Update: I think he explained the situation very well.
17 thoughts on “Presidential Press Conference Open Thread”
Barack ba-roke my teevee! I have one of those newfangled flatscreen jobbies with computer chips inside, and a very small apartment where the best spot for the television is just a tad too near the radiator. When the heat’s on, after about 45 minutes the TV “faints,” loses volume, won’t respond to the remote, and has to be shut off for a few minutes to cool down.
I do remember at one point saying, “Ooh, Chuck Todd, he’s taking you to school!” Also that at one point Obama seemed to be arguing against a point I don’t recall the questioner making. Oh, and: “Dude, don’t make ‘Elkhart’ your ‘Joe the Plumber.’ Please!”
Did he ever let Helen Thomas ask a question?
Yes, Helen Thomas asked one of the last questions.
Unfortunately, Helen had a follow-up, but he went to someone else.
I wish he had started the presser with her!
Overall, I give him an “A.”
Jesus, what a difference! Bush II v. Obama. It’s like going from Gomer Pyle speaking to Jim Nabors’ (check spelling) singing. Like Mel Tillis’ stuttering to his singing.
Just think, the President actually took some time to gather his thoughts. I guarantee that in that presser, Obama gathered more thought’s in an hour than Shrub did in 8 years (or 60+ years).
President Obama! I still love the sound of saying it and writing it!
I am renewed!
I’m still unemployed and srewed, but I. AM. RENEWED!
And thanks, again, for everyone’s thoughtful concern on the last posting. I was feeling kind of bummed out this morning, so I let myself appear like a ‘glass-half-empty’ kind of person. Which I’m not.
I’m ready for the fight ahead. Whatever it will take, I’ll be there fighting with the Liberal’s and Progressive’s.
I wasn’t to pleased to see Obama waffling on the question about allowing the media access to view the flag drapped caskets of fallen American servicemen being returned to their homeland. There is no need to “review in concert” with the Defense Department as far as I’m concerned, either they are honored for their sacrifice, or dishonored by being treated as a political liability that should be hidden from the America that they died for.
Jesus, what a difference! Bush II v. Obama. It’s like going from Gomer Pyle speaking to Jim Nabors’ (check spelling) singing.
(Your spelling is correct.) Now, see, I got that reference, and I totally concur. And as I recall, Jim Nabors’ singing could get kind of draggy and boring too. I think Prof. Obama was in the East Room tonight.
And, Gulag, you’re welcome. I’m glad we could help a little.
Finally… I just had to Google Helen Thomas (OK that sounds very odd)… I was so amazed to see her there, in the front row, as always. She’s 88 years old.
Swami, I agree, on a few things he seems all too willing to punt for now. On the other hand he has been served quite the shit sandwich, Bush fucked up alot of stuff, he can’t dofix it all at once. I liked how he basically just laughed at the FAUX tool, that was classic!
joan,
I’m sorry I was bummed-out this morning. You guy’s made my year! Sincerely!!! 🙂 X 3
Swami, I think there is another side to the question of the flag-draped coffins. First, I am a huge Obama supported, so don’t think I am a righty troll. I think he handled the question correctly. here’s why I think this. If it was your immediate family that lost someone over in Iraq, how would you feel if the national media made a “media circus” or had a “field day” trying to make political points using pictures of the coffin of your close relative? I think a balance needs to be struck. And of course, media coverage of the bodies coming home does not HAVE to be tasteless and exploitative. In fact Moyers honored the fallen quite effectively in the early days of the Iraq war. I think Obama’s response suggests that this topic deserves respect and caution, while honoring the principle of transaparency.
No one asked him about the state secrets treason* his justice department committed today. Sad.
*not actually treason but morally equivalent
He is still losing the PR wars. One poll that 59% of Americans believe that tax cuts help them more than spending. The GOP has been successful in convincing the majority of Americans that the wrost course of actions for stemming job loss and getting the economy back on track is best.
Until this changes all other victories are hollow.
About this middle of the road stuff… Quite often taking everything into account leaves one taking a middle path but maybe the middle path between wise action that is based on history, knowledge of cause and affect and what the best minds on economics have to offer vs. obfuscation and trickery is not a good path to take at all.
The middle path between those earnestly trying to fix the problem and those who would do anything to regain power is nothgin but foolishness. The middle path taken just for the sake of being in the middle of two warring parties is hardly based upon principle or knowledge.
Mitt Romney was being interviewed today and I almost vomited. He sarcastically derided the stimulus bill (if that is the name du jour) dismissively sniping that the economy will right itself all by itself….evidently an advocate of the do nothing theory of economics.
