Archive for July 21st, 2009

The Media Consortium: Weekly Audit: Bigger Than ‘Too Big to Fail’

July 21st, 2009 admin No comments

by Zach Carter, TMC MediaWire Blogger

Now that trillions of taxpayer dollars have been pumped through the financial system, Wall Street giants JPMorgan and Goldman Sachs are reporting record profits–and giving out record bonuses. Goldman is planning to pay out $11.4 billion in compensation “earned” with our money. Even worse, attempts to regulate reckless financiers or empower ordinary workers are still being stymied by influential corporate lobbyists.

How did Goldman score the biggest quarterly profit in its history? Matt Taibbi explains in an interview with GritTV’s Laura Flanders. The $10 billion in direct capital that Goldman received from taxpayers under the Troubled Asset Relief Program (TARP) is actually one of the minor offenses. The company also converted corporate charters to become eligible for guarantees, and issued a whopping $28 billion in debt guaranteed by the government.

Banks were foundering last Fall, and very few investors were willing to supply them with emergency capital. So the FDIC guaranteed their debt, which allowed banks to raise funds at extremely low interest rates. The FDIC guarantee means that taxpayers will get stuck with the bill if the company defaults. If you can raise money at absurdly low rates, its very easy to turn over huge profits, as both Goldman and JPMorgan did.

There are other outrages: We still don’t know how much money the Federal Reserve loaned Goldman through its emergency lending facilities. The government’s bailout of AIG served as a huge windfall for the company, funneling at least $12.9 billion in taxpayer largesse directly to Goldman Sachs.

“AIG owed Goldman about $20 billion, and if AIG had gone through a normal bankruptcy, Goldman probably would have gone out of business. Instead, they got paid 100 cents on the dollar for every dollar that AIG owed them,” says Taibbi, author of a blistering take-down of the investment banking giant in the most recent issue of Rolling Stone.

In Salon, former Clinton Secretary of Labor Robert Reich says that this year’s big bank failures have resulted in a heavier concentration of financial influence in the few surviving firms, namely Goldman Sachs and JPMorgan. We have taken the “too big to fail” problem and made it bigger. JPMorgan acquired rival Bear Stearns for a pittance last March with billions of dollars in government guarantees. The company also picked up national banking giant Washington Mutual last fall. That means more risk in our economy and a greater concentration of lobbying power in our political system.

“We’ve ended up with two giants that now have most of the casino to themselves, are playing with poker chips backed by taxpayers, and have a big say in what the rules of the game are to be,” Reich writes.

Adam Schlesinger of Air America took to Wall Street to compile a hodgepodge of one-on-one interviews with bailout critics and condescending financiers. Schlesinger underscores the absurdity of Goldman’s pending bonuses by posting his own checking account balance ($13.75). The point of this massive bailout was to make the economy function for ordinary people. Instead, we’ve made sure that it benefits extremely wealthy bankers.

The government so completely resists doing anything about this staggering inequality, as Eyal Press writes for The Nation. There are two ways to approach the inequality problem. We can rein in the recklessness at the top by imposing serious regulations, and empower those at the bottom by giving them greater negotiating leverage with their employers (i.e., promoting unionization). While the bonus money flows on Wall Street, the Employee Free Choice Act (EFCA), a key bill to empowering unions, was just stripped of a crucial provision that would have made it easier for workers to organize, as David Moberg reports for In These Times.

As EFCA is gutted, bills proposing regulations for the financial sector are moving at a snail’s pace–even after two years of economic turmoil. Last week, Congressional leaders from both parties nominated members for a new panel, the Financial Crisis Inquiry Commission, to investigate the causes of the financial crisis. The investigation seems doomed to failure by its very design. Zachary Roth details the committee’s various shortcomings for Talking Points Memo. Of the panelists, six were nominated by the Democratic leadership, while four were nominated by the Republican leadership. If all four Republican nominees vote to block a subpoena, the committee cannot issue it, and without broad subpoena power, the entire exercise is futile.

Roth also emphasizes the excessively political nature of the appointees, particularly on the Republican side, which named former Rep. Bill Thomas, R-Calif., as Vice Chair. The Democratic picks are generally uninspiring, except for Brooksley Born, who fought to regulate derivatives in the 1990s as head of the Commodity Futures Trading Commission. But the Democrats have nobody anywhere near as frightening as Rep. Thomas, a vicious partisan who specialized in ushering money to special interests during his tenure as Chairman of the House Ways and Means Committee.

Mary Kane of The Washington Independent explains the troubling record of another Republican commission appointee, Peter Wallison of the American Enterprise Institute (AEI), a conservative think tank. The various conspiracy theories Wallison peddled include a robustly debunked belief that a decades-old anti-discrimination law is responsible for the mortgage meltdown. The law in question, known as the Community Reinvestment Act (CRA), dates back to 1977, and Wallison’s conspiracy theory has been rejected by nearly everyone in the financial commentariat, including regulators appointed by George W. Bush.

The Community Reinvestment Act requires banks to make loans to communities where they collect deposits. If you accept deposits at a branch in a poor neighborhood, you have to offer responsible loans in the same community. The idea is to expand access to affordable credit in the inner cities, while the subprime crisis is heavily concentrated in the suburbs. CRA loans have to be affordable, which means high-interest subprime loans do not count. CRA does not require banks to lower their lending standards, because any recipients have to be credit-worthy. Only 6% of high-interest mortgages were made by companies subject to CRA regulations, and lest we forget, this law was passed in 1977, while financial crisis erupted in 2007.

