Apr 09

Wall Street Hates Elizabeth Warren

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Warren, ElizabethNormally Wall Street–much as it does even if in direct conflict with clients’ interests–hedges its bets when it comes to campaign contributions, donating equal amounts to both Democrats and Republicans. Not coincidentally it generally reaps similar benefits from each. How else can you explain Bill Clinton’s near dismantling of the derivatives market and imploding of Glass-Steagall? Occasionally however Wall Street comes across a candidate it revels in despising to its very core, and it has apparently found that candidate in Elizabeth Warren.

Warren more than doubled the fundraising totals in the first three months of 2012 of her Republican opponent Scott Brown. This fact alone is not all that interesting, as Brown is perceived as being vulnerable in the 2012 election. It is not surprising that campaign cash is finding its way to Warren given that the Democrats have an interest in winning back the seat once occupied by Ted Kennedy, most notably because recent polling has been favorable to the Harvard professor.

What is interesting is the staggering advantage that Scott Brown continues to maintain over Warren in campaign contributions from Wall Street. Brown has a thirteen to one advantage in raising cash from the financial, securities and investment sector. Warren is a well known proponent of investor rights. She served President Obama as an economic adviser helping to set up the Consumer Financial Protection Bureau, and would have been tapped to head up that agency if President Obama had not caved to pressure from conservatives and Wall Street who claimed that Warren would be incapable of regulating fairly.

We certainly should not read into this that challenging and outing Wall Street represents a new and lucrative blueprint for electoral success. This course of action remains an almost certain path to election day suicide for the rank and file candidate. However, the strange times in which we live wherein Occupy Wall Street is able to occupy time on even the most conservative media outlets may just lift Warren to victory, and with any luck will provide the American public with a real voice on their behalf in fighting for investor rights.

I find it interesting that Wall Street, through its near complete ostracizing of Warren, indicates it has no faith in its own ability to corrupt her once she is elected. Many Mr. Smith’s have waltzed into two-party Washington with grand ideas of righting wrongs and vindicating the rights of small investors and the public generally, only to leave having governed much more like Bill Clinton. Quite frankly Wall Street has disappointed me this time, much like each of the pitchers who intentionally walked Barry Bonds during his record-shattering year. But Wall Street doesn’t like a challenge, which is why they hedge their political bets and dump billions into investments that are in direct conflict with their clients to begin with.

Apr 09

In Case of Emergency, Call Washington

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LayoffsThe next time you have an emergency and require public services, I recommend that you spend the time waiting for help calling President Obama, your Senators and House Representatives in Washington D.C., and your state representatives to demand increased funding for public employees. Since the beginning of the most recent depression, the public sector has lost over 600,000 jobs while both Democrats and Republicans stood by and did nothing. Granted, Democrats have offered up plans to aid the states in meeting payroll obligations in order to keep public sector employees on the job. However, these proposals have been plowed under by Republicans. In giving the Democratic Party credit for attempting to offer assistance, it is also important to note that the White House has also gone out of its way to brag about job cuts, hiring and pay freezes, and departmental mergers at the federal level.

Whether bowing to political or polling pressure, this Democratic administration has done little to stem the losses of public employees, while Republican leadership in Congress and at the state level has dome even less, in some cases actively implementing policies to kill public sector jobs. The cuts to public sector employment during this depression have been unprecedented. Near universal agreemnent exists among economists that public sector employment during times of economic trouble should be increased forcefully, rather than cut back, because to do so exacerbates not only public sector unemployment, but private sector unemployment.

Moreover, the cuts affect the public in real and important ways. School budgets are slashed as teachers and staff are laid off, fire and police response times increase, public parks close, retraining and unemployment services are cut, small businesses and employers face longer wait times in filing necessary paperwork and application materials.  The Post Office is even at risk. Essentially the quality of life of the community at large decreases significantly.

While I understand the need to keep deficits under control when economics rather than hyperbole indicate a need to do so, punishing the people who do the important work of public service is not only mean-spirited, it is fiscally counterproductive.