All of this is the consistent disregard for science and academia come home to roost. Evidently for most Americans and even more notably our media you don’t have to know anything about economics to deal wisely and expediently with problems with our economy.
Maybe we’re just a nation of hillbillies. However Obama did the right thing today. I wonder if it might not be a little too late. Liberals have become so inured to dismissal of the truth that even though they’ve become a majority they seem unable to go head to head with the GOP propaganda.
I like Ariana Huffington’s take on the matter in her post “”Bipartisanship Fetishism vs. What’s Best for America: Obama Needs to Choose.”
“Perhaps there will come a day when the Venn diagrams of the Republican Party and the national interest actually intersect. Today, however, we find ourselves with a Republican Party whose new leader, Michael Steele, went on This Week and claimed, to the obvious puzzlement of George Stephanopoulos, that government jobs aren’t real jobs because they go away. ”
The middle path between this type of lunacy and the consensus and advice of the nations leading economists is not in the interest of anyone.
You have to hand it to them though. They really believe what they are saying. If they would only present a plan for how corporate America will subsume the remaining function of euthanized government.
They don’t have to explain anything at the moment. Apparently they only need to be against Obama’s explanations.
After watching this last night, I had to ask myself: “Why, after watching the president of the United States underscore that our country is in a dire situation, a steep downward trajectory, do I feel like I’ve died and gone to heaven?” Because, of course, a person of intelligence and good will is in charge. He mostly hit all the right notes (flag-draped coffins the exception), was forceful where needed, encouraging where needed. Even though I believe the stimulus package to fall way short of what’s needed, he’s at least moving in the right direction, not trying to make the rich richer while getting the rest of us to believe that would be to our benefit.
I was impressed that he made an effort to answer the questions mostly, and mostly all parts of the questions. Such a contrast with his predecessor that I wanted to cry. One of the few “skills” W ever demonstrated was the ability to subvert any question sent his way. Dear, wonderful, Helen Thomas seemed to be on her last legs, and I suspect was propped up at this thing just to add another notch to her gun. She’s now been a feature of the press conferences for TEN presidents. TEN. Time to retire. And thank you.
Has anybody seen any signs of George Bush’s greatness appearing yet? I don’t want Bush’s greatness to be in full bloom before I recognize it, so if anybody sees it starting to sprout please share the observation with those of us who are less perceptive.
I thought this may open up the conversation a bit:
What Wall Street Wants By MICHAEL HUDSON
Tuesday’s announcement of the Obama-Geithner recovery plan is basically an extension of the Bush-Paulson plan – yet more giveaways to financial insiders, with a view to concentrating the U.S. banking system into a cartel of just a few large banks. This is not altogether bad news for the still relatively healthy part of the banking system (healthy in the sense of still avoiding negative equity). Smaller, less troubled banks will be bought out by the large “troubled†ones, to the personal financial benefit of their stockholders. This cannot solve today’s financial problem: the fact that the debt overhead far exceeds the economy’s ability to pay. In fact, it will spread the distortions that the large banks have introduced, until the entire system presumably looks like Citibank, Bank of America, JP Morgan Chase and Wells Fargo.
But this clearly is only Stage One of a two-stage plan that has not yet been announced, although the Wall Street Journal’s op-ed page has provided enough hints trickling out for the past three months to tip the hand of Wall Street’s “dream recovery plan.â€
It is not exactly what most people are hoping for. In fact, it threatens to be a nightmare scenario for the economy at large. Watch for the magic phrase: “equity kicker,†first heard in the S&L mortgage crisis of the 1980s.
The first question to ask about the Recovery Program is, “recovery for whom?†The answer is, for the people who design the Recovery Program and their constituency, the bank lobby. The second question is, what is it they want to recover? The answer is, another Bubble economy, having seen the Greenspan Bubble make them so rich with his particular kind of “wealth creationâ€: wealth in the form of indebtedness of the “real†economy at large to the banking system, and unprecedented capital gains to be made by riding the wave of asset-price inflation.
For the financial elites, the problem is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new credit or capital for the banking system will induce banks to provide credit to real estate that already is over-mortgaged, or to individuals and corporations already over-indebted. All professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in unstable conditions such as we are experiencing today.
While the Obama administration’s financial planners wring their hands in public and say “We feel your pain†to debtors at large, they also recognize that the past ten years have been a golden age for the banking system and Wall Street. The wealthiest 1 per cent of the population has raised its share of the returns to wealth – dividends, interest, rent and capital gains – from 37 per cent of the total ten years ago to 57 per cent five years ago, and an estimated 70 per cent today. Over two-thirds of the returns to wealth now go to the wealthiest 1 per cent of the population. This is the highest on record. We are approaching Russian kleptocratic levels.
