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Ailing, Banks Still Field Strong Lobby at Capitol
Stephen Labaton, New York Times
As he often does, President Obama took the opportunity in a bill-signing ceremony last month to remind Congress “to do what we were actually sent here to do — and that is to stand up to the special interests, and stand up for the American people.”
But Mr. Obama did not mention that the measure he was signing, the Helping Families Save Their Homes Act, was missing its centerpiece: a change in bankruptcy law he once championed that would have given judges the power to lower the amount owed on a home loan.
It had been stripped out three weeks earlier in a showdown between Senate Democrats and the nation’s banks, including many that are getting big government bailouts.
As Congressional Democrats and the White House crow about multiple victories over the financial industry, including new rules for credit card issuers, banks are quietly savoring an even bigger victory of their own.
The defeat of the bankruptcy proposal is a testament to the enduring influence of banks, even as the industry struggles financially and suffers from its role in the economic crisis.
(4 June 2009)
From a Failed Growth Economy to a Steady-State Economy
Herman Daly, The Oil Drum
This past week was the United States Society for Ecological Economics bi-annual conference (at American University near Washington DC). Herman Daly was honored for his many and longstanding contributions. He also gave an amazing speech which he has graciously allowed us to reproduce as a guest post on theoildrum. In it he outlines 10 prescriptions for changing the course of our current socio-economic system, along the lines of the steady state themes he has been writing about for decades. …
– TOD editor Nate Hagens
USSEE lecture, June 1, 2009
Herman E. Daly
School of Public Policy
University of Maryland
A steady-state economy is incompatible with continuous growth—either positive or negative growth. The goal of a steady state is to sustain a constant, sufficient stock of real wealth and people for a long time. A downward spiral of negative growth, a depression such as we are entering now, is a failed growth economy, not a steady-state economy. Halting an accelerating downward spiral is necessary, but is not the same thing as resuming continuous positive growth. The growth economy now fails in two ways: (1) positive growth becomes uneconomic in our full-world economy; (2) negative growth, resulting from the bursting of financial bubbles inflated beyond physical limits, though temporarily necessary, soon becomes self-destructive. That leaves a non-growing or steady-state economy as the only long run alternative. The level of physical wealth that the biosphere can sustain in a steady state may well be below the present level. The fact that recent efforts at growth have resulted mainly in bubbles suggests that this is so. Nevertheless, current policies all aim for the full re-establishment of the growth economy. No one denies that our problems would be easier to solve if we were richer. The question is, does growth any longer make us richer, or is it now making us poorer?
I will spend a few more minutes cursing the darkness of growth, but will then try to light ten little candles along the path to a steady state. Some advise me to forget the darkness and focus on the policy candles. But I find that without a dark background the light of my little candles is not visible in the false dawn projected by the economists, whose campaigning optimism never gives hope a chance to emerge from the shadows.
We have many problems (poverty, unemployment, environmental destruction, budget deficit, trade deficit, bailouts, bankruptcy, foreclosures, etc.), but apparently only one solution: economic growth, or as the pundits now like to say, “to grow the economy”– as if it were a potted plant with healing leaves, like aloe vera or marijuana.
But let us stop right there and ask two questions that all students should put to their economics professors.
… Second question; do you then, Professor, see growth as a continuing process, desirable in itself– or as a temporary process required to reach a sufficient level of wealth which would thereafter be maintained more or less in a steady state? At least 99% of modern neoclassical economists hold the growth forever view. We have to go back to John Stuart Mill and the earlier Classical Economists to find serious treatment of the idea of a non-growing economy, the Stationary State. What makes modern economists so sure that the Classical Economists were wrong? Just dropping history of economic thought from the curriculum is not a refutation!
Here are some reasons to think that the Classical Economists are right.
A long run norm of continuous growth could make sense, only if one of the three following conditions were true:
(a) if the economy were not an open subsystem of a finite and non-growing biophysical system,
(b) if the economy were growing in a non physical dimension, or
(c) if the laws of thermodynamics did not hold.
… So—if we can’t grow our way out of all problems, then maybe we should reconsider the logic and virtues of non-growth, the steady-state economy. Why this refusal by neoclassical economists both to face common sense, and to reconsider the ideas of the early Classical Economists?
I think the answer is distressingly simple. Without growth the only way to cure poverty is by sharing. But redistribution