Apr 09

Matt Taibbi Weighs In

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I have written extensively about the mis-titled JOBS Act here and here. Today, Matt Taibbi over at Rolling Stone offered up his analysis of the fraud inducing measure. But most importantly, he adds his voice to the choir of us who understand that the administration of Barack Obama is far to friendly to Wall Street.

In the meantime, let’s just say this is a dramatic step taken by Barack Obama. Nobody should have any illusions about where he stands on Wall Street corruption after this thing. Boss Tweed himself couldn’t have done any worse.

As I’ve said before, what makes this cozy relationship with Wall Street so extraordinarily sad, is that it has been utterly unnecessary. While certain Wall Street friendly policies immediately following the housing collapse were wrongheaded yet understandable to some degree, these more recent overtures to those who cost millions their jobs and homes, are not.

Apr 09

John Roberts and Obamacare

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I wrote last week concerning the importance of the upcoming decision surrounding the Affordable Care Act to the legacy of Chief Justice John Roberts and the legitimacy of his time as Chief Justice. Well, Sahil Kapur over at Talking Points Memo has an interesting write up of the possibility that Roberts may have provided a clue in a recent decision upholding strip-searches that perhaps he is indeed cognizant of how important this decision is for the long-term historical view of his tenure.

“The Court makes a persuasive case for the general applicability of the rule it announces,” Roberts concluded. “The Court is nonetheless wise to leave open the possibility of exceptions, to ensure that we ‘not embarrass the future.’”

The last three words stuck out to Pulitzer Prize-winning court watcher Linda Greenhouse, who wondered in the New York Times whether something deeper might be at play.

“‘Embarrass the future’? The quote, from a 1944 opinion by Justice Felix Frankfurter in a tax case, is usually offered to mean that the court shouldn’t encumber itself by declaring solutions to problems that have yet to emerge,” she wrote. “Maybe that’s all the chief justice meant. But John Roberts is both a careful prose stylist and a man acutely conscious of his and the court’s place in history. There are so many other ways of expressing a minimalist impulse than this unconventional use of the word ‘embarrass’ that I have to wonder whether he didn’t have in mind the prospect of institutional embarrassment, and not only in the case at hand.”

 

Apr 09

Republican Spenders

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Goldman SachsFrom the not so historically ironic yet perceptually ironic department, the great Vampire Squid itself, Goldman Sachs, is predicting that status-quo control of the Presidency, the Senate and House come November 6, 2012 would result in the most fiscally conservative federal policies in 2013 and beyond. In a recent  research report titles “US Daily : The Election and the “Fiscal Cliff,”" Goldman Sachs predicts that an Obama victory and no change in power in the Congress would likely lead to the scheduled defense and discretionary spending cuts that were negotiated last year as part of the debt ceiling agreement taking effect. They also predict that in the case that Republicans win the White House or the Senate that they would likely attempt to delay or modify the scheduled deficit reducing cuts. Moreover, Republicans would likely hold off until 2013 before they enact further tax cuts or co-called conservative fiscal policies. If Obama retains control, he will likely demand changes at high income levels prior to agreeing to any tax cut extension.

By contrast, a status-quo election (i.e., President Obama is reelected with continued Democratic control of the Senate and Republican control of the House) would imply a higher likelihood that an agreement would be reached this year, before the various policies are set to phase in or phase out. However, since the two parties currently hold very different views whether tax increases should play a role in deficit reduction, even under this scenario an extension would be difficult to negotiate before year end. While a permanent extension of the middle-income rates is possible (perhaps with a higher threshold than the President proposes) this seems less likely than a shorter-term extension lasting one year or less, as discussed below.