Yet the financial Hard Right of the political spectrum – the lobbyists now in control of the Treasury, the Federal Reserve and the Justice Departments for starters – repeats the new Big Lie: that it is the poor who have brought the system down, “exploiting†the rich by trying to ape their betters and live beyond their means. Subprime families have taken out subprime loans, the lying poor have signed documents to obtain “liars’ loans,†as Alt-A, no-documentation loans are called in the financial junk-paper trade.
I learned the reality a few years ago in London, talking to a commercial bank strategist there. “We’ve had an intellectual breakthrough,†he said. “It’s changed our credit philosophy.â€
“What is it?†I asked, imagining that he was about to come out with yet a new junk mathematics formula?
“The poor are honest,†he said, accompanying his words with his jaw dropping open as if to say, “Who could have guessed?â€
The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal expense. Unlike Donald Trump, the poor are less likely to walk away from their homes when market prices sink below the mortgage level. In today’s neoliberal Chicago School language, the poor behave “uneconomically.†That is, they make choices that do not make economic sense, but rather reflect a group morality. This sociological gullibility is what made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank.
As I said above, it was a golden age. The financial and real estate bubble is the world that America’s financial power elite would love to recover. The problem for them is how to start a new bubble and make yet another fortune. The alternative would be to keep what they have taken and run – not so bad, but a scenario that perhaps they can improve on.
Discussions about emergency bailouts have focused on putting in place enough new lending capacity by the banking system to start inflating prices on credit once again. But a new bubble can’t be started from today’s asset-price levels. This week’s $2 trillion or so in new bailout money for the banks (“capital,†and specifically finance capital, not to be confused with industrial capital) will only be lent out once prices fall by another 30 to 50 percent. So this can represent only Stage 1.
The question for Stage 2 is, how can the $10 to $20 trillion capital-gain run-up of the Greenspan years been repeated in an economy that is “all loaned up�
One thing Wall Street knows is that to make money, you not only need asset prices to rise, they have to go down again – and up again, and down again. Without going down, after all, how can they rise up? The more frenetic the price fibulation, the easier it is for computerized buy-and-sell programs to make money on options and derivatives. What is being planned today looks like a similar up-and-down movement in real estate.
The first trick is to preserve the wealth of the creditor class – Wall Street, the banks and the other financial vehicles that enrich the wealthiest 1 per cent and indeed, the richest 10 per cent of the population. Stage One involves buying out their bad loans at a price that saves them from taking a loss. This is done by shifting the loss onto the “taxpayers†– labor, onto whose shoulders the tax burden has been shifted steadily, step by step since 1980, with the Greenspan Commission imposing an onerous Social Security tax on the middle class and using the proceeds to slash taxes on the higher brackets. Next comes an “aggregator†bank (sounds like “alligator,†from the swamps of toxic waste) to buy the bad debts and put them in a public agency. The government calls this the “bad†bank. But it does good for Wall Street – by buying loans that have gone bad – or perhaps nearer the truth, loans that never were good in the first place.
The harder part is to revive opportunities for creditors to make a new killing. (And it’s the economy that’s being killed.) Here’s how I imagine the plan might work.
Suppose a recent buyer has purchased a home for $500,000, with a $500,000 adjustable-rate mortgage scheduled to reset at 8 per cent. Suppose too that the current market price has fallen to $250,000 – a loss of 50 per cent by the end of 2009. After all, there needs to be enough time for prices to decline. Otherwise, there would be no economy to “rescue.†Mr. Geithner and Summers need to “feel your pain†to come out with the package that I’m describing. The government will swap “cash for trash,†printing new Treasury bonds (interest to be paid by “the taxpayer) in exchange for the $500,000 mortgage that is going bad, heading toward only a $250,000 market price.
The “Bad†bank that the Obama plan decided was not quite ready to be created this week will take the form of a public/private partnership (PPP), of the sort that Tony Blair made so notorious in Britain. It will be financed with private funds – in fact, with the funds now being given to re-capitalize America’s banks (headed by the Wall St. banks that have done so poorly). Banks will use the money they receive from the Treasury for selling their junk mortgages at par – along with other bailout funding – to buy shares in a new $5 trillion institution. Something like Fanny Mae or Freddie Mac will be created and its bonds guaranteed (that’s the “public†part – “socializing†the risk). The PPP institution will start with, say, $3 trillion in funds, and will have the power to buy and renegotiate the mortgages that have passed into the hands of the government and other holders. This “Middle Class Homeowner Recovery Trust†will use its private funding for the “socially responsible†purpose of “saving the taxpayer†and homeowners by renegotiating the mortgage down from its original $500,000 to the new $250,000 price.
