Robert Kuttner

Bankers' Bonanza

Today, the European Central (ECB) bank opened its loan windows to Europe’s commercial banks, lending some 800 banks nearly 530 billion euros at just one percent interest. It’s the second such rescue operation since Mario Draghi became ECB chief in December, when Europe’s central bank pumped out over 489 billion Euros. This policy is an improvement on the ECB’s earlier tightwad stance (thank heavens the new top guy is Italian rather than German), but it still reflects a terrible double standard. Banks can refinance their operations, but countries can’t. Central bankers with guilty consciences extract fiscal austerity policies on pummeled nations like Greece to offset their more liberal monetary interventions. The slogan might as well be: bankers first, women and children last. It’s a recipe for treading water, not for broad based recovery.

A German History Lesson

Yesterday, the German Parliament relented and agreed to let the Greek debt restructuring go forward, but only the price of crushing austerity for the Greek economy. This is a widespread attitude in Germany, where aid to the Greeks is unpopular. The other day, Jörg Krämer, chief economist for Commerzbank in Frankfurt, said of the Greeks, “If you live beyond your means, then you can repair your balance sheet only if your consumption goes down.” But the Germans might take a moment and reflect on their own history. In the aftermath of World War II, the Allies, remembering the disastrous consequences of German reparations after the First World War, did not insist on their pound of flesh. The entire Nazi public debt, amounting to over 600 percent of German GDP, was written off. The pre-existing unpaid debt from the Weimar period was written down to a fraction of its original cost. Claims on old debt were strictly segregated from German reconstruction funds. The German Federal Republic...

The Mortgage Deal with the Devil

(AP Photo/David J. Phillip)
The long-awaited mortgage deal between the federal government, 49 state attorneys general, and five big banks that was announced Thursday is pretty thin gruel, but it could have been a lot worse. Under the deal, the banks will provide relief to homeowners in a deal variously described as ranging from $25 billion to more than $40 billion. But a look at the fine print suggests that only about $5 billion cash will actually change hands. Some $1.5 billion will go directly to homeowners who went through foreclosure, with each receiving about $2,000. Other cash will go to states to help distressed homeowners. The rest of the money will be granted in the form of “credits” to banks that refinance loans or reduce principal amounts of underwater mortgages. But this is, in fact, funny money. Much of this write-down has already been taken by the banks, which know that an underwater mortgage is worth far less than its nominal value. In exchange for agreeing to refinance loans, the banks will get...

Help Wanted Again

AP Photo/Amy Sancetta
The latest jobs report was a welcome surprise . Jobs increased in January by 243,000, cutting the unemployment rate to 8.3 percent. The question remains: Is this a blip, or has the economy turned a corner? Earlier in the week, the Congressional Budget Report put out a more pessimistic report, showing unemployment rising to 8.9 percent by the final quarter of this year (which happens to include Election Day), and peaking at 9.2 percent in early 2013. According to the CBO, we won’t return to pre-recession employment levels until 2019. Why the grim picture? CBO assumes more budget cutting, as the Bush tax cuts sunset, the deficit keeps declining, and there is no further offsetting stimulus. Though the short-term jobs numbers have been above expectations for both December and January, there is no assurance that this good news will continue in the absence of additional stimulus. And the risk remains of either a spike in the price of oil, as a byproduct of the escalating conflict with Iran...

Force-Fed

AP Photo/Jacquelyn Martin
The Federal Reserve, in a remarkable acknowledgement of how soft the economy is, has disclosed a vote of its open market committee to keep short term interest rates close to zero for at least three more years—until late 2014. This means that the Fed will keep pumping money into the economy by purchasing bonds at whatever level is required. The Fed, improbably enough, has also been pressing the Obama Administration to do more about the housing bust, arguing that its own cheap money policies can only do so much. The climate of very low interest rates means that the new program announced by President Obama in the State of the Union Address making it easier for homeowners to refinance—details still to be disclosed—will have several years to lower housing costs and perhaps help put a floor under housing prices. But the Administration needs to do a great deal more so that under-water homeowners can refinance at the current depressed market value of the house. It is rare to see the Fed...

