Blog on the Run: Reloaded

Monday, June 23, 2014 6:31 pm

N.C. seeks to immunize pension-fund managers, banks from criminal liability

Really, that’s about the only way you can read this:

In the last few months, there has been increasingpressure on public officials to stop hiding the basic terms of the investment agreements being cemented between governments and Wall Street’s “alternative investment” industry.

That pressure has been intensified, in part, by twosets of recent leaks showing how these alternative investment companies (private equity, hedge funds, venture capital, etc.) are using the secret deals to make hundreds of millions of dollars off taxpayers. It is also in response to the Securities and Exchange Commission recently declaring that many of the stealth schemes may be illegal.

And yet, as the demands for transparency grow louder, a potentially precedent-setting push for even more secrecy is emerging. Pando has learned that legislators in North Carolina — whose $86 billion public pension fund is the 7th largest in America – are proposing to statutorily bar the public from seeing details of the state’s Wall Street transactions for at least a decade. That time frame is significant: according to experts, it would conceal the terms of the investment agreements for longer than the statute of limitations of various securities laws.

In other words, the legislation – which could serve as a model in state legislatures everywhere – would bar the disclosure of the state’s financial transactions until many existing securities laws against financial fraud become unenforceable.

A growing scandal in North Carolina

If the North Carolina Retirement System and its sole trustee, Treasurer Janet Cowell (D), seem familiar to tech readers, that is because the NC system is one of the lead plaintiffs in the class action suit surrounding Facebook’s initial public offering. Additionally, as part of her career in the financial sector, Cowell was the marketing director for the tech-focused VC firm, SJF Ventures.

Like other states, North Carolina has been redacting and/or refusing to release the contractual terms of its pension fund’s massive Wall Street investments, even though the contracts involve public money and a public agency.* In recent months, that practice exploded into a full-fledged political scandal when the State Employees Association of North Carolina released a 147-page report from former SEC investigator Ted Siedle.

The report asserted that under Cowell, up to $30 billion of state money is now being managed by high-risk, high-fee Wall Street firms, and that the state could soon be paying $1 billion a year in fees to those firms. The report also noted that the investment strategy “has underperformed the average public plan by $6.8 billion” and it alleged that Cowell has misled the public about how where exactly she is investing taxpayer dollars. The union has called for a federal investigation, while Cowell has publicly denied the allegations.

Note that it’s state employees, a majority of whom are presumably Democrats, calling for a federal investigation of a Democratic state official.

I don’t know whether the state’s Republicans just haven’t had this issue on their radar, or whether they see a payoff in insulating investment banks and other financial institutions with which the state does business from criminal liability. But either way, their silence is puzzling. And since banks are about as popular with Americans right now as strychnine, this down-low approach by the GOP doesn’t even make political sense.

*This practice appears to this layperson to be a clear violation of North Carolina’s Open Records Law. No exception recognized in the statute to the presumption that a record is public applies to this information. This practice appears to be the equivalent of your stockbroker refusing to tell you where and how he has invested your money: Would you find that arrangement acceptable?

Additional, deeply scary and infuriating background via Yves Smith at Naked Capitalism:

North Carolina’s investment performance in alternative investments is terrible. Of 23 reporting public pension funds, it ranked 21 in real estate and 23 in private equity. Whether due to corruption or incompetence, it is clear the state would have done better and at lower cost buying a mix of index funds. So the notion that these persistent bad results are due to payola is worth taking seriously.

However, the overwhelming majority of abuses Siedle cites [in the report linked above -- Lex], such as charging of dubious fees, pervasive broker-dealer violations, pension fund consultant conflicts of interest, various securities and tax law violations, also take place with investors who have no potential for pay to play to be operating, such as private pension funds, life insurers, and endowments like Harvard that also invest in private equity. We’ve written about many of these bad practices in earlier posts, and have had to stress the degree to which limited partners have deeply internalized the idea that they can get better returns from private equity than from other investment strategies, and therefore they can’t cavil about the terms, since otherwise they won’t be allowed into this club. In keeping, the SEC has said, with uncharacteristic bluntness, that supposedly sophisticated limited partners have entered into agreements which are vague on far too many key terms and weak on investor protections.

Disclosure: Never having worked as a public employee in North Carolina or anywhere else, I have no direct interest in the state’s pension fund; nor, so far as I know, do I have any indirect interest beyond being a North Carolina taxpayer.

Wednesday, June 4, 2014 11:21 pm

Rigged

Nine years ago today, my father died. He was 75 and a self-employed financial consultant who was still working about 30 hours a week right up until his final illness (acute pulmonary fibrosis), which lasted a couple of weeks before his death.

From an early age, I heard Dad talk about the importance of saving and investing, and I did the best I could to follow his advice. As I got older and better able to grasp the mechanics, he talked about the stock market as the best long-term investment vehicle for retirement (although he did say that once I hit 50 I should start swapping some equities for bonds).

To the best of my abilities, I have followed his advice. I won’t give you numbers, but I’ll tell you the following: I don’t have a ton of ready cash and never have. But were I to die tomorrow, my family would be pretty well fixed, especially considering I was a journalist, and thus not particularly well paid, for most of my career. Like many Americans, I haven’t gotten a dime in retirement matching for coming up on about seven years now, but — although no one can read the future — I think my family and I will be OK assuming I live to 67 and actually get to retire.

But Dad didn’t live long enough to see the mortgage bubble burst. He didn’t live long enough to hear all the revelations about bank and nonbank and insurance-company and security-rating shenanigans on a scale that dwarfed the crimes of the S&L crisis two decades prior. He thought repealing Glass-Steagall was a bad idea, but he didn’t live long enough to see just how bad. For that matter, he didn’t live long enough to see high-frequency trading and the ease with which the practice makes front-running a trade possible.

So although I’m remembering Dad today with warmth and his passing with sadness, for some reason the Dad thought that has been most on my mind today has been: I wonder what he would make of today’s financial markets? Would he still consider it possible for a single, well-informed investor to do OK? Or would he be convinced, as I have been, that most of the market is a rigged game — that there is a club and that most Americans like me aren’t in it?

(And I’m writing from a middle-class prospective. My problems don’t even begin to touch the problems of the working poor, who are being robbed outright.)

I don’t know what he’d think. All I do know is that while he certainly wasn’t perfect, in his professional life, to the best of my knowledge, he acted with integrity and took seriously his fiduciary duty to his clients. I’m struggling to name a commercial or investment bank that exists today that I’m confident does the same thing.

Thursday, May 15, 2014 8:18 pm

Throwing our children’s still-beating hearts into the stone mouth of the free-market idol; or, you’ll never guess whom economist Steven Levitt tried to bullshit.

Anyone who has sat through Econ 102 and higher understands that while lots of things work well in theory, in real life they bump up against human beings who are not nearly as rationally self-interested as theory would have us believe.

Noah Smith likens belief in free markets to idolatry and calls its unblinking supporters “the free-market priesthood.” The good news, he says, is that among econ academics, a little nuance is finally starting to creep into an area of thought that had been dominated for decades by the free-marketeers. The bad news, though, is that popular economics, which is the only kind most Americans are aware of and espouse, hasn’t gotten the memo.

One guy who should know better is Steven Levitt, co-author, with my acquaintance Stephen Dubner, of the “Freakonomics” books. Their new book is called “Think Like a Freak” — i.e., like them. I haven’t read it and so won’t pass judgment on it, but the behavior of Levitt himself is, by his own description in the book, apparently … questionable.

In their latest book, Think Like a Freak, co-authors Steven Levitt and Stephen Dubner tell a story about meeting David Cameron…They told him that the U.K.’s National Health Service — free, unlimited, lifetime heath care — was laudable but didn’t make practical sense.

“We tried to make our point with a thought experiment,” they write. “We suggested to Mr. Cameron that he consider a similar policy in a different arena. What if, for instance…everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home?”

Rather than seeing the humor and realizing that health care is just like any other part of the economy, Cameron abruptly ended the meeting…

So what do Dubner and Levitt make of the Affordable Care Act, aka Obamacare, which has been described as a radical rethinking of America’s health care system?

“I do not think it’s a good approach at all,” says Levitt, a professor of economics at the University of Chicago. “Fundamentally with health care, until people have to pay for what they’re buying it’s not going to work. Purchasing health care is almost exactly like purchasing any other good in the economy. If we’re going to pretend there’s a market for it, let’s just make a real market for it.”