Here’s the patter talk you can expect, with the usual Orwellian euphemisms. The “rescue the homeowners†PPP, a veritable Savior Bank, will go to a family strapped by its home mortgage debt and feeling more and more desperate as the price of its major asset plummets deep into Negative Equity territory. An offer will be made: “We’ve got a deal to save you. We’ll renegotiate your mortgage down to $250,000, the current market price, and we’ll also lower your interest rate to just 5.50 per cent. This will cut your monthly debt charges by nearly two thirds. You will escape from negative equity, and you can afford to stay in your home.â€
The family probably will say, “Great.â€
But they will have to make a concession. That’s where the new public/private partnership makes its killing. Its Savior Bank, funded with private money that is to take the “risk†(and also the rewards) will say to the family that agrees to renegotiate its mortgage: “Now that the government has taken a loss while we’ve let you stay in your home, we need to recover the money that’s been lost. So when the time comes for you to sell, or to renegotiate your mortgage, our Savior Bank will receive the capital gain up to the original amount written off. If we’ve made you whole, we want to be made whole too.â€
In other words, if the homeowner sells the property for $400,000, the Savior Bank will get $150,000 of the capital gain. If the property sells for $500,000, the bank will get $250,000. And if it sells for more, thanks to some new clone of Alan Greenspan acting as bubblemeister, the capital gain will be split in some way. If the split is 50/50, then if the home sells for $600,000, the owner at that time will split the $100,000 further capital gain with the Savior Bank. The Savior Bank will thus make much more through its share of capital gains than it extracts in interest!
This plan will be even better for Wall Street than the Greenspan bubble was! Last time around, it was the middle class that got the gains. To be sure, it really was the bank that got the gains, because mortgage interest charges absorbed the entire rental value. But at least homeowners had a chance at the free ride, if they didn’t squander their money in refinancing their mortgages. And many did use their homes “like a piggy bank†to support their living standards.
But this time around, Wall Street is not obliged to make its money by making middle class homeowners rich. Debt-strapped homeowners are willing to settle merely for a plan that leaves them in their homes! It can get for itself the capital gains that have been the driving force of U.S. “wealth creation,†Alan Greenspan bubble-style.
The irony is that the only kind of policies that are politically correct these days are those that make the situation worse: yet more government money in the hope that banks will create yet more credit/debt to raise house prices and make them even more unaffordable; to inflate a new bubble; to give what really should be called the “bad banks†– the Big Four or Five where the junk mortgages, junk CDOs and junk derivatives resulting from junk mathematics are concentrated – yet more money to buy out smaller banks that have not yet been infected with reckless financial opportunism.
And by the same token, lobbyists for these bad banks are screaming at the top of their voices that all solutions to the problem are politically incorrect: debt writedowns to bring the debt burden within the ability to pay. That is what the market is supposed to do – by bankruptcy in an anarchic collapse, if not by reasoned government policy. The bad banks, after demanding “free markets†all these years, have stopped the free market when it comes anywhere near them and their bonuses. For them, markets are free of regulation against predatory lending; free of taxing the wealthy so as to shift the burden onto labor; free for the financial sector to wrap itself around the “real†economy like a parasitic vine around a tree and extract the entire surplus in the form of financial engineering.
This is a travesty of freedom. But worst of all is the “freedom†of today’s economic discussion from the wisdom of classical political economy and from the experience of economic history regarding how societies have coped with the debt overhead through the ages.
An alternative policy to save the economy from being “rescued†by Wall Street
There is an alternative to ward all this off. A debt writedown, followed by a land tax so that the “free lunch†(what John Stuart Mill called the “unearned increment†of rising land prices, a gain that landlords made “in their sleepâ€) would serve as the tax base rather than labor and industry being burdened with an income tax.
One move would be to prevent banks from lending against the land’s value. They could lend against buildings, but not land. This would cut the maximum permissible loan to 50 to 60 per cent of the total property price – unless the government did what classical economists advocated and tax the land’s market price (its rental value) as the tax base, shifting the tax back off of labor. This would achieve the kind of free markets that Adam Smith, John Stuart Mill and Alfred Marshall described, and which the Progressive Era aimed to achieve with America’s first income tax in 1913.
A land tax would prevent housing prices from rising again. This would save homeowners from taking on so much debt in order to obtain housing. And it would save the economy from seeing “wealth creation†take the form of the “unearned increment†being capitalized into higher bank loans with their associated carrying charges (interest and amortization). The key to real estate bubbles is to inflate site valuations.
Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books
I think that it is much more polite to talk to the person who asked the question.