The Scarlet Tax Return

AP Photo
Mitt Romney’s newly released tax returns, showing that he paid taxes in 2010 at a rate of just 13.9 percent on income of $21.6 million, should provide ammunition for President Barack Obama’s newly rediscovered populism. Obama is on record supporting a “Buffett Rule,” that the boss should pay at least the same tax rate as the help. In the watered down economic dialogue of 2012, a flat tax rate rather pitifully passes for the progressive position. Not so long ago, progressives were of the view that the more money you made, the higher your rate should be. The tax schedule should be, well, progressive. The original presidential sponsor of this concept was that Bolshevik, Theodore Roosevelt. That view of progressive taxation was widely held and was public policy in America, until the supply-side revolution of the Reagan era and its claim that lower taxes on dividends, interest, and capital gains would reward, and hence promote, investment and growth. Unfortunately for the theory, taxes,...

Poetic Justice

AP Photo/Scott Gries Thomas Monaghan, founder of Domino's Pizza, sold a "significant portion" of his stake in the company to Mitt Romney's Bain Capital in 1998. A splendid accidental benefit of this year’s Republican presidential primary is that one of the most abusive dark corners of American capitalism, so-called private equity, is coming in for belated scrutiny and scorn. Delectably, the disclosures and criticisms are coming from leading Republicans, in a blatant undermining of cherished Republican ideology. Even before Democrats lay a glove on Romney, he will be assaulted by an investigative documentary that is more Michael Moore than Adam Smith. In politics, it doesn’t get much better than this. “Private equity” was rebranded in the 1990s. It used to be called, more honestly, leveraged buyouts. While the job-killing aspect of many of the deals done by Mitt Romney’s Bain Capital and kindred financial engineers has come in for withering criticism, that is only one part of the...

Glacial Progress on Jobs

The December jobs numbers are good news—sort of—for the economy and the Obama re-election campaign. The economy added 200,000 new jobs, and the duration of unemployment is down slightly. Wages and hours worked are up, too. We can anticipate continuing progress between now and November. But the bad news is that though the trend is in the right direction, the progress is glacial. As Heidi Sherholz of the Economic Policy Institute (EPI) reports , the deficit of jobs needed to keep up with the normal growth of working age population is still upwards of ten million. Even at December’s modestly improved rate of net job-creation, it will take until 2019 for the US to recover its pre-recession rate of unemployment. Moreover, as EPI points out, if we factor in workers who have dropped out of the labor force by looking at the ratio of employment to population (which is still down almost five percentage points since the beginning of 2007), the adjusted unemployment rate would be 9.5 percent. The...

Tocqueville for Toffs

O n any given day in Washington, D.C., the city’s hotels teem with civic activity. Trade associations, lobbies, corporations seeking government contracts, lawyers looking to influence agency rules—all form a beehive of action. At last count, there were 12,200 registered lobbyists in Washington, according to opensecrets.org, and that doesn’t include the many thousands of corporate attorneys who are technically not lobbyists. Of the top-spending trade associations or issue organizations, the U.S. Chamber of Commerce leads the list with a budget of more than $46 million. Only one quasi-liberal group, the AARP, is even in the top 20. This is the vision of Alexis de Tocqueville made flesh, with one notable difference: Nearly everyone in this associational paradise speaks for the top 1 percent or 2 percent of the income distribution. Tocqueville, in Democracy in America , famously identified “the art of association” as an essential complement to American constitutional democracy. The...

Earning Their Hatred

Thank God for elections and election years. An election gives our president, who must face the voters in November, permission to think and act like a partisan. It’s long overdue. President Obama has boldly made key recess appointments to the National Labor Relations Board (NLRB) and to the Consumer Financial Protection Bureau (CFPB). The Republican strategy has been to destroy these agencies by failing to confirm appointees. In the case of the new CFPB, that meant nobody in charge to make key decisions to make the new bureau operational. In the case of the NLRB, it meant the lack of a quorum would paralyze the agency altogether. In naming Richard Cordray to head the CFPB, the president has called the Republicans’ bluff. This was the agency that Elizabeth Warren invented and dearly hoped to lead. Republicans made clear they would block her appointment. When Obama passed her over in favor of the less-well-known Cordray, former Ohio Attorney General and also a strong consumer advocate,...

