Think More Boldly and interview with the Wall Street Journal's Alan Murray. Paul Volcker, former Federal Reserve Chairman under Presidents Carter and Reagan, argues that the "financial innovations" Wall Street has foisted upon the world in the wake of Glass-Steagall's repeal add nothing in the way of actual productivity or economic growth in the economy as a whole. The titans of Wall Street created fake profits, and the financial innovations of credit-default swaps and collateralized debt obligations simply "move around the rents in the financial system" meaning the complex transactions that played out between banks and insurers (such as AIG) to spread the debts out amongst many different players. Volcker goes on:

How do I respond to a congressman who asks if the financial sector in the United States is so important that it generates 40% of all the profits in the country, 40%, after all of the bonuses and pay? Is it really a true reflection of the financial sector that it rose from 2½% of value added according to GNP numbers to 6½% in the last decade all of a sudden? Is that a reflection of all your financial innovation, or is it just a reflection of how much you pay? What about the effect of incentives on all our best young talent, particularly of a numerical kind, in the United States?

In Britain, I was just talking to a high-tech company about the immense attraction to go into finance when both Britain and the United States are suffering from a basic inability to produce things competitively, to keep up with the new economy. Is this a result of financial innovation that we should be really worried about?

These thoughts intrigued me; how much have the outsize profits to be had in finance over the last decade shaped the job market in the US? How many of our "best and brightest" have gone on to huge-paying Wall Street jobs that would have otherwise gone into less, ahem, financially-motivated work? Look at these graphs of US job growth over the past decade; what does it say about our country when the investment sector grows from 2.5% of GDP to 6.5% over 10 years, but job growth drops to near-zero percent over that same period of time? Is there a link, a correlation, a causation? My limited economic knowledge at this point in my education leads me to admit that I cannot find an explanation for those two inverse movements of financial-sector activities and job growth, but I would be greatly interested if someone could explain them to me.

Let me take a moment to plug a wonderful website I've just recently come across, The Baseline Scenario, which, I must acknowledge, led me to the Volcker interview in the first place.  Some very esteemed financial market watchers and economists evaluate the current economic situation and provide some solutions, in very detailed form. I'll do some more investigating into the jobs/financial sector expansion connection and report back when I can. The main idea I've come away with is that the American people are being misled and misrepresented by our public officials and big businesspeople all at the same time, on many levels. It pains me that Obama has not been more of a force for true reform, especially when the plundering of our nation's economy and public coffers has been so widespread and rampant by the titans of industry. There's still time yet to make some fundamental changes, and Volcker seems quite confident that his views will prevail, so let's hope the situation changes soon.