Barack ba-roke my teevee! I have one of those newfangled flatscreen jobbies with computer chips inside, and a very small apartment where the best spot for the television is just a tad too near the radiator. When the heat’s on, after about 45 minutes the TV “faints,” loses volume, won’t respond to the remote, and has to be shut off for a few minutes to cool down.
I do remember at one point saying, “Ooh, Chuck Todd, he’s taking you to school!” Also that at one point Obama seemed to be arguing against a point I don’t recall the questioner making. Oh, and: “Dude, don’t make ‘Elkhart’ your ‘Joe the Plumber.’ Please!”
Did he ever let Helen Thomas ask a question?
Yes, Helen Thomas asked one of the last questions.
Unfortunately, Helen had a follow-up, but he went to someone else.
I wish he had started the presser with her!
Overall, I give him an “A.”
Jesus, what a difference! Bush II v. Obama. It’s like going from Gomer Pyle speaking to Jim Nabors’ (check spelling) singing. Like Mel Tillis’ stuttering to his singing.
Just think, the President actually took some time to gather his thoughts. I guarantee that in that presser, Obama gathered more thought’s in an hour than Shrub did in 8 years (or 60+ years).
President Obama! I still love the sound of saying it and writing it!
I am renewed!
I’m still unemployed and srewed, but I. AM. RENEWED!
And thanks, again, for everyone’s thoughtful concern on the last posting. I was feeling kind of bummed out this morning, so I let myself appear like a ‘glass-half-empty’ kind of person. Which I’m not.
I’m ready for the fight ahead. Whatever it will take, I’ll be there fighting with the Liberal’s and Progressive’s.
I wasn’t to pleased to see Obama waffling on the question about allowing the media access to view the flag drapped caskets of fallen American servicemen being returned to their homeland. There is no need to “review in concert” with the Defense Department as far as I’m concerned, either they are honored for their sacrifice, or dishonored by being treated as a political liability that should be hidden from the America that they died for.
Jesus, what a difference! Bush II v. Obama. It’s like going from Gomer Pyle speaking to Jim Nabors’ (check spelling) singing.
(Your spelling is correct.) Now, see, I got that reference, and I totally concur. And as I recall, Jim Nabors’ singing could get kind of draggy and boring too. I think Prof. Obama was in the East Room tonight.
And, Gulag, you’re welcome. I’m glad we could help a little.
Finally… I just had to Google Helen Thomas (OK that sounds very odd)… I was so amazed to see her there, in the front row, as always. She’s 88 years old.
Swami, I agree, on a few things he seems all too willing to punt for now. On the other hand he has been served quite the shit sandwich, Bush fucked up alot of stuff, he can’t dofix it all at once. I liked how he basically just laughed at the FAUX tool, that was classic!
joan,
I’m sorry I was bummed-out this morning. You guy’s made my year! Sincerely!!! 🙂 X 3
Swami, I think there is another side to the question of the flag-draped coffins. First, I am a huge Obama supported, so don’t think I am a righty troll. I think he handled the question correctly. here’s why I think this. If it was your immediate family that lost someone over in Iraq, how would you feel if the national media made a “media circus” or had a “field day” trying to make political points using pictures of the coffin of your close relative? I think a balance needs to be struck. And of course, media coverage of the bodies coming home does not HAVE to be tasteless and exploitative. In fact Moyers honored the fallen quite effectively in the early days of the Iraq war. I think Obama’s response suggests that this topic deserves respect and caution, while honoring the principle of transaparency.
No one asked him about the state secrets treason* his justice department committed today. Sad.
*not actually treason but morally equivalent
He is still losing the PR wars. One poll that 59% of Americans believe that tax cuts help them more than spending. The GOP has been successful in convincing the majority of Americans that the wrost course of actions for stemming job loss and getting the economy back on track is best.
Until this changes all other victories are hollow.
About this middle of the road stuff… Quite often taking everything into account leaves one taking a middle path but maybe the middle path between wise action that is based on history, knowledge of cause and affect and what the best minds on economics have to offer vs. obfuscation and trickery is not a good path to take at all.
The middle path between those earnestly trying to fix the problem and those who would do anything to regain power is nothgin but foolishness. The middle path taken just for the sake of being in the middle of two warring parties is hardly based upon principle or knowledge.
Mitt Romney was being interviewed today and I almost vomited. He sarcastically derided the stimulus bill (if that is the name du jour) dismissively sniping that the economy will right itself all by itself….evidently an advocate of the do nothing theory of economics.
All of this is the consistent disregard for science and academia come home to roost. Evidently for most Americans and even more notably our media you don’t have to know anything about economics to deal wisely and expediently with problems with our economy.