Instead of appointing toothless commissions, we should be making sure the financial oligarchs do things that are good for the rest of us. Congress should be writing regulations to curb risk in the financial system as fast as bankers are paying themselves bonuses. They’re our representatives, after all, and it’s our money.

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Mike Elk: GE Promotes Manufacturing Jobs in US, Then Ships ‘em Overseas

July 21st, 2009 admin No comments

Jeffery Immelt, the CEO of General Electric, has led the outsourcing charge in the past. So commentators were shocked last month when, speaking at the Detroit Economic Club, Immelt said that the United States needs to invest in American manufacturing in order to get out of our current economic crisis.

Some companies had gone overboard with outsourcing in the past and now it was time to bring that work back into the United States to create a strong economy, Immelt said at the forum. “This country ought to be, and we can be, not just the world’s leading market but a leading exporter as well. GE plans to lead this effort,” he said.

Immelt should heed his own advice.

While Immelt was calling for manufacturing to stay in the U.S., his company was at the same time shipping manufacturing jobs overseas by canceling an order with an American-based wind turbine maker, ATI Casting Service in LaPorte, Ind., so that GE could instead buy the parts from a factory in China.

Recently, ATI made $30 million worth of investments to buy, convert, and modernize a shuttered factory in economically ravaged Michigan so the company could provide more parts to GE as the green economy expands with federal stimulus funding. But a Chinese firm underbid ATI, and the factory faced having to lay off 302 union workers and shutter the plant.

In an aggressive bid to keep the factory open, ATI offered to match the price of the Chinese producers. GE once again said they would prefer to buy from China. The ATI plant is now closed, the jobs gone.

After Immelt pledged to create jobs in America, for him to make a U.S. company shed jobs so GE can buy Chinese goods for the same price is beyond hypocritical.

More troubling is the fact that President Obama is receiving his economic advice from people like Jeffrey Immelt. Immelt serves on the president’s Economic Recovery Advisory Board, but is doing very little to encourage economic recovery himself. “This is an unacceptable example for the country and the promise that the ‘green’ economy will lead to a manufacturing revival,” said Leo Gerard, president of the United Steel Workers.

Gerard has accused Immelt of being a hypocrite, not just for undermining ATI, but for doing so while raking in millions of dollars in federal stimulus money intended to support a “Buy America” strategy.

It’s time that lawmakers put a stop to this madness. Today, the Senate Environment and Public Works Committee is holding a hearing on Capitol Hill with governors and mayors to look at ways the U.S. can adopt a comprehensive manufacturing job policy that makes sure that the green economy keeps jobs here in America. Through a series of measures, including incentives for companies to stay in America, “Buy America” provisions and trade law reform, lawmakers like Ohio Sen. Sherrod Brown are hoping to keep green jobs in America.

The president correctly views the green economy as the pathway to economic recovery. But if the windmills, solar panels and other key building blocks of that economy are made in China, we’ll only end up in deeper debt. As Campaign for America’s Future fellow David Johnson noted in his blog post “It’s the Economic Paradigm, Stupid!” without a new American manufacturing policy there will be no economic recovery. We need to move beyond a bubble economy built on debt and financial speculation and into a real economy that actually makes products.

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Boston Globe union approves pay cut, concessions

July 21st, 2009 admin No comments

NEW YORK (Reuters) – The Boston Globe’s largest union voted by a nearly 2-to-1 margin on Monday to approve pay cuts and other concessions that would save the 137-year-old paper $10 million a year and allow The New York Times Co to sell it.

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Deadline missed for detaining terror suspects

July 21st, 2009 admin No comments

In a move already drawing fire from liberal activists, aides to President Barack Obama acknowledged the administration will miss its own Tuesday deadline to submit a report detailing its policy on detaining terror suspects.

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Prosecutors rest case against Alamo

July 21st, 2009 admin No comments

Prosecutors wrapped up their sex-crimes case against 74-year-old evangelist Tony Alamo after playing jailhouse tapes of the minister threatening to kick out a young follower.

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BRIEF-Soccer-Juve eye Caceres, Milan unmoved on Fabiano bid (Reuters)

July 21st, 2009 admin No comments

Juventus are interested in Barcelona’s Uruguayan defender Martin Caceres but they must sell struggling midfielder Christian Poulsen first, club president Giovanni Cobolli Gigli said on Tuesday.

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Coca-Cola 2nd-quarter profit rises 43 percent

July 21st, 2009 admin No comments

Coca-Cola, the world’s largest beverage maker, on Tuesday posted a 43 percent increase in second-quarter profit, beating expectations as rapid overseas growth helped offset a sales decline caused by the stronger dollar. International sales volume rose

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Myanmar, North Korea arms links would be a worry: Clinton

July 21st, 2009 admin No comments

BANGKOK (Reuters) – U.S. Secretary of State Hillary Clinton voiced concern on Tuesday about the possibility of military links between North Korea and Myanmar and called on Myanmar to end human rights abuses and the mistreatment of minorities.

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Tyler Perry sending rebuffed kids to Disney

July 21st, 2009 admin No comments

Tyler Perry, the star, writer and producer of films such as “Madea Goes to Jail” and the television show “House of Payne,” could be adding philanthropist to his growing list of credits.

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Caterpillar 2Q profit falls 66 pct on weak demand

July 21st, 2009 admin No comments

Caterpillar Inc., the world’s largest maker of construction and mining equipment, said Tuesday its second-quarter profit tumbled 66 percent as the recession continued to erode sales of its machines and engines. But the company boosted its 2009 profit…

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