It won’t shock an interested observer, but it is a rather profound revelation that Goldman Sachs readily admits that if President Obama is reelected, fiscal restraint and deficit reduction is more likely than under Republican control. The reasons are fairly straightforward. It will be difficult if not impossible to negotiate a deal with Democrats to delay the scheduled defense and domestic spending cuts in the sequester if Republicans hold firm to their ridiculous position that only domestic spending should be cut while the defense budget remain untouched. It is also less likely that a long-term extension of the Bush tax cuts will be passed into law because Democrats will require some modification of tax rates for high wage earners in return. It will also be extraordinarily unlikely that Republicans will agree to any new stimulus spending.

So, if the deficit is an important issue for voters this fall, only a fool would believe that electing a Republican President would lead to that end. It must be true because Goldman Sachs says so.

Apr 06

Avoiding the Cause of Oil Spike

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The fight over oil prices among the top two presidential candidates is afoot. The Obama campaign has just released a new campaign add in which he touts his administration’s accomplishments in increasing domestic oil supply and raised fuel efficiency standards for automobiles. Romney has been fighting back, claiming that Obama and his henchman, including the Secretary of Energy, have colluded with tree huggers and failed alternative energy manufacturers like Solyndra to purposefully drive up the price of oil.

This spectacle would be politically entertaining if it were not for one glaring omission: derivative futures speculators on Wall Street account for a plurality of the recent spike in the price of oil. This didn’t come from some left wing progressive algae farmer, it came from the fucking Federal Reserve. If Obama were to even intimate that CFTC and DOJ investigations of illegal futures trading were coming down the pike, the price of oil would decline quickly as speculators take profits in hopes of avoiding regulatory action. Romney has also failed to go after Wall Street on this matter. One can be left only to conclude that neither party has an interest in having the backs of hard working Americans as they struggle to purchase gasoline and heating oil and find enough left over for food and other necessities.

Apr 06

No More Time

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With unemployment benefits being curtained as the economy “improves,” many people are being left to live within their means without any means to speak of. While congress and the president did step in and extend unemployment insurance during the worst of the recent recession, no widespread worker retraining , vocational, or higher education programs have been offered up by either side. What is particularly sad in this whole mess is that we know which professions, trades, and jobs are in demand. The United States has worker shortages in manufacturing for example, along with truck drivers, plumbers, and tradesmen and women of all sorts. We also have a shortage of physicians and nurses, as well as other medical support staff. We also know that several career areas are in fact well short of filling all of the available positions. It wouldn’t put each and every American back to work who desires a job, but a concrete effort to match the unemployed with training and jobs is desperately needed. Moreover, this effort is in the public interest. Greater numbers of employed people means greater tax revenues, fewer cuts in public services, and smaller budget deficits over the long term. That should make Republicans and Democrats both happy.

If the two major political parties are looking for a blueprint, look no further than Germany and its dual-system.

Apr 06

HARP Continues to Flounder

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A new report by Cora Currier over at ProPublica chronicles the massive practical shortcomings of the Democratic administration’s Home Affordable Refinance Program, or HARP, and why it continues to fail to offer underwater homeowners  any real relief. The program has also fizzled in offering meaningful rate reductions to those stuck with high percentage rates or adjustable ARM mortgages.

Large banks, although permitted to do so, are not offering those holding loans with competing banks refinancing under HARP because the banks view these outside loans as carrying more risk, which of course is only marginally accurate. This leaves the homeowner in the precarious position of being captive to whatever rate the bank currently servicing the mortgage offers. However, even with this fractional increase in risk, the administration is doing nothing to cajole the banks into offering customers more competitive rates and accepting outside business in return for saving them from the brink of disaster in 2009-2012.  Because the banks are refusing to compete with one another, customers are often left with higher long term mortgage rates than they would have otherwise qualified for under HARP or in the marketplace.

The reason for all of this, as it has always been, is that these programs fail to address the basic problems in the housing market. Unfortunately, the profound apprehension and outright fear on the part of the administration to forcefully attack the large banks continues to result in these half-assed band-aids and workarounds to address the housing market dilemma. The proof is in the pudding. The administration can not on its best day ever administer a program under which homeowners are stuck refinancing more than the home is worth. Leaving aside how awful the notion is of forcing homeowners to ultimately pay an inflated amount based squarely on the fraud of the banks and mortgage originators for a moment, the banks will not even cooperate in this scheme of forcing homeowners to lock in lower rates to pay them back money that they would not otherwise owe.