The SEC Does Wall Street's Bidding

The SEC Doing Wall Street’s Bidding Robert Kuttner In the right-wing revisionism of what caused the financial collapse, Fannie Mae and Freddie Mac are leading villains with the federal Community Reinvestment Act in a supporting role. Supposedly, Fannie and Freddie lowered their standards, purchased lots of subprime mortgages, and were major contributors to the housing bubble and crash. In this fable, government pressured banks to make unsound mortgage loans to meet the goals of CRA. Just about everything in this story is wrong. For starters, subprime was invented on Wall Street, by private investment bankers. Fannie and Freddie did buy some of the paper, but only very late in the game in 2005 and 2006, when the bubble was already about to burst. As for CRA, most of the lenders that originated sub-prime loans were unregulated mortgage companies, not subject to CRA. But the fable is very useful to the right, on three counts. It shifts the blame from Wall Street banks and the culture of...

House GOP's White House Stocking Stuffer: The Payroll Tax Cut

The cave-in by the House Republicans on the payroll tax is on terms that keeps this conflict going well into the election year--and on terms very favorable to Barack Obama and the Democrats. For the GOP, the two-month extension of the payroll tax cut is the worst possible politics. First, they look weak (because they are weak); and second, the same drama will be replayed next year with the same outcome. Raising taxes on millionaires rather than cutting Social Security or Medicare, or hiking payroll taxes, wins every time. As Republicans keep re-fighting this losing battle, the message will be reinforced over and over again that Democrats are for the working person while Republicans defend the richest. The fact that key Republicans in the Senate and House can't get their act together is frosting on the cake. Likewise, the sheer extremism of Tea Party caucus members who'd rather lose their seats than compromise. They are likely to get their wish. Barack Obama won his Senate seat after...

Double Standards Galore

I happened to be flying on American Airlines the morning after the company declared bankruptcy. Exactly nothing bad happened to my flight. Nobody passed the hat to buy aviation fuel. The flight attendants offered the same dismal snacks. It was business as usual. American will get to stiff its creditors, its employees, its pensioners, and sail happily onward, not even required to replace its managers. Chapter 11 filings are standard operating procedure when necessary in corporate America. In its full-page ads promising no disruption of service, American managed to avoid even the word "bankruptcy." Meanwhile, millions of underwater homeowners are denied the protections of bankruptcy laws. Like American Airlines, they would love to get out from under crushing debts and begin again. But the law is much tougher on them. If only homeowners were airlines. Welcome to the age of the double standard. After more than a decade of business lobbying, in 2005 bankruptcy laws were revised to tilt...

Elizabeth Warren: Bailout Queen

Karl Rove’s latest ad has to set an all-time record for hypocrisy and factual inversion. The ad actually manages to blame Elizabeth Warren for the bank bailouts. As anyone who hasn’t spent the past three years in a cave must know, Warren has been the nation’s single most effective, relentless, and brave critic of the bailouts. It was that service as chair of the Congressional Oversight Panel that made her one of America’s most admired public leaders. The ad slyly begins with Warren speaking, leading the viewer to imagine that this is a Warren ad. Warren says, “The first thing I’m going to promise is that I’m going to be a voice in the room on behalf of middle-class families.” Then a sneering female voiceover cuts in, and asks, “Really? Congress had Warren oversee how your tax dollars were spent bailing out the same banks that caused the financial meltdown, bailouts that helped pay big bonuses to bank executives while the middle class lost out.” The ad concludes, “Tell Professor Warren...

Europe's Deal: So Who Wins?

The grand bargain between Germany, France, and the European Central Bank (ECB) is being hailed as a diplomatic breakthrough that will save the euro and the European Union (EU). The essence of the deal is this: EU nations commit to an enforceable austerity program, which is ad hoc for now but will eventually become a formal part of the EU treaty. It will take the shape of tight limits on budget deficits, with penalties. That, in turn, gives the ECB the fig leaf it needs to heavily support purchases of bonds from countries like Italy, whose debt has come under speculative attack. All of this reassures markets, and the cost of borrowing comes down. In turn, bank holdings of sovereign bonds retain their value. To make this deal possible, Germany has backed off its absolute opposition to supporting weaker economies and using the ECB to tacitly support sovereign debt. And France has agreed to give up some of its cherished fiscal sovereignty to the EU. Isn’t this wonderful? No, it’s terrible...

Pages