Maybe we’re just a nation of hillbillies. However Obama did the right thing today. I wonder if it might not be a little too late. Liberals have become so inured to dismissal of the truth that even though they’ve become a majority they seem unable to go head to head with the GOP propaganda.
I like Ariana Huffington’s take on the matter in her post “”Bipartisanship Fetishism vs. What’s Best for America: Obama Needs to Choose.”
http://www.huffingtonpost.com/arianna-huffington/bipartisanship-fetishism_b_165381.html
“Perhaps there will come a day when the Venn diagrams of the Republican Party and the national interest actually intersect. Today, however, we find ourselves with a Republican Party whose new leader, Michael Steele, went on This Week and claimed, to the obvious puzzlement of George Stephanopoulos, that government jobs aren’t real jobs because they go away. ”
The middle path between this type of lunacy and the consensus and advice of the nations leading economists is not in the interest of anyone.
You have to hand it to them though. They really believe what they are saying. If they would only present a plan for how corporate America will subsume the remaining function of euthanized government.
They don’t have to explain anything at the moment. Apparently they only need to be against Obama’s explanations.
After watching this last night, I had to ask myself: “Why, after watching the president of the United States underscore that our country is in a dire situation, a steep downward trajectory, do I feel like I’ve died and gone to heaven?” Because, of course, a person of intelligence and good will is in charge. He mostly hit all the right notes (flag-draped coffins the exception), was forceful where needed, encouraging where needed. Even though I believe the stimulus package to fall way short of what’s needed, he’s at least moving in the right direction, not trying to make the rich richer while getting the rest of us to believe that would be to our benefit.
I was impressed that he made an effort to answer the questions mostly, and mostly all parts of the questions. Such a contrast with his predecessor that I wanted to cry. One of the few “skills” W ever demonstrated was the ability to subvert any question sent his way. Dear, wonderful, Helen Thomas seemed to be on her last legs, and I suspect was propped up at this thing just to add another notch to her gun. She’s now been a feature of the press conferences for TEN presidents. TEN. Time to retire. And thank you.
Has anybody seen any signs of George Bush’s greatness appearing yet? I don’t want Bush’s greatness to be in full bloom before I recognize it, so if anybody sees it starting to sprout please share the observation with those of us who are less perceptive.
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I thought this may open up the conversation a bit:
What Wall Street Wants By MICHAEL HUDSON
Tuesday’s announcement of the Obama-Geithner recovery plan is basically an extension of the Bush-Paulson plan – yet more giveaways to financial insiders, with a view to concentrating the U.S. banking system into a cartel of just a few large banks. This is not altogether bad news for the still relatively healthy part of the banking system (healthy in the sense of still avoiding negative equity). Smaller, less troubled banks will be bought out by the large “troubled†ones, to the personal financial benefit of their stockholders. This cannot solve today’s financial problem: the fact that the debt overhead far exceeds the economy’s ability to pay. In fact, it will spread the distortions that the large banks have introduced, until the entire system presumably looks like Citibank, Bank of America, JP Morgan Chase and Wells Fargo.
But this clearly is only Stage One of a two-stage plan that has not yet been announced, although the Wall Street Journal’s op-ed page has provided enough hints trickling out for the past three months to tip the hand of Wall Street’s “dream recovery plan.â€
It is not exactly what most people are hoping for. In fact, it threatens to be a nightmare scenario for the economy at large. Watch for the magic phrase: “equity kicker,†first heard in the S&L mortgage crisis of the 1980s.
The first question to ask about the Recovery Program is, “recovery for whom?†The answer is, for the people who design the Recovery Program and their constituency, the bank lobby. The second question is, what is it they want to recover? The answer is, another Bubble economy, having seen the Greenspan Bubble make them so rich with his particular kind of “wealth creationâ€: wealth in the form of indebtedness of the “real†economy at large to the banking system, and unprecedented capital gains to be made by riding the wave of asset-price inflation.
For the financial elites, the problem is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new credit or capital for the banking system will induce banks to provide credit to real estate that already is over-mortgaged, or to individuals and corporations already over-indebted. All professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in unstable conditions such as we are experiencing today.
While the Obama administration’s financial planners wring their hands in public and say “We feel your pain†to debtors at large, they also recognize that the past ten years have been a golden age for the banking system and Wall Street. The wealthiest 1 per cent of the population has raised its share of the returns to wealth – dividends, interest, rent and capital gains – from 37 per cent of the total ten years ago to 57 per cent five years ago, and an estimated 70 per cent today. Over two-thirds of the returns to wealth now go to the wealthiest 1 per cent of the population. This is the highest on record. We are approaching Russian kleptocratic levels.