The bottom line is that this problem will persist for much longer and continue to create a drag on the overall economy until either the Republican or Democratic party, or both, stand up and force the banks to write-down millions of fraudulently inflated mortgages to fair value. To this point neither party seems willing to offer even an iota of evidence that Wall Street and the banks have not simply been given a blank check with nothing significant expected in return for their very lives.

I should also mention that I do in fact believe that President Obama understands this problem, and is well aware of the shortcomings of each of the programs offered as a remedy. I would even confess that it is extraordinarily likely that he honestly would love to force the banking sector to refinance and write-down the mortgage mess that it created. However, while the United Auto Workers and General Motors and Chrysler have had to accept onerous loan terms and drastic reductions in wages and benefits in return for the government’s assistance, the banks have suffered no similar consequences notwithstanding their far greater responsibility in the overall disaster. Why this has been the case has been fodder for much speculation. I sincerely hope that the American people do not have to wait for President’s Obama’s inevitable memoirs for an answer.

Apr 05

The Longest Debate in History

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LiesA recent study conducted by Shaul Shalvi, a psychologist at the University of Amsterdam, uncovered that the more time permitted to pass between an event or question and the response, the less likely a subject is to lie. The subjects were instructed to roll a die and report the outcome. The greater the number, the more money the subject would be paid.

The researchers had no way of knowing what numbers participants actually rolled, of course. But they knew, statistically, that the average roll, if people reported honestly, should have been 3.5. This gave them a baseline from which to calculate participants’ honesty. Those forced to enter their results within 20 seconds, the researchers found, reported a mean roll of 4.6. Those who were not under any time pressure reported a mean roll of 3.9. Both groups lied, then. But those who had had more time for reflection lied less.

A second experiment confirmed this result. A different bunch of volunteers were asked to roll the die just once. Again, half were put under time pressure and, since there were no additional rolls to make, the restriction was changed from 20 seconds to eight. The others were allowed to consider the matter for as long as they wished.

In this case the first half reported an average roll of 4.4. Those given no time limit reported an average of 3.4. The second lot, in other words, actually told the truth.

I could not help but query if the American view that quick decisiveness is a sign of strength to be admired ultimately leads to more societal deceit. Could our incessant desire for lightening fast feedback actually be contributing to a steady decline in overall truthfulness. Are we learning to lie more effectively as a result? I certainly welcome further experimentation comparing the United States to cultures with an alternate view.

I wonder what would come of a presidential debate, for example, wherein the candidates were forced to contemplate their response to each question for a minimum period of time. Would human psychology affect their ability to mislead us intentionally? Would their level of discomfort in telling lies be apparent? I do know it would be awfully fun to watch.

Apr 05

Scalia Quotes Mohammed Ali

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Supreme Court Justice Antonin Scalia, while speaking in Hattiesburg Mississippi yesterday all but admitted that the Affordable care Act, or at least parts of it, are going to burn in flames.

He declined to answer a question about President Barack Obama’s Monday remarks that it would be an “unprecedented, extraordinary step” for justices to overturn the challenged federal health care law.

“We don’t respond to criticism….   Judges use what’s known as the rope-a-dope trick. It’s judicial tradition.” When the questioner pressed Scalia on who would provide checks and balances to the president, he said that, “We have three branches. They check and balance each other.”

In other words, the court appears to favor one side, but then later blindsides the opposite side knocking it to the canvas like an out of shape George Foreman. Which of course is almost never true. The ultimate losing side almost always appears more attacked during oral argument. However, his statement could obviously intimate that the government’s case, which appeared the weakest during oral argument, may ultimately prevail, surprising many legal observers as of late. But when read in context–a response to an admittedly stupid and irresponsible statement by President Obama calling out the court–it is more likely to forebode a bad result for the administration. We know that the court met for an initial vote on the case last week, so it is likely that a decision has been reached, leaving only Chief Justice John Roberts to assign a member of the prevailing side to draft the undoubtedly onerous opinion.