Smith brings the pain:

This is exactly what I call “free market priesthood”. Does Levitt have a model that shows that things like adverse selection, moral hazard, principal-agent problems, etc. are unimportant in health care? Does he have empirical evidence that people behave as rationally when their health and life are on the line as when buying a car? Does he even have evidence that the British health system, specifically, underperforms?
No. He doesn’t. All he has is an instinctive belief in free markets. Of course David Cameron didn’t “realize that health care is just like any other part of the economy” after a five minute conversation with Levitt. Levitt didn’t bring any new ideas or evidence to the table.
And it’s not like Levitt’s idea was new or creative or counterintuitive. Does anyone seriously believe that the question of “why is health care different from other markets” had never crossed David Cameron’s mind before? Obviously it has, and obviously Levitt knew that when he asked his question. He wasn’t offering policy advice – he was grandstanding. Levitt wants to present himself as “thinking like a freak” – offering insightful, counterintuitive, original thinking. But if this is “thinking like a freak”, I’d hate to see what the normal people think like!
Surely it has not escaped Levitt’s notice that the countries with national health systems spend far less than the United States and achieve better outcomes. How does he explain this fact? Does he think that there is an “uncanny valley” halfway between fully nationalized health systems and “real markets”, and that the U.S. is stuck in that uncanny valley? If so, I’d like to see a model.
But I don’t think Levitt has a model. What he has is a simple message (“all markets are the same”), and a strong prior belief in that message. And he keeps repeating that prior in the face of the evidence.
I’m am not arguing, nor would I, that free markets are always and everywhere wrong. But Levitt is arguing pretty much the opposite, even though 1) he knows damned well it’s untrue, 2) he knows damned well that control of markets exists on both a quantitative and qualitative spectrum, and 3) he knows a world of empirical evidence derived from both this depression and the last one proves him wrong. I mean, dude, if Alan Greenspan admitted that, much to his surprise, free markets were not always self-regulating and self-correcting, surely you could concede the same?
But no.
I don’t know whether Levitt is insane or just has books to sell, nor will I speculate. But the fact is that he is intentionally saying things about the economy that he knows are false, and the fact is that he knows that these falsehoods that have real and painful consequences for tens of millions of Americans and make America look ridiculous in the eyes of the world. He had the ear of perhaps the second most powerful person in the free world, and he bullshat the guy.  I don’t care why. I just want him to stop.

Stressing the country out; or, Tim Geithner should have been fired about umpty-’leven years ago

Tim Geithner, the guy President Obama inexplicably put in charge of the bank bailouts, has a new book out called “Stress Test.” (The term derives from the laughably phony “tests” endangered large banks were put through to see whether they had so many crap assets on their books that they needed to be liquidated; the fix was in, so not one large bank was broken apart of liquidated. Instead, we gave them bazillions of taxpayers’ dollars which they spent on bonuses for themselves instead of lending money to businesses to create jobs.)

The consensus seems to be — unsurprisingly, to me — that it sucks. Particularly, it’s incoherent where it’s not downright dishonest. The Washington Center for Equitable Growth rounds up some of the responses:

Glenn Hubbard:

About housing… I must say I split my side in laughter because Tim Geithner personally and actively opposed mortgage refinancing…. And now he’s claiming this would be a great idea…

David Dayen:

The guy who handed hundreds of billions of dollars over to banks with basically no strings attached [was] suddenly worried about fairness when homeowners get a break on their mortgage payments…. Even as he says in the book “I wish we had expanded our housing programs earlier,” he completely contradicts that to Andrew Ross Sorkin, saying [that his own] statement is “unicorny”…

Amir Sufi and Atif Mian:

Multiplying $700 billion by 0.18 gives us a spending boost to the economy in 2009 of $126 billion, which is 1.3% of PCE, 10 times larger than the estimate Secretary Geithner asserted in his book. So Mr. Geithner is off by an order of magnitude…

Economist Brad DeLong concludes:

In the “real world” Geithner did have full control over the GSEs and the FHA–because Paulson nationalized them in the summer of 2008.

In the “real world” Geithner submits his recommendation that Glenn Hubbard be nominated as head of the FHFA to President Obama on January 21, 2009, it is approved by the senate in February 2009, and thereafter there are no constraints on technocratic use of FHFA and the GSEs to rebalance the housing sector and aggregate demand.

Geithner should not say “I wanted the FHFA to act but I did not have the authority to get the FHFA to act” and at the same time say “having the FHFA act would have made no difference”; Geithner should to say “you cannot blame me because of the constraints” when we know that it was his own actions and inactions made those constraints.

Look: Tim Geithner did much better as a 2009-2010 finance minister than any of his peers. Look: the stress tests worked, and worked very well. (I disagree — Lex.) Look: Christina Romer and company say that if you need a bank rescued in 48 hours, Tim Geithner is your man. But the purpose of Stress Test is to explain to us what Tim Geithner thought and why he thought it, and thus why he did what he did.

And in Stress Test, on housing policy, he doesn’t.

Saturday, May 10, 2014 10:46 pm

An even more special kind of stupid

SpecialKindOfStupid

It takes a very special kind of stupid to inherit peace, prosperity and a budget surplus and explode the deficit, allow a horrific terrorist attack, launch a war both illegal and unnecessary (killing hundreds of thousands of innocent civilians in the process), order Americans to carry out exactly the same kind of torture for which we hanged Germans and Japanese after World War II AND push policies that allowed the worst economic crisis in three-quarters of a century.

But it takes an even more special kind of stupid to say, on the subject of George W. Bush, to intelligent Americans, “Who ya gonna believe, me or your lyin’ eyes?” Naturally, these days we do not lack for that very special kind of stupid; we need only turn to Matt Bai, formerly of the Times Almighty and now with Yahoo, to find it:

A graphic this week on FiveThirtyEight.com showed how fewer and fewer Americans blame Bush for the country’s economic morass, even though his successor, Barack Obama, won two presidential campaigns based on precisely that premise.

Bush’s critics will argue that this is testament to how quickly we forget the past. But it has more to do, really, with how we distort the present.

The truth is that Bush was never anything close to the ogre or the imbecile his most fevered detractors insisted he was. Read “Days of Fire,” the excellent and exhaustive book on Bush’s presidency by Peter Baker, my former colleague at the New York Times. Bush comes off there as compassionate and well-intentioned — a man who came into office underprepared and overly reliant on his wily vice president and who found his footing only after making some tragically bad decisions. Baker’s Bush is a flawed character you find yourself rooting for, even as you wince at his judgment.

Not just no, Matt, but hell, no.

I don’t need to read your buddy’s slobbery hagiography: I know what I saw and heard, out of the man’s own mouth, for eight long, painful, and disastrous years. For sheer incompetence, only Buchanan comes close, and in terms of the consequences of his stupidity, he is without peer or even parallel. America is vastly poorer, dumber, less free and yet more vulnerable today than it was in 2000, and the blame for that can be laid squarely at the feet of Li’l Boots McDrydrunk and the monsters he hired. I heard the man talk, so I know for a fact that he is an imbecile. I heard him admit on ABC News that he ordered torture, so I know for a fact that he is an ogre. And you, sir, can go straight to hell with him.

The only thing I’m rooting for where Bush is concerned is a seat in the dock at The Hague. And while oral sex is no longer a crime, public oral sex still is, so, Matt, buddy, next time you sit down to write about Bush 43, I’d look around for cops first.

 

Actually, only PART of the 1% is the problem. But we don’t know which part.

OK, strictly speaking, it’s the top 8%: CNBC commissioned a poll of U.S. households with $1 million or more of investable assets. And to a significant (and, to me, surprising) extent, they think a lot like you and I think on the economy:

  • 51% believe income inequality is a “major problem” for the country.
  • 64% support higher taxes for the wealthy.
  • 63% support increasing the minimum wage.

Now, they don’t think exactly like us; they’re likely to overestimate the effect of a good education and hard work (America tops only the U.K. in social mobility among the 20 wealthiest nations), and they tend to underestimate the effect of inherited wealth and luck.

But the fact remains that close to two-thirds of millionaires think they, themselves, should be paying more taxes and that the minimum wage should be higher. Just thought you should know we have some support among their ranks.

 

 

The problem with the “new economy” — and how the media make it worse

Ed at Gin and Tacos:

Things like airbnb and Uber (a car sharing service, for those of us who don’t live in a city large enough to make the prospect of paying a stranger to drive you somewhere viable) are “building trust” among Americans, bringing them together and facilitating economic activity. Plus, they make the economy more efficient, partially eliminating the dead airtime in daily life. Why leave your house empty when you can get someone else to pay you to stay in it? Why sit around watching TV all evening when you could make money driving people around?

It all sounds great, at least according to the fawning sycophants who provide all of us out here in the provinces with such worshipful coverage of the amazing achievements of the Techno-Demigods. And it is great as long as you don’t bother to ask (or care) why people are suddenly employing themselves as improvised innkeepers and taxi drivers. After all, does anyone really want to let some strangers stay in their home for a few bucks? To drive some trust fund asshole to the airport on Saturday after a 45 hour week? I doubt it. People turn to the “Trust Economy” because they’re somewhere between financially stressed and desperate. They don’t make enough or they’re without any steady source of income at all. They do it for the same reason that people go to work at a temp agency or loiter in a Home Depot parking lot to do day labor: because they have no better options.