Yet the financial Hard Right of the political spectrum – the lobbyists now in control of the Treasury, the Federal Reserve and the Justice Departments for starters – repeats the new Big Lie: that it is the poor who have brought the system down, “exploiting†the rich by trying to ape their betters and live beyond their means. Subprime families have taken out subprime loans, the lying poor have signed documents to obtain “liars’ loans,†as Alt-A, no-documentation loans are called in the financial junk-paper trade.
I learned the reality a few years ago in London, talking to a commercial bank strategist there. “We’ve had an intellectual breakthrough,†he said. “It’s changed our credit philosophy.â€
“What is it?†I asked, imagining that he was about to come out with yet a new junk mathematics formula?
“The poor are honest,†he said, accompanying his words with his jaw dropping open as if to say, “Who could have guessed?â€
The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal expense. Unlike Donald Trump, the poor are less likely to walk away from their homes when market prices sink below the mortgage level. In today’s neoliberal Chicago School language, the poor behave “uneconomically.†That is, they make choices that do not make economic sense, but rather reflect a group morality. This sociological gullibility is what made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank.
As I said above, it was a golden age. The financial and real estate bubble is the world that America’s financial power elite would love to recover. The problem for them is how to start a new bubble and make yet another fortune. The alternative would be to keep what they have taken and run – not so bad, but a scenario that perhaps they can improve on.
Discussions about emergency bailouts have focused on putting in place enough new lending capacity by the banking system to start inflating prices on credit once again. But a new bubble can’t be started from today’s asset-price levels. This week’s $2 trillion or so in new bailout money for the banks (“capital,†and specifically finance capital, not to be confused with industrial capital) will only be lent out once prices fall by another 30 to 50 percent. So this can represent only Stage 1.
The question for Stage 2 is, how can the $10 to $20 trillion capital-gain run-up of the Greenspan years been repeated in an economy that is “all loaned up�
One thing Wall Street knows is that to make money, you not only need asset prices to rise, they have to go down again – and up again, and down again. Without going down, after all, how can they rise up? The more frenetic the price fibulation, the easier it is for computerized buy-and-sell programs to make money on options and derivatives. What is being planned today looks like a similar up-and-down movement in real estate.
The first trick is to preserve the wealth of the creditor class – Wall Street, the banks and the other financial vehicles that enrich the wealthiest 1 per cent and indeed, the richest 10 per cent of the population. Stage One involves buying out their bad loans at a price that saves them from taking a loss. This is done by shifting the loss onto the “taxpayers†– labor, onto whose shoulders the tax burden has been shifted steadily, step by step since 1980, with the Greenspan Commission imposing an onerous Social Security tax on the middle class and using the proceeds to slash taxes on the higher brackets. Next comes an “aggregator†bank (sounds like “alligator,†from the swamps of toxic waste) to buy the bad debts and put them in a public agency. The government calls this the “bad†bank. But it does good for Wall Street – by buying loans that have gone bad – or perhaps nearer the truth, loans that never were good in the first place.
The harder part is to revive opportunities for creditors to make a new killing. (And it’s the economy that’s being killed.) Here’s how I imagine the plan might work.
Suppose a recent buyer has purchased a home for $500,000, with a $500,000 adjustable-rate mortgage scheduled to reset at 8 per cent. Suppose too that the current market price has fallen to $250,000 – a loss of 50 per cent by the end of 2009. After all, there needs to be enough time for prices to decline. Otherwise, there would be no economy to “rescue.†Mr. Geithner and Summers need to “feel your pain†to come out with the package that I’m describing. The government will swap “cash for trash,†printing new Treasury bonds (interest to be paid by “the taxpayer) in exchange for the $500,000 mortgage that is going bad, heading toward only a $250,000 market price.
The “Bad†bank that the Obama plan decided was not quite ready to be created this week will take the form of a public/private partnership (PPP), of the sort that Tony Blair made so notorious in Britain. It will be financed with private funds – in fact, with the funds now being given to re-capitalize America’s banks (headed by the Wall St. banks that have done so poorly). Banks will use the money they receive from the Treasury for selling their junk mortgages at par – along with other bailout funding – to buy shares in a new $5 trillion institution. Something like Fanny Mae or Freddie Mac will be created and its bonds guaranteed (that’s the “public†part – “socializing†the risk). The PPP institution will start with, say, $3 trillion in funds, and will have the power to buy and renegotiate the mortgages that have passed into the hands of the government and other holders. This “Middle Class Homeowner Recovery Trust†will use its private funding for the “socially responsible†purpose of “saving the taxpayer†and homeowners by renegotiating the mortgage down from its original $500,000 to the new $250,000 price.