His statement could also mean absolutely nothing, as Scalia is also known to revel in ginning up the press, due to its propensity to build castles out of Lincoln Logs.

Apr 05

Robert Shiller Weighs in on Home Prices

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The most recent S&P/Case-Shiller Home Price Index was released on March 27, 2012 showing that home prices have continued to dip and are currently sitting at 2003 levels. While this comes as no surprise to me, as I suspect that home prices have to fall back to 2002 levels, pricing in the fraudulent boom, as well as an amount to compensate for the recession, unemployment, and continued wage stagnation.

However, I did find it interesting that Mr. Shiller noted that he is being asked routinely if the market has hit bottom. He remarked that the questions seem to be coming from a perspective holding fast to a notion that as soon as a bottom is reached, home prices will begin to rise quickly again. This is extraordinarily indicative of predictable foolish American “market” thinking that another housing boom must be forthcoming to retrace some of the gains of the past decade, rather than acknowledging that home prices need to return to historical levels of appreciation in order to have a sound and stable market. At that point, home prices can begin to rise just above the inflation rate as has always been the case absent some regional or national artificial boom.

Shiller went on at some length during an interview with Motley Fool:

Well, our numbers are still going down, but our numbers we just released January, in the first few months of this year, there are positive signs, notably the National Association of Homebuilders Housing Market Index — which is based on a survey of builders — shows that builders are seeing signs of optimism. Although, the very latest number in February was just flat, so it’s not formally good. Things seem to be weakening a little bit in the latest month or so. But I find it very difficult to predict home prices right now.

Home building is rather different, by the way. Homebuilders are not bothered by the fact that in certain regions, homes are below construction costs. They just don’t build there. All they need are some places where homes are selling for above construction costs. That’s really not the same market.

Will this market pick up? I tend to take a different perspective. I keep getting asked by reporters, “Is this the bottom? Is this the turning point?” And I’m wondering what they’re asking about. It sounds implicit in their question that they think that there’s going to be a day soon and then it’s going to zoom up again.

We as a people have to move away from a mentality that there will always be one get-rich-quick scheme afoot at any moment. Further, we must reform our fundamental outlook on single-family homes as an investment, to a more realistic and practical understanding that homes should and are a stable means of saving for retirement and beyond, expecting meager returns in return for that stability.

Neither the Democratic or Republican party has put forth a real plan to assist homeowners climb out of the chasm left by the housing bubble. The Republican plan is ultimately to do nothing, while the Democratic administration has fumbled from one ineffectual policy to the next avoiding forcing the large banks to provide any significant help to homeowners and those improperly foreclosed upon. The most recent foreclosure fraud settlement forced down our throats by the Obama administration does nothing more than free the banks to restart the foreclose process guns blazing, now free from the possibility of prosecution from the DOJ or the state attorney generals. There will not be any large-scale write downs of mortgage principal for homeowners who find themselves underwater as a result of the banks’ fraudulent conduct. However, because the recent settlement will assist in clearing forecloses from the banks’ books, the “bottom” desired by Republicans has been ironically hastened by this Democratic administration. Lastly, in one more ill-conceived medieval half-measure by the president, Fannie and Freddie have been prodded into selling off huge swaths of homes to bankers and investors so that the bundled homes may be rented back to the homeowners or others in an effort to unclog the market. The very same homes that were dumped upon Fannie and Freddie and the American people by the banks. I don’t see a way for that program perform well for the public.

So, we’ve still got a ways to go to get to a place where the home market is normalized, but it will happen in due time, with those who caused the mess emerging the big winners, again.