The tech media work hand in hand with the mainstream media to put the brightest and prettiest coats of paint on economic developments of this kind, but who really benefits from this kind of arrangement? Hold on to your hats, kids, but it isn’t you. The beneficiary is the guy who can get people like you to perform for pennies on the dollar all of the tasks that a driver, personal secretary, and butler would do. It’s remarkable how many of the recent Big Developments from the omniscient men of the Valley have managed to make the lives of the well-off easier without actually creating any jobs that pay a livable salary or have benefits. Oh, and they convince the media to cover these breakthroughs in a way that makes it sound like they’re doing you a favor. You’re free at last, free at last. Say goodbye to the chains of full time employment and hello to the boundless freedom of working piecemeal, making phone calls on Mechanical Turk for a quarter and driving Damon the Junior Content Developer to the airport so he can spend the weekend in Cozumel with his frat bros.

The problem with the fact that the economy created a robust 288,000 jobs in April is that it needs to keep doing that for many, many more months to begin to undo the damage wrought by the Crash of ’08. And in the meantime, people are doing whatever they have to do to get by. Ignore it if you like, sociopaths of the world, but for God’s sake do not try to romanticize it. There is some shit even Americans won’t eat.

The future is here, and it blows.

 

Tuesday, April 8, 2014 7:09 pm

If you’re having trouble understanding why Citizens United and McCutcheon were such bad decisions, it’s because Nixon would have loved them.

Chief Justice John Roberts, author of the majority opinion in McCutcheon, and Associate Justice Anthony Kennedy, who wrote the majority opinion in McCutcheon, live in a fantasy world, Ian Millhiser explains:

In 1974, a Senate Select Committee on Presidential Campaign Activities chaired by Sen. Sam Ervin (D-NC) revealed activities that nearly anyone other than the five justices who signed on to Roberts’ decision in McCutcheon v. FEC would unreservedly describe as corruption. In the early 1970s, for example, the dairy industry desired increased price supports from the federal government, but Secretary of Agriculture Clifford Hardin has decided not to give these price supports to the milk producers. In response, various dairy industry organizations pledged $2 million to Nixon’s reelection campaign — and then developed a complicated scheme to launder the money through various small donations to “hundreds of committees in various states which could then hold the money for the President’s reelection campaign, so as to permit the producers to meet independent reporting requirements without disclosure.”

President Nixon later agreed to a meeting with industry representatives, and he decided to overrule his Agriculture Secretary. The milk producers got their price supports.

The Ervin report “identified over $1.8 million in Presidential campaign contributions as ascribable, in whole or in part, to 31 persons holding ambassadorial appointments from President Nixon, and stated that six other large contributors, accounting for $3 million, appear to have been actively seeking such appointment at the time of their contributions.” Outside of the White House, the report uncovered “lavish contributions” to members of Congress from both political parties. The chairman of one oil company testified that executives perceived campaign donations as a “calling card” that would “get us in the door and make our point of view heard.” American Airlines’ former chair testified that many companies funneled money to politicians “in response to pressure for fear of a competitive disadvantage that might result” if they did not buy off lawmakers. In essence, businesses feared that if they did not give money to elected officials, but their competitors did, then their competition could use their enhanced access to politicians in order to gain a competitive advantage in the marketplace.

And yet, according to Chief Justice Roberts and his fellow conservative justices, hardly any of this activity amounts to “corruption.”

Even the Court’s 1976 ruling in Buckley v. Valeo, which famously created the law that money = speech (but also largely upheld post-Watergate campaign-finance reforms), conceded that Congress could regulate campaign contributions to prevent corruption or its appearance. But Kennedy and Roberts have gone much, much farther than that:*

Roberts’ opinion in McCutcheon, however, defines the word “corruption” so narrowly that it is practically meaningless. In order to survive constitutional review, Roberts writes, a campaign finance regulation must “target what we have called “quid pro quo” corruption or its appearance. That Latin phrase captures the notion of a direct exchange of an official act for money.” Thus, unless a donor offers “dollars for political favors,” no corruption exists.

Lest there be any doubt, this narrow understanding of the word “corruption” does not capture cases where a donor pays off a politician in order to buy access. To the contrary, as the conservative justices held in Citizens United v. FEC, “[t]he fact that speakers may have influence over or access to elected officials does not mean that these officials are corrupt” (The word “speakers,” in this context, is used to refer to what most people describe as “donors”). Indeed, Citizens United goes much further than simply claiming that dollars-for-access arrangements must be tolerated. At one point, it seems to view them as an objective good:

Favoritism and influence are not . . . avoidable in representative politics. It is in the nature of an elected representative to favor certain policies, and, by necessary corollary, to favor the voters and contributors who support those policies. It is well understood that a substantial and legitimate reason, if not the only reason, to cast a vote for, or to make a contribution to, one candidate over another is that the candidate will respond by producing those political outcomes the supporter favors. Democracy is premised on responsiveness.

Democracy certainly is premised on responsiveness. Though it is a strange definition of democracy that offers enhanced responsiveness to those who can afford to pay for it.

Under Roberts’ definition of “corruption” most of the corrupt activities of the Nixon era would be viewed as completely benign. Though an isolated incident, where a Nixon fundraiser promised that the president would make a donor Ambassador to Trinidad in return for $100,000, would qualify as an explicit “dollars for political favors,” arrangement, politicians who give greater access to their donors are not “corrupt” under McCutcheon and Citizens United unless they offer to exchange votes or similar favors in return for campaign donations. Indeed, even the dairy industry’s $2 million bid for a meeting with President Nixon may not qualify as “corruption,” as Roberts understands the word, because there is some uncertainty as to whether the $2 million donation was “conditioned upon or ‘linked’ to” the President agreeing to make specific changes to the administration’s policies. According to Roberts’ opinion in McCutcheon,

Spending large sums of money in connection with elections, but not in connection with an effort to control the exercise of an officeholder’s official duties, does not give rise to such quid pro quo corruption. Nor does the possibility that an individual who spends large sums may garner “influence over or access to” elected officials or political parties. And because the Government’s interest in preventing the appearance of corruption is equally confined to the appearance of of quid pro quo corruption, the Government may not seek to limit the appearance of mere influence or access.

So what Nixon likely would have gone to prison for in the 1970s had he attempted to stay in office is now the law of the land, per five Republican justices who no doubt also believe they are Tsars of All the Russias, to borrow a phrase from Charlie Pierce.

And the American people know it, Millhiser concludes:

Very few Americans agree with Roberts’ view of what constitutes corruption. Indeed, a 2012 poll determined that 69 percent of Americans believed that the rule emerging from cases likeCitizens United allowing “corporations, unions and people give unlimited money to Super PACs will lead to corruption.” Just 15 percent disagreed.

To put that number in perspective, another poll found that fully 19 percent of Americans believe in “spells or witchcraft” — a full four percentage points more …

Myself, I’m wondering, given how many presumably sensible Americans have, since 2000, been willing to give away so many of their own rights and to refuse to hold accountable a generation of the most corrupt and wicked pols and business leaders since the Harding administration, whether more Americans ought to believe in witchcraft.

*I’m “conservatives oppose judicial activism” years old.

 

Monday, April 7, 2014 6:59 pm

Do peons dream of loyalty?

I spent my 16th, 17th, and 18th summers working in food service at the Carowinds amusement park on the N.C./S.C. line near Charlotte. It was hard, hot, sticky, messy, occasionally dangerous work — hot frying fat is nothing to mess with, which doesn’t keep teens from messing with it, and I once got knocked back 10 feet into a stream cabinet when I accidentally touched a bare wire on a 440-volt grill I was trying to unplug. (Had I not been wearing rubber-soled shoes, an electrician told me, I might’ve been killed.) When I finished my first full day of work — 9 hours in a steamy kitchen on a humid April Saturday — I was in outstanding physical shape and still as physically tired as I would ever be in my life until I got E. coli food poisoning two decades later.

We had all kinds of rules about customer relations, grooming (sideburns no lower than the earlobe), our itchy-ass polyester uniforms, not sitting while on duty, and so on.

So when I read this post on working in retail by ex-journalist Joseph Williams, I didn’t find a whole lot that was new to me, other than the vastly increased amount of theft-prevention activity. But a lot of it was new to him, or forgotten since his last stint in retail 30  or so years ago. And there’s a small part of me that wants to criticize his ignorance, because retail and restaurant work is one of the fastest-growing segments of the labor force in an economy that is not, generally, creating enough new jobs even to match growth in the working-age population, let alone bring down the un- and under-employment rates. If journalists know nothing else about the economy, they need to know that, and what the ramifications are for the growing numbers of Americans for whom this is real life.

Obtaining work in retail had changed a lot since the 1980s. What used to require a paper application and a schmooze with the manager has turned into an antiseptic online process where human interaction—and the potential for an employment-discrimination complaint—is kept to a minimum.

That put me at a distinct disadvantage.

In person, thanks to good genes, people often assume I’m younger than I am. On paper, however, I’m just another overeducated, middle-aged, middle-class refugee whose last retail experience dates to the Reagan administration.

Not to mention retail employers these days have their pick of applicants: the Great Recession added countless numbers of desperate workers like me to the annual labor-market influx of college students and high schoolers. According to an Economic Policy Institute report, “In 1968, 48 percent of low-wage workers had a high school degree, compared to 79 percent in 2012.” Likewise, the percentage of people in these jobs who have spent some time in college has skyrocketed, jumping from under 17 percent to more than 45 percent in the same time. All of us are in a race to the bottom of the wage pool.

Although older job candidates bring experience and skills to the table, their job applications typically blink like red warning lights to retail managers: overqualified, overpaid, and probably harder to manage than some high school or college kid. In a word: trouble.

“Think about it, Joey—that’s why there are online applications,” my sister, a veteran human-resources professional, told me. “If you apply online, and you never hear back, they don’t have to tell you why they rejected you and face a discrimination lawsuit.”

I soon realized the only way I’d have a shot in retail is if I dumbed down my job application, met directly with the person in charge before applying, and used my journalism story-telling skills to sell myself, stretching the truth past the breaking point.

He also discusses how “wage theft” — essentially, employers ripping free labor from employees, works, and this, too, I remember from Carowinds:

Working in retail takes more skill than just selling stuff. Besides the mindless tasks one expects—folding, stacking, sorting, fetching things for customers—I frequently had to tackle a series of housekeeping chores that Stretch never mentioned in our welcome-aboard chat. Performed during the late shift, those chores usually meant I’d have to stay well past the scheduled 9 p.m. quitting time.

Mop the floors in the bathroom, replace the toilet paper and scrub the toilets if necessary. Vacuum. Empty the garbage. Wipe down the glass front doors, every night, even if they don’t really need it. It was all part of the job, done after your shift has ended but without overtime pay.

In at least one respect, I had it better than this guy: Once in a while, I actually did get overtime pay. Not always. Not often. But once in a while.

This guy was paid $10 an hour in a state where the minimum wage is $7.25. He has an interesting take on whether the minimum wage should be raised, and once again, it involves wage theft (highlighted text below):

Proponents [of a minimum-wage increase] argue that three extra dollars an hour can lift hundreds of thousands of workers out of poverty. Opponents say a raise for hourly-wage workers would keep some businesses from hiring and force others to make layoffs to stay in the black.

As a worker who earned $10 an hour, I say: Neither argument is entirely true.

Sporting Goods Inc., I came to realize, was fine with paying me a few dollars more than the minimum wage—officially $7.25 an hour in Maryland—because it had other ways to compensate itself, including disqualifying me from overtime or paid sick days. Requiring me to play Cinderella on the closing shift also saved management the money it would have had to pay a cleaning company to maintain the store. Yet even $10 an hour—about $400 a week before taxes—can barely keep a single adult afloat in a city like Washington.

A modest studio apartment in a safe neighborhood would easily consume an entire month’s pay. Meanwhile, depending on circumstance, an annual salary of roughly $20,000 might not automatically qualify a retail worker for government assistance. One of my co-workers, a young single mother I called Flygirl, lived with her mom and commuted 40 minutes, one-way, from a far-flung suburb to make ends meet. Most of my co-workers, in their early 20s or 30s, had roommates, spouses, or second jobs. None of them seemed to be making it on their retail salaries alone.

Even though I was living rent-free in a guest bedroom, my every-other-Thursday paycheck couldn’t help me climb out of my hole, particularly after the state took half my pre-tax, $300 weekly salary for child support payments. Grateful just to have a job, I didn’t think twice when I noticed Stretch sometimes cut me from the daily crew and kept my hours under 30 per week—until Mike, a longtime friend and a former union shop steward, explained.

“You’re part-time,” he told me. “If you work 40 hours or more, they’ll have to give you benefits.”

Because I live across town, meanwhile, I had an hour-long commute that cost as much as $10 a day round-trip on public transportation.

“Dude,” my best friend Jamie said. “After taxes, you’re making just enough to get to and from work each day.”

And when the writer finally finds a new job, one that pays a living wage, he tells his boss, who promptly criticizes his work ethic and  loyalty.

We seldom get to pick either the messages we receive or the messengers from whom we receive them. And it would have been nice if this guy hadn’t landed in poverty through his own doing, at least in part. But his story matters no matter his personal failings, because his story is pretty much the story of everybody who works in retail.

As was discussed in the Ideas section of Sunday’s News & Record, North Carolina still has about three unemployed people for every available job opening, and that doesn’t even count the so-called “discouraged” workers who have stopped looking for work and therefore are not counted as unemployed. Nor does it count the people who, though qualified for better jobs, are working part-time or minimum-wage jobs because that’s all they can find.

Their experiences are not hugely different from this guy’s. If you’re not one of them, you probably know many people who are. The American economy is screwing them to the wall, and it’s happening because of conscious and intentional decisions made by lawmakers in thrall to large corporations. It’s 21st-century peonage. And it needs to stop.

There is dignity and morality in honest work, even in retail, as long as workers are paid and treated fairly. But there is no dignity for the worker, and no morality for the employer, in taking from the worker what is rightfully his and debasing and degrading him while doing so.

 

Thursday, March 27, 2014 8:53 pm

Thought for the day, rugged-individualism edition …

… from Helaine Olen at Reuters:

To presume home-buyers put into predatory loans by mortgage brokers working for outfits like Countrywide Financial could have stopped the housing market implosion if they knew a bit more about balancing their checkbook is absurd. Just as absurd as thinking a high school class in money management could help someone two decades later decipher a 100-page, single-spaced mortgage origination document loaded with “gotcha” clauses.

But our self-help culture doesn’t allow us to admit we might not be able to overcome greater economic woes on our own. In fact, it often makes our individual situations worse when things don’t work out.

Thomas Scheff, a professor emeritus at the University of California, Santa Barbara, recently published a paper in the journalCultural Sociology claiming that in highly individualistic cultures like the United States, where people are encouraged to “go it alone,” shame is the price we pay for not achieving success.

Viewed through this prism, you can think of the constant simmering anger in our culture as the road rage of self-help culture. Fearing the humiliation of failure, we aggressively lash out at others who prove the self-help nostrums a lie.

This could be the reason that many, including Republican members of Congress, blame the long-term jobless for their own plight, and cut off their unemployment checks. We say those who fell prey to predatory lending weren’t misled, but were greedy.

According to the tenets of self-help, the victims of the American economic collapse need not a helping hand, but a kick in the pants.

True, self-help advice is not always fully useless. Saving money, for starters, is certainly more likely to lead to a prosperous life than not putting anything aside at all. Yet all too often, knowledge and individual action are not enough.

Self-help causes us to take the political and economic problem of increasing income inequality and make it personal. That’s both morally wrong and financially ineffective.

That we fall for it only makes it worse.

I would add that the fact that we fall for it is no surprise when you watch how much and how deeply American media of all political stripes (or none at all — movies produced purely for entertainment, for example, often include this theme) drill this message home. As we are bombarded by and marinated in those messages, the notion that many if not most great things we’ve accomplished could only have been accomplished by teams, groups, companies, communities, or the states or the federal government becomes the dog that didn’t bark: We’re so used to, and have so absorbed, this self-reliance tenet that we fail to note its all-too-frequent systemic failures.

We’re all in this together, folks. And before we can act like it, we — or most of us, anyway — have to think like it.

(h/t: Fec)

Wednesday, March 26, 2014 8:17 pm

There is a club. You and I are not in it.

Filed under: Evil,Hold! Them! Accountable!,I want my money back. — Lex @ 8:17 pm

So, Charlotte Mayor Patrick Cannon has been arrested and indicted on corruption charges, including theft and bribery concerning programs receiving federal funds, honest services wire fraud and extortion under color of official right. For selling his office — before becoming mayor, Cannon had been mayor pro tem and a City Council member — received a total of $68,000 in cash, plus airline tickets, a hotel room, and use of a luxury apartment.

The three charges, which came after a 3 1/2-year undercover sting operation in which FBI agents posed as real-estate developers and allegedly bribed Cannon to use his office to do them favors, carry a combined maximum of 50 years in prison. Assuming Cannon is guilty on all counts, he still won’t do anything like 50, but he’ll do quite a number of years. And it won’t be in Alcatraz, but it won’t be in Club Fed, either. He also could be fined up to $1.5 million, which, for him, is years’ and years’ worth of income.

Meanwhile, retired Bank of America CEO Ken Lewis and the bank itself settled a civil lawsuit today with the New York attorney general’s office that had alleged securities fraud. Specifically, Lewis and the bank were accused of deceiving BoA stockholders about what crappy shape Merrill Lynch was in when the bank asked stockholders to approve a takeover of Merrill in December 2008. This transaction played a nontrivial role in blowing up the economy, although that demolition was well under way when the sale closed on Jan. 1, 2009.

Neither Lewis nor the bank is required by the settlement to admit any wrongdoing. The bank will have to pay $15 million. Lewis himself will have to pay $10 million, although that’s the equivalent of zero days’ worth of income for him because the bank will pay it for him. Given the bank’s net earnings of $4.2 billion in 2012 (the 2013 annual report is due out any day), those fines amount to about two days’ profits, give or take. That’ll certainly warn all the other banks not to screw their shareholders, I think.

Oh, and Lewis is personally barred for three years from serving as an officer or director for any publicly traded company. Which is really going to cramp his style because he’s, you know, retired.

So:

  • Criminal charges vs. civil.
  • Prison and a significant fine vs. no prison and a trivial fine.
  • A guilty verdict or guilty plea vs. no admission of guilt.
  • Prison (again) vs. an order not to do something he probably wasn’t going to do anyway.

What have we learned from this experience?

We’ve got one set of rules for banksters, and another set for everybody else, including mayors of major cities, you, and me.

There is a club. You and I are not in it.

Sunday, March 23, 2014 9:09 pm

America, land of free markets. … Oh. Wait.

It would appear that up to several dozen tech companies have been conspiring to artificially suppress wages for their employees. In other words, they’ve been stealing from their employees, although because they used email instead of a knife or gun no one will go to prison. At first it was just Apple, Google and Intel that we knew of; now, well …:

Confidential internal Google and Apple memos, buried within piles of court dockets and reviewed by PandoDaily, clearly show that what began as a secret cartel agreement between Apple’s Steve Jobs and Google’s Eric Schmidt to illegally fix the labor market for hi-tech workers, expanded within a few years to include companies ranging from Dell, IBM, eBay and Microsoft, to Comcast, Clear Channel, Dreamworks, and London-based public relations behemoth WPP. All told, the combined workforces of the companies involved totals well over a million employees.

At the link you can also find embedded court documents bearing out the claims.

This is money that went to a very few officers and directors at these companies. It is money that was taken from hard-working employees and will never be returned. And do not kid yourself that tech is the only sector in which this is happening. One reason the government has been so easygoing on monopolies and near-monopolies the past 30 years is that they make this kind of thing easier. In other words, if you’re a CEO, this is a delightfully profitable feature, not a bug.

Worse, this conspiracy to suppress wages likely is going on in every major sector of American private industry. I can’t prove it, but I’m certain of it right now, because if there’s one thing I learned from investigative reporting, it’s that corrupt organizations are almost never just a little bit corrupt. Indeed, I would not be surprised to find that this phenomenon, along with daisy chains of CEOs sitting on each other’s board compensation committees, is a significant driver behind the fact that the overwhelming majority of profits from productivity gains are going to the top 1 or 2 percent of earners in the work force.

The CEOs involved knew that what they were doing was wrong, that it involved the permanent, unlawful taking of the property of others. They should be doing at least as much time as your run-of-the-mill bank robber, in facilities no more luxurious. But they won’t. And that’s why we can’t have nice things.

Wednesday, March 12, 2014 8:27 pm

Was EVERYBODY to blame for the 2008 crash? Not just no, but, hell, no.

Dean Starkman at The New Republic, writing long and worth every word and minute:

With Wall Street’s demand for mortgages unending and some loan producers managing to book up to 70 loans per day, the system didn’t just crash. It was brought down.

But we’ve also been made to understand that subprime lenders and their Wall Street funders didn’t act alone. Instead, they were aided by the avarice of the American people, who were not victims of the crash so much as accomplices in it. Respondents to aRasmussen poll done during the throes of the crisis overwhelmingly blamed “individuals who borrowed more than they could afford” (54 percent) over Wall Street (25 percent). To this day, the view is widespread and bipartisan: Main Street was an essential cause of the meltdown. The enemy was us.

“It all goes back to the increase in the tolerance for debt,” David Brooks wrote a couple of years ago. …

One of so many instances in which Brooks has been flat wrong on the facts without professional consequence. But I digress.

Is that not the truth?

Actually: No, it’s not. The notion that American consumers share the blame for the mortgage crisis is a lie. And it is one of the most pernicious out there.

Everyone-Is-To-Blame (or EITB, for brevity’s sake) has done much to mute the public outcry essential for sweeping efforts to respond to the financial catastrophe. To the extent that Dodd-Frank fell short of the root-and-branch reform that followed the last great crash in 1929, EITB is to blame. The fact that banks too big to fail before the crisis have been allowed to grow to twice their pre-bubble sizes can be traced to a nagging sense that they didn’t act alone. And if you wonder why, six years after the fact, no significant Wall Street figure has been criminally prosecuted, I would suggest that EITB has muddied perceptions just enough to allow the administration to sidestep the necessary legal mobilization. If everyone is to blame, then criminal indictments of individual executives can be framed as exercises in scapegoating.

Everyone-is-to-blame did its worst damage to the Home Affordable Modification Program, or HAMP, an effort rolled out in the immediate aftermath of the crisis to reduce borrowers’ monthly payments through refinancing or principal write-downs. It was the mere idea of HAMP that set off Rick Santelli on his 2009 rant about “losers’ mortgages” and their “extra bathroom,” sparking the Tea Party revolt. The prospect of helping delinquent borrowers, while others paid theirs on time, unleashed a flood ofressentiment that filled the Congressional Record with denunciations of “irresponsible” actors who “lied” only to wind up in line for “gift equity,” and “tax-payer subsidized windfall.” Wisconsin Representative Jim Sensenbrenner introduced the concept of “happy-go-lucky borrowers” and “cagey borrowers.” Jim Bunning, then Kentucky’s junior senator, felt compelled to warn against helping homeowners “who made bad decisions.” The outpouring tapped into a sentiment powerful enough to silence even some liberals and turned hamp into a political disaster for the Obama administration. Left adrift, the program went from a potential lifeline for borrowers to a fee-machine for servicers and a Kafkaesque nightmare for those it was supposed to help.

As an agent of obfuscation, EITB is a gift that keeps on giving. In October, The Washington Post’s editorial board objected to a $13 billion mortgage-era civil settlement with J.P. Morgan largely because it unfairly singled out the bank, when, in fact, “everyone, from Wall Street to Main Street to Washington, acted on widely held economic beliefs that turned out not to be true.” A forthcoming book by Bob Ivry, a Polk Award–winning investigative reporter for Bloomberg News (and, full disclosure, a friend), eloquently inveighs against big banks and their Washington lackeys, but also includes this assertion: “In the years leading up to the Great Bubble-Burst of 2008, everybody got a chance to cash in. … If you wanted to buy a place to live, you could get more house than you ever dreamed. You could use your rising home equity for the Disney vacation, the power boat, the fourth bedroom or the college education.” …

True. But that’s not the same thing as mortgage fraud, which, though not trivial, was an incredibly small part of the total problem:

In 2010, an FBI report drawing on figures from the consultancy Corelogic put total fraudulent mortgages during the peak boom year of 2006 at more than $25 billion. Twenty-five billion dollars is obviously not nothing. But here again, teasing those mortgages out of that year’s crisis-related write-downs of $2.7 trillion from U.S.-originated assets leaves our infamous “cagey” borrowers to blame for only a tiny share of the damage, especially since not all of the fraudulent mortgages were their fault. The ratio looks roughly something like this:

Yes, some of our cab drivers, shoeshine boys, and other fellow citizens tricked a lender into helping them take a flyer on the housing market. But the combined share of the blame for bad mortgages that can be placed on the public sits—and I’m really rounding up here—in the high single digits, and not the much larger, fuzzier numbers in our heads.

The fact is that defrauding a bank that actually cares about the quality of a loan is actually rather difficult, no matter how aggressive or deceitful the borrower. Lenders, on the other hand, can lie with relative ease about all sorts of things, and mountains of evidence show they did so on a widespread basis. For starters, it’s lenders who establish the loan-to-value ratio for a property: how much money the buyer is borrowing versus the house’s estimated worth. Banks didn’t used to let you take out a mortgage too close to the home’s total cost. But play with those numbers and, voilà, a rejected loan application turns into an accepted one. Leading up to the crash, some banks’ representations about loan-to-value ratios were off by as much as 40 percentage points.

Then there was the apparent rampant corruption of appraisals, which also have nothing whatsoever to do with borrowers. Before the bubble popped, appraisers’ groups collected 11,000 signatures on a petition decrying pressure by banks to arrive at “dishonest” or inflated valuations.

And that’s to say nothing of lenders misleading borrowers directly—a practice that the Financial Crisis Inquiry Commission, the Levin-Coburn report, and lawsuits by attorneys general around the country have all found was very much systemic. Mortgage brokers forged borrowers’ signatures and altered documents; Ameriquest (those guys again!) had its own “art department,” as it was known internally, for precisely that function. Oh, and remember those 137,000 instances of “suspicious activity” about possible borrower misdeeds? For the sake of perspective, Citigroup settled a Federal Trade Commission case alleging sales deception that involved two million clients in a single year. That’s what we call wholesale, and it was happening before the mortgage era even really got started.

Today, there’s a big and growing body of documentation about what happened as the financial system became incentivized to sell as many loans as possible on the most burdensome possible terms: Millions—and millions—of borrowers were sold subprime despite qualifying for better.

Perhaps the most astonishing and unappreciated finding comes from The Wall Street Journal, which back in December 2007 published a study of more than $2.5 trillion in subprime loans dating to 2000 (that is to say, most of the subprime loans of the era). The story, by my former colleagues Rick Brooks* and Ruth Simon, painted the picture of a world gone upside-down: During the worst years of the frenzy, more than half the subprime loans issued went to borrowers who had credit scores “high enough to often qualify for conventional loans with far better terms.” In 2006, the figure hit 61 percent. Along with its article, the Journal illustrated the alarming trend line with a version of the following graphic:

It goes without saying that no one would voluntarily eschew a prime loan for subprime—subprime is called that for a reason, carrying higher, often escalating rates; pre-payment penalties that “shut the backdoor” by precluding refinancing; and other burdens tacked on for good measure. The Journal concluded that its analysis “raises pointed questions about the practices of major mortgage lenders.” That’s putting it mildly!

He goes on to suggest some reasons why Everybody Is To Blame is such a popular world view. But what he keeps coming back to, what we must keep coming back to, is that it is wrong. If you actually look at the numbers — you know, like bankers are supposed to do — you consistently find that the overwhelming majority of the financial damage was caused by the banks, often through unethical and sometimes even illegal means.

Even so, today, we refuse to punish those responsible. If there’s Blame to be laid at the feet of Everybody, this is it. Charlie Pierce is fond of saying that for all Occupy Wall Street’s many foibles, gaffes and mistakes, it at least got people shouting at the right buildings — i.e., corporations rather than government, and the big banks in particular. Unfortunately, some of the country’s top journalists and pundits still get it wrong, and they and the lawmakers on the take form a daisy chain that keeps anything substantive from happening, not only to punish those who were responsible last time but also to do what it takes keep something like this from happening again.

It’s not Everybody’s fault. Everybody is NOT to Blame. The banks and their executives and boards are to blame. And part of citizenship in a constitutional republic is to hold them to account.

*Disclosure: Rick Brooks worked with me at the N&R in the early 1990s.

Thursday, March 6, 2014 7:45 pm

Do you want N.C.’s economic recruiters spending your tax money at Yankee Stadium?

Because if the state GOP’s plans to make the state’s economic-development efforts a public-private “partnership,” we may well have that and other shenanigans to look forward to. It certainly didn’t work out well for the taxpayer in Florida:

CBS 12 News spent hours reviewing 20 months worth of spending at Enterprise Florida and uncovered thousands of dollars spent on sky boxes, steakhouses and at fancy hotels.

Tens of thousands of dollars were spent on credit cards. We weren’t provided the detail on what was purchased.

Our investigation found leaders at Enterprise Florida, the state’s public-private economic development machine, spent more than $21,000 at Yankee Stadium in New York.

They also paid a visit to Cowboys Stadium in Arlington, TX where they dropped more than $7,100. The stadium tour also stopped off in Atlanta, GA for a cost of $4,400. …

Enterprise Florida is tasked with handing out tax dollars to recruit multi-national and global corporations to our area.

A CBS 12 News investigation last November found hundreds of millions of dollars spent by Enterprise Florida since its inception created less than half of the 200,000 jobs initially promised.

State data we reviewed also found millions of dollars in incentives handed over to companies who have employees that sit on the board of directors.

And it turns out, this public private partnership is more of a publicly funded partnership. …

Our review of the records found more than half-a-million dollars charged on American Express and thousands of dollars spent at steak houses, seafood restaurants and lavish hotels.

The “partnership” Gov. Pat McCrory wants is nothing more or less than a license to steal from the poor and the middle class. And I am confident that if our arrangement looks anything like Florida’s, we’ll get the same result Florida did.

(h/t: Billy)

Tuesday, January 28, 2014 10:09 pm

What happens when “Don’t Be Evil” meets evil

Filed under: Evil,Hold! Them! Accountable!,I want my money back. — Lex @ 10:09 pm

Oh, stuff like this:

In early 2005, as demand for Silicon Valley engineers began booming, Apple’s Steve Jobs sealed a secret and illegal pact with Google’s Eric Schmidt to artificially push their workers wages lower by agreeing not to recruit each other’s employees, sharing wage scale information, and punishing violators. On February 27, 2005, Bill Campbell, a member of Apple’s board of directors and senior advisor to Google, emailed Jobs to confirm that Eric Schmidt “got directly involved and firmly stopped all efforts to recruit anyone from Apple.”

Later that year, Schmidt instructed his Sr VP for Business Operation Shona Brown to keep the pact a secret and only share information “verbally, since I don’t want to create a paper trail over which we can be sued later?”

These secret conversations and agreements between some of the biggest names in Silicon Valley were first exposed in a Department of Justice antitrust investigation launched by the Obama Administration in 2010. That DOJ suit became the basis of a class action lawsuit filed on behalf of over 100,000 tech employees whose wages were artificially lowered — an estimated $9 billion effectively stolen by the high-flying companies from their workers to pad company earnings — in the second half of the 2000s. Last week, the 9th Circuit Court of Appeals denied attempts by Apple, Google, Intel, and Adobe to have the lawsuit tossed, and gave final approval for the class action suit to go forward. A jury trial date has been set for May 27 in San Jose, before US District Court judge Lucy Koh, who presided over the Samsung-Apple patent suit.

In a related but separate investigation and ongoing suit, eBay and its former CEO Meg Whitman, now CEO of HP, are being sued by both the federal government and the state of California for arranging a similar, secret wage-theft agreement with Intuit (and possibly Google as well) during the same period.

The secret wage-theft agreements between Apple, Google, Intel, Adobe, Intuit, and Pixar (now owned by Disney) are described in court papers obtained by PandoDaily as “an overarching conspiracy” in violation of the Sherman Antitrust Act and the Clayton Antitrust Act, and at times it reads like something lifted straight out of the robber baron era that produced those laws. Today’s inequality crisis is America’s worst on record since statistics were first recorded a hundred years ago — the only comparison would be to the era of the railroad tycoons in the late 19th century.

I’m delighted that the class-action lawsuit is going forward. But I still see two huge problems:

  1. The money that all those employees would have been paid in an unrigged labor market — estimated here at $9 billion — is lost to them forever and likely staying with the executives forever.
  2. Lawsuits are all well and good, but anyone who has passed Econ 101 knows that this arrangement violated antitrust law. The executives involved need to face serious criminal charges. This action constituted criminal fraud and conspiracy, plain and simple, and possibly other crimes that aren’t so simple.

Nothing is going to stop this crap until rich and famous corporate executives start getting frog-marched around in orange jumpsuits on live TV before being locked away long enough for all their tech knowledge to become worthless, along with most of their teeth.

 

Thursday, January 16, 2014 7:18 pm

You keep using that word. It does not mean what you think it means.

And speaking of invaluable economist Dean Baker, he schools NPR, not that they’ll pay any attention:

This adjective ["enormous" -- Lex] appeared in a top of the hour news piece (sorry, no link [this NPR blog post uses the adjective "massive" -- Lex] referring to the spending bill approved by Congress on Wednesday evening. It would be interesting to know how it made this assessment. While the government spends more money each year than any of its listeners will see in their lifetime, it spends less relative to the size of its economy than almost any other wealthy country. It is also spending less relative to the size of the economy than it did in the years 2009-2012. The domestic discretionary portion of the budget, which was close to half of the spending bill, is smaller relative to the size of the economy than it has been in decades.

It’s a simple point, but one journalists at even the biggest outlets in the business can’t seem to learn: a number is meaningless — or, worse, misleading — absent context. I bolded the last part because although I want to shout this in all upper-case letters, I have chosen merely to emphasize it instead.

New York Times vs. New York Times

If a genie granted me three wishes, I wouldn’t waste one of them on this. But, damn, it would be nice if, at least once in a while, New York Times economics reporters would consult their columnist colleague Paul Krugman, who has, like, a Nobel Prize in the subject, before publishing bilge like this, particularly when Krugman could steer them to a large pile of research showing that he’s right and they’re wrong.

(h/t: Dean Baker)

Wednesday, January 15, 2014 7:08 pm

Watch cable TV? Use the Internet? You’re about to get screwed.

So on Tuesday, a federal appeals court threw out Obama Administration “net-neutrality” rules, on the laughable grounds that Internet service providers (ISPs) are not common carriers. The amount of delusion required to make such a “factual” finding is only slightly less than that required to believe that one may walk directly from here to London on dry land.

The companies that sued to overturn the rulings have business  models that have been badly (and, frankly, deservedly) damaged by upstarts like Netflix. They brought this on themselves. So, naturally, this being a free market and all, they turned to the courts to impose burdens on their new competition, and, naturally, this being a free  market and all, the courts obliged them.

MisterMix at Balloon Juice summarizes nicely:

[The plaintiffs], who are almost all cable companies, are full of [expletive], because with their lagging TV business, they’re all scrambling to find ways to (a) kill off Netflix and substitute their own streaming offering and (b) charge hefty usage-based pricing for their internet service, which has roughly 95% profit margins already. Here’s how they’ll do it:

  1. The coming of “4K” streaming, which is a super high definition stream on next generation TVs, will use 3-4 times the amount of bandwidth that today’s high definition streams use. 4K users will blow out the caps that providers like Comcast have in place, opening the door for the cable boys to charge premium premium for users who have 4K TVs.
  2. The streaming services of the cable providers will be exempt from the bandwidth caps, so users who don’t want to pay more for bandwidth will have an incentive to switch to Comcast’s version of Netflix.
  3. Streaming providers who want to sell video to customers without busting the caps will be allowed to provide what AT&T Wireless calls “Sponsored Data”. This means that the streaming company will pay the cable company for the bandwidth their subscriber uses. The streaming company will pass on that cost to the consumer. (Note that AT&T can provide “Sponsored Data” without regulatory issues because wireless is exempt from net neutrality regulation.)

That’s the plan, they’re executing it slowly but with grinding efficiency, and the roadblocks the Obama Administration are throwing up in their path are getting overruled. And, by the way, they won’t be investing in their aging infrastructure, except in places where Google or some other fiber optic provider starts competing with them. This is how corporatism will make slowly but surely leave us in the dust behind countries that make Internet access a national priority.

Many, many countries, developed and developing, friendly and not-so, have correctly perceived that quality Internet infrastructure is at least as important as good roads, water systems, electrical grids and so on. Not all of them approach the issue in the same way on a public-vs.-private basis, but they all understand that quality, affordable Internet is an essential competitive tool in the global economy. Congress has refused to recognize this and has fought to prevent administration efforts to do so; the results, in terms of our ability to compete, are bad and getting worse. If the Supreme Court doesn’t overturn this ruling, Netflix being forced out of business — although it would piss me off — would be the least of our concerns compared with our national ability to compete in the global economic marketplace.

Sunday, December 8, 2013 1:22 pm

Quote of the Day, Social Security edition

Filed under: I want my money back.,Quote Of The Day — Lex @ 1:22 pm
Tags:

Accused by faux-centrist right-wingers Third Way of proposing changes to Social Security that would give Citi CEO Jamie Dimon greater Social Security benefits, U.S. Sen. Elizabeth Warren, D-Mass., replied, “Oh please. I’m out there working for Jamie Dimon the same way Dick Cheney is out there trying to save the environment.”

UPDATE: Well, this is cute: a quick look at the names and occupations of the head honchos of Third Way. I’m sure we’re talking middle-of-the-road moderates here:

Saturday, November 16, 2013 11:24 pm

Deficit hawks caught astroturfing. Color me surprised.

Their ideas aren’t gaining favor on the merits (nor should they) — about 90 percent of Americans think Social Security should be preserved or even expanded, not cut — so they resort to paying people to lie, and they’re real sloppy about it:

Our friend Jon Romano, press secretary for the inside-the-beltway PR campaign “Fix the Debt” and its pet youth group, The Can Kicks Back, have been caught writing op-eds for college students and placing the identical op-eds in papers across the country.

This is the latest slip-up in Fix the Debt’s efforts to portray itself as representing America’s youth. Previously, they were caught paying dancers to participate in a pro-austerity flash mob and paying Change.org to gather online petition signers for them.

The newspapers involved in the scam were not amused.

Gainesville Sun to Fix the Debt: “Lay Off the Astroturf and Outright Plagiarism”

The identical op-eds were discovered by Florida’s Gainesville Sun. The paper’s scathing editorial on the topic makes for an entertaining read.

If you liked University of Florida student Brandon Scott’s column last Sunday about the national debt, you also should enjoy columns by Dartmouth College student Thomas Wang and University of Wisconsin student Jennifer Pavelec on the issue.

After all, they’re the same columns.

The identical columns ran last weekend in newspapers in New Hampshire and Wisconsin. They each included the same first-person passage describing the student’s work with the Campaign to Fix the Debt and its “millennial arm,” The Can Kicks Back.

After I was told last week about the column appearing under the byline of different writers in other publications, it was removed from The Sun’s website. Staff with the Campaign to Fix the Debt, who sent out the columns, said they were templates that were supposed to be personalized or otherwise reworded.

The campaign’s vice president of communications, John Romano, said Scott -— an intern with the group — was not at fault.

“This was an inadvertent mistake and the campaign takes full responsibility for it,” he said.

Ooopsie.

Ooopsie, indeed.

Folks, Fix the Debt is not a grassroots thing. It is not a lot of college kids writing letters to the editor. It is a network of PR agencies led by billionaire Pete Peterson. Peterson, because he is stupid, because he would personally profit, or both, wants draconian spending cuts — along the lines of Simpson-Bowles or worse. There are many problems with that, but the most important one, as the linked article points out, is that such cuts would eliminate 4 million jobs at a time when America needs many more jobs, not fewer. As for the deficit? Well, hey, let’s just ask our good friends at Fox News, who actually provide accurate information this time although they take a little too much time explaining what the numbers mean:

The U.S. government started the first month of the 2014 budget year with a $91.6 billion deficit, signaling further improvement in the nation’s finances at a time when lawmakers are wrestling to reach a deal that would keep the government open past January.

The Treasury Department said Wednesday that the deficit in October fell 24 percent compared with the $120 billion imbalance recorded in October 2012. The deficit is the gap between the government’s tax revenue and spending.

Across-the-board spending cuts and the partial government shutdown helped lowered expenditures in the first month of the new budget year. Higher taxes and an improved economy also boosted revenue.

The October decline comes after the government ran an annual deficit in 2013 of $680 billion, the lowest in five years and the first in that period below $1 trillion. Shrinking deficits could take some pressures off of lawmakers, who are facing a Dec. 13 deal to fund the government and avoid another shutdown.

The deficit is a manageable problem, and we’re managing it — almost in spite of ourselves, what with sequestration, but we’re managing it nonetheless. We do not need dramatic new government spending cuts, unless maybe they’re in defense. (By the way, everything else being equal, a dollar spent on defense benefits the economy substantially less than a dollar spent on something civilianish.) What we need, desperately, is J-O-B-S.

Wednesday, October 30, 2013 7:57 pm

Obama lied about keeping your existing health-insurance policy … or DID he?

Actually, The Washington Post (among others) did the lying, as economist Dean Baker helpfully notes:

The Washington Post joined Republicans in hyping the fact that many individual insurance policies are being cancelled with insurers telling people that the reason is the Affordable Care Act (ACA). The second paragraph comments on this fact:

“The notices [of plan cancellation] appear to contradict President Obama’s promise that despite the changes resulting from the law, Americans can keep their health insurance if they like it.”

It would have been useful to point out that the plans that were in effect as of the passage of the ACA were grandfathered. This means that any insurers that cancel plans that were in effect prior to 2010 are being misleading if they tell their customers that the cancellation was due to the ACA. It was not a mandate of the ACA that led to the cancellation of the plan, but rather a decision of the insurer based on market conditions.

But Obama is black!

Also, if you really want to know what’s going on in the economy, just read Baker’s blog every day. It’s called Beat The Press, and that’s what it does. Pretty much the only thing he ever posts about is mistakes made by major news-media outlets in coverage of economics, and he never lacks for material, averaging about 3-4 posts per day. He also doesn’t have to go far afield for material: The major print, broadcast and cable outlets keep him supplied without his having to go beat up on a 22-year-old cub reporter in East Buttville to flesh out an item. I started reading him several years ago, and in less than a week, I arrived at the conclusion that where economics coverage is concerned, American news  media just ought to be ashamed, full stop. This matters not only in and of itself but also because the income and wealth of working people and the middle class are under siege right now by the 1%, who are counting on people’s economic ignorance to let them do what they want to do, which is rob us blind. Baker is our Thin Blue Line. Read him and support him.

Monday, October 28, 2013 8:38 pm

Econ 101, 2013 version

It’s so simple even Bill Maher gets it:

This is the question the Right has to answer. Do you want smaller government with less handouts or do you want do you want a low minimum wage because you cannot have both. If Coronel Sanders isn’t going to pay the lady behind the counter enough to live on, then Uncle Sam has to. And I for one is getting a little tired of helping highly profitable companies pay their workers.

And spare me the crap about how raising the minimum wage kills jobs because 1) it doesn’t, 2) CEO pay relative to worker pay is at an unprecedented height, and it ain’t because CEOs are, in general, competent at running providers of goods and services rather than gaming the system, and 3) corporate profits are at an all-time high.

Why Healthcare.gov problems shouldn’t be a surprise

Clay Johnson of the Sunlight Foundation and co-founder of Blue State Digital, the firm that built and managed Obama’s online 2008 campaign, on the rollout:

Well, government doesn’t have a lot of people to choose from when they’re looking for contractors to build this stuff. And I think part of the problem is that the same people that are building drones are building websites. When government is building a website like this, they have to use a system called procurement, which is about 1,800 pages’ worth of regulation that all but ensures that the people who are building this stuff are the people with the best lawyers, not the people with the best programmers. And so, you know, you have this sort of fundamental lack of talent amongst the contractor ecosystem that’s building this stuff, that it’s bound to be bad work—that, combined with the fact that in 1996 Congress lobotomized itself by getting rid of its technology think tank, called the Technology Assessment Office. So when they’re writing bills, they don’t understand the technology that they’re requiring in their laws. This is what you get when you have a Congress that is basically brainless on technology, and government who can only pick from a few old, stodgy contractors. You’re bound to have this result. And, in fact, the standings group came out earlier this week and pointed out that over—for all procurements over $10 million, 94 percent of them fail.

We can thank the Republicans for getting rid of the Technology Assessment Office, inasmuch as they controlled both houses of Congress at the time and facts are just so darned inconvenient.

Meanwhile, adding to the site’s problems, a data center built and run by Verizon went down Sunday, halting enrollment in all 50 states. I eagerly await Darrell Issa’s subpoena of Verizon’s CEO, and/or Issa’s call for the CEO to be fired.

Wednesday, October 9, 2013 7:41 pm

Pension systems for public workers are only unsustainable if …

Filed under: I want my money back.,Shooting the wounded — Lex @ 7:41 pm
Tags: ,

… politicians and bankers steal from them.

The government, via insurance and regulations, has some leverage over the banks. It should use it to recover the money the banks stole and return it to retired public workers.

Oh, and a unicorn.

Tuesday, October 1, 2013 7:33 pm

Why default on Oct. 17 shouldn’t necessarily create an economic crisis but probably will anyway

Shorter Dean Baker: because bankers are f—— stupid:

… it is interesting to look at the fundamentals here. The vast majority of bonds … will not have defaulted. Even the ones that are technically in default will have only lost a small fraction of their value. Think it through. You have a government bond that was supposed to have a coupon payment on October 17th which was not made because of the debt ceiling standoff. How much less are you willing to sell this bond for on October 18th? (If you say 3 percent or more, send me a note.)

While this set of events could possibly undermine the system as it functions today, if the bankers could not develop a workaround pretty quickly, they are a lot dumber than people give them credit for. …

In the current situation, does anyone really doubt that at some point the government will make the interest and principle payments on its debt? …

[But] the Wall Street boys really don’t seem to be very good with numbers. Put to the test, they may well fail.

My predictions: 1) If it comes to that, they will fail, and 2) even if they do fail, they’ll still collect big bonuses while we taxpayers clean up their mess. Again.

Tuesday, September 24, 2013 7:17 pm

Hypothesis testing, lynching-Robert-Benmosche edition

Filed under: Evil,I want my money back. — Lex @ 7:17 pm
Tags: ,

Never, ever underestimate the capacity of rich douchebags to be rich douchebags.

Today’s example is Robert Benmosche, who took over as CEO of insurance giant AIG (which has a subsidiary here in Greensboro) after 2008, when only about a billion metric assloads of taxpayer money kept AIG from going bankrupt. Here’s what The Wall Street Journal quotes him as saying:

The uproar over bonuses “was intended to stir public anger, to get everybody out there with their pitchforks and their hangman nooses, and all that — sort of like what we did in the Deep South [decades ago]. And I think it was just as bad and just as wrong.”

OK, let’s test that hypothesis. Our null hypothesis is that if we got out our hangman’s nooses and pitchforks and took Robert Benmosche out and bound him hand and foot and gave him a bilateral orchiectomy (which was a pretty common feature of lynchings in the Deep South) and then put the noose around Benmosche’s neck and hauled him up high enough to do the air dance (perhaps waiting until he was already dead to set him afire, or perhaps not), he would actually think that lynching was quite a bit worse than taking grief from ordinary taxpayers who are watching him stuff himself in a way that could only have been made possible with the money of said taxpayers, while their own incomes drop year after year after year.

Our alternative hypothesis, the one we’re testing here, the one that Benmosche is propounding, is that we’d do all these things to Benmosche and he would notice no difference. None. Both experiences would seem equally awful to him.

So, Robert, want to put your alternative hypothesis to the test? I’ll be happy to write up the results for an academic journal.

Now, some of you, probably white guys my age or older, are saying, c’mon, that’s not all that bad. I’m tired, so I’ll let Alex Pareene school you:

Aggrieved white men of America, here’s a little tip from your old pal “historical consciousness”: People being mean to you is not remotely equivalent to genocidal violence. You are not at any risk of ever facing anything close to an actual lynching. It is not effectively legal for people to murder you. If someone did murder you, the state would attempt to arrest and punish them. If you wouldn’t claim to be the victim of a “genocide,” don’t claim to be the victim of a lynch mob.

Words have meanings. The era of lynchings is one of the darkest points in American history. The Tuskegee Institute, one of a few organizations that attempted to count all documented American lynchings, lists 3,445 black victims of lynch mobs between 1882 and 1968. Almost 200 anti-lynching bills were introduced in Congress during those years. Three passed the House. None passed the Senate. Lynchings were effectively state-sanctioned and they continued happening well into the 20th century. The last known survivor of a lynching attempt only just died in 2006 — one month after Richard Cohen’s column about his mean emails.

To compare being the target of protest or criticism to the shameful, horrific, common practice of lynching — or to think you can append some idiotic modifier like “digital” and use the phrase to mean whatever you want — isn’t just ignorant. It cheapens the phrase, strips it of meaning, and dilutes the awfulness, and the appalling recentness, of a great generational crime against black Americans.

I’m in a bad mood, so if you try to argue with this, I might just delete the comment and block your ass.

Friday, September 13, 2013 7:10 pm

Dean Baker on why the Wall Street criminals walked

Shorter Dean: Because the Justice Department let them:

[In a real investigation] [t]he people who put together some of the worst mortgage backed securities would be asked if they were really dumber than rocks and had no idea that many of the mortgages being put into the packages were fraudulent. If the prosecutors could demonstrate evidence of intelligent life at Goldman Sachs and Morgan Stanley they would then ask the lower level people whether they wanted to spend years in jail or would rather explain why they thought it was a good idea to put tens of millions of dollars of fraudulent mortgages into mortgage backed securities. This would presumably lead to testimony against higher ups at these investment banks. …

There is no guarantee that these sorts of efforts would have landed top executives of financial firms behind bars. However there is no evidence that the Justice Department even began this sort of investigation. At the least, such an investigation would have resulted in prosecutions of lower level actors who clearly violated the law in issuing and passing on fraudulent mortgages.

As [Neil] Irwin said [link added -- Lex], bad business judgement is not a crime. However, it is a crime to allow bad business judgement to lead to fraud. Clearly fraudulent mortgages were a major factor in propping up the housing bubble. No one went to jail for this crime.

Friday, September 6, 2013 7:01 pm

Quote of the day, Fed chair edition

From Dean Baker at the Council for Economic and Policy Research:

If one were to list the people most responsible for the country’s dismal economic state few people other than Alan Greenspan and Robert Rubin would rank higher than Larry Summers. After all, Summers was a huge proponent of financial deregulation in the 1990s and the last decade. He was a cheerleader for the stock bubble and never expressed any concerns about the housing bubble. He thought the over-valued dollar was good policy (and therefore also the enormous trade deficit that inevitably follows), and he was unconcerned that an inadequate stimulus would lead to a dismal employment picture long into the future.

If you think high unemployment is a good thing that ought to continue, then support Larry Summers. If you don’t, contact your senators and tell them not just no, but hell, no. The last person you want in charge of the economy is one of the miscreants who blew it up in the first place.

(h/t: Fec)

Tuesday, August 13, 2013 6:10 pm

Foreseeable harm, Spanish edition

This is why you don’t try to balance your national budget when unemployment is 25%.

Before the 2008 crash, Spain was running a surplus, news that too frequently comes as a surprise to austerians. But it, like many other countries, was experiencing a housing bubble. That bubble was caused by many of the same bankers who are now insisting that Spain “take its medicine.” What should happen instead is that those bankers should take their medicine, including an outright scalping on their bond holdings. The Spanish people didn’t cause this problem, and visiting unnecessary pain and poverty on Spaniards will not get Spain out of this problem. If both economics and history are any guide, it’s more likely to lead to bankers dangling from lampposts than to economic prosperity in Spain. But nobody, not even bankers, believes that bankers act in their own best long-term interests all the time, mainly because they don’t. So here we are. Well, here the Spaniards are. And if the Republicans got their way, here we would be as well.

Friday, July 26, 2013 6:19 pm

Our overburdened corporations

The Washington Post had a chart on how corporate taxes have been rising as a share of GDP in OECD countries (industrialized countries comparable for economic purposes to the United States). The problem is that the piece was a tad misleading in that every country counted the same.

In the U.S. that burden has been generally shrinking since World War II. As of 2009, that burden was 1%, down from its postwar high of 6% just after the Korean War. Here’s a chart showing how it’s gone:

Corporate Income Tax as a Share of GDP 1946 - 2009

Now, corporations are sitting on $2 trillion in cash. If they’re not going to create jobs with it, which they’re not because there’s no demand for their goods and services because too many people have been unemployed for too long, then they ought to pay a bit more of it to the government so that we can set about some badly needed infrastructure projects. Those projects, in turn, will both create jobs in the short term and lay the foundation for future wealth creation in the long term.

This is not rocket science. This is not even rocket economics.

(h/t: Dean Baker)

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