Here’s the patter talk you can expect, with the usual Orwellian euphemisms. The “rescue the homeowners†PPP, a veritable Savior Bank, will go to a family strapped by its home mortgage debt and feeling more and more desperate as the price of its major asset plummets deep into Negative Equity territory. An offer will be made: “We’ve got a deal to save you. We’ll renegotiate your mortgage down to $250,000, the current market price, and we’ll also lower your interest rate to just 5.50 per cent. This will cut your monthly debt charges by nearly two thirds. You will escape from negative equity, and you can afford to stay in your home.â€
The family probably will say, “Great.â€
But they will have to make a concession. That’s where the new public/private partnership makes its killing. Its Savior Bank, funded with private money that is to take the “risk†(and also the rewards) will say to the family that agrees to renegotiate its mortgage: “Now that the government has taken a loss while we’ve let you stay in your home, we need to recover the money that’s been lost. So when the time comes for you to sell, or to renegotiate your mortgage, our Savior Bank will receive the capital gain up to the original amount written off. If we’ve made you whole, we want to be made whole too.â€
In other words, if the homeowner sells the property for $400,000, the Savior Bank will get $150,000 of the capital gain. If the property sells for $500,000, the bank will get $250,000. And if it sells for more, thanks to some new clone of Alan Greenspan acting as bubblemeister, the capital gain will be split in some way. If the split is 50/50, then if the home sells for $600,000, the owner at that time will split the $100,000 further capital gain with the Savior Bank. The Savior Bank will thus make much more through its share of capital gains than it extracts in interest!
This plan will be even better for Wall Street than the Greenspan bubble was! Last time around, it was the middle class that got the gains. To be sure, it really was the bank that got the gains, because mortgage interest charges absorbed the entire rental value. But at least homeowners had a chance at the free ride, if they didn’t squander their money in refinancing their mortgages. And many did use their homes “like a piggy bank†to support their living standards.
But this time around, Wall Street is not obliged to make its money by making middle class homeowners rich. Debt-strapped homeowners are willing to settle merely for a plan that leaves them in their homes! It can get for itself the capital gains that have been the driving force of U.S. “wealth creation,†Alan Greenspan bubble-style.
The irony is that the only kind of policies that are politically correct these days are those that make the situation worse: yet more government money in the hope that banks will create yet more credit/debt to raise house prices and make them even more unaffordable; to inflate a new bubble; to give what really should be called the “bad banks†– the Big Four or Five where the junk mortgages, junk CDOs and junk derivatives resulting from junk mathematics are concentrated – yet more money to buy out smaller banks that have not yet been infected with reckless financial opportunism.
And by the same token, lobbyists for these bad banks are screaming at the top of their voices that all solutions to the problem are politically incorrect: debt writedowns to bring the debt burden within the ability to pay. That is what the market is supposed to do – by bankruptcy in an anarchic collapse, if not by reasoned government policy. The bad banks, after demanding “free markets†all these years, have stopped the free market when it comes anywhere near them and their bonuses. For them, markets are free of regulation against predatory lending; free of taxing the wealthy so as to shift the burden onto labor; free for the financial sector to wrap itself around the “real†economy like a parasitic vine around a tree and extract the entire surplus in the form of financial engineering.
This is a travesty of freedom. But worst of all is the “freedom†of today’s economic discussion from the wisdom of classical political economy and from the experience of economic history regarding how societies have coped with the debt overhead through the ages.
An alternative policy to save the economy from being “rescued†by Wall Street
There is an alternative to ward all this off. A debt writedown, followed by a land tax so that the “free lunch†(what John Stuart Mill called the “unearned increment†of rising land prices, a gain that landlords made “in their sleepâ€) would serve as the tax base rather than labor and industry being burdened with an income tax.
One move would be to prevent banks from lending against the land’s value. They could lend against buildings, but not land. This would cut the maximum permissible loan to 50 to 60 per cent of the total property price – unless the government did what classical economists advocated and tax the land’s market price (its rental value) as the tax base, shifting the tax back off of labor. This would achieve the kind of free markets that Adam Smith, John Stuart Mill and Alfred Marshall described, and which the Progressive Era aimed to achieve with America’s first income tax in 1913.
A land tax would prevent housing prices from rising again. This would save homeowners from taking on so much debt in order to obtain housing. And it would save the economy from seeing “wealth creation†take the form of the “unearned increment†being capitalized into higher bank loans with their associated carrying charges (interest and amortization). The key to real estate bubbles is to inflate site valuations.
Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books
I think that it is much more polite to talk to the person who asked the question.