Apr 05

Wall Street Wins Again

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Obama is expected to sign the so-called JOBS Act into law this moring in Washington D.C. In doing so, the President, in a misguided effort to obtain a “bi-partisan” win will open the door for more financial fraud and enable unscrupulous financial firms to bilk unsuspecting investors of their money. The public rationale touted by the administration is that the law will make it easier for small “emerging” companies to obtain the capital required to grow, and eventually take the company public in an IPO. The law guts the the current regulatory reporting requirements that provide transparency to both investors and regulators for companies with less than $1 billion in annual revenue. He is also making it much more likely that equity research firms will engage in behavior that creates a conflict of interest between the firms seeking capital and themselves, at the expense of investors and the public. The large banks that currently underwrite IPOs will also have an incentive to engage in perfidious behavior in an attempt to win over potential IPOs in order to generate fees.

While regulators are still examining the law, even the SEC chief, Mary Schapiro, hardly a dutiful advocate for investor rights, is dubious. She said that the law will simply “weaken investor rights,” and:

We should not walk backwards here…. Collusive behavior between analysts and bankers cost investors huge sums, shattered confidence in the integrity of research, and damaged the markets themselves.

Too often, investors are the target of fraudulent schemes disguised as investment opportunities…. As you know, if the balance is tipped to the point where investors are not confident that there are appropriate protections, investors will lose confidence in our markets, and capital formation will ultimately be made more difficult and expensive.

Eliot Spitzer, who is responsible for part of the existing rules the new law nullifies had some choice words for those in power:

It is a bad sequel to a bad movie…. It shouldn’t be called the JOBS Act, it should be called the Bring Fraud Back to Wall Street Act.

After the recent rampant fraud that led to the largest depression since the 1920′s, President Obama has made decision to further loosen the rules regulating those who caused the disaster, placing himself in the familiar position of abandoning his progressive and Democratic base in favor of Wall Street.

You can read further coverage from the New York Times here.

Apr 04

More Dead End Jobs in March

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The ADP National Employment Report released today showed that the private sector added 209,000 jobs last month, just marginally above economists’ and others’ expectations for a gain of 200,000 jobs. The report unfortunately discovered–yet again–that the vast majority of the jobs created exist in the low wage service sector with goods producing jobs remaining generally stagnant offsetting for concurrent job losses.

The service sector continues to make up far too large a percentage of the United States economy at 70%. Some analysts believe that wage gains in existing and newly created jobs will help sustain and grow consumer spending levels. I do not share this view. Wage gains continue to lag inflation across all major sectors, and with an ongoing oversupply of job-seekers relative to available jobs, employers will continue to lack any motivation absent regulatory action to increase real wages appreciably. The Bureau of labor Statistics reported compensation growth across all sectors at a lousy 1.6% over the last 12 months. 12 month inflation just recently reported came in at 2.9%.

While it is possible to drill down into the data and uncover a more detailed picture of the plight of service sector and other workers, the trend of wages failing to keep pace with inflation is clear. It is hard to imagine an economy sustaining growth given this situation. Neither the Democratic or Republican party has put forth any concrete plans to increase real wages for the vast majority of Americans. So long as this remains the case, the economy will continue to muddle along awaiting the next crisis that the average worker will ultimately be unable to absorb. We need a real plan to produce jobs paying more significant wages and a move away from an economy driven by consumer spending and the service sector.

Update: April 6, 2012: The Labor Department released its jobs report today unsing its own methodolgy, which showed that nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent. Apparently employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade.

Apr 04

German Dual-System Model Solution for U.S. Unemployment?

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Currently Spain and Greece are suffering from a greater than 50% unemployment rate for youth ages 18-25, while Germany’s youth are unemployed at a tiny fraction of that rate, 7.8%. Germany employs a dual-system in which those with the grades and the desire to pursue formal higher education are able to do so, while those with lesser grades or a desire to enter the trades or seek specialized technical training are encouraged and subsidized to enroll in technical schools and apprenticeship programs.

Read a report on the program here.

The United States as well as the rest of the world is suffering from a massive shortage of skilled tradespeople. The United States should be building the groundwork for a system similar to that of Germany, and it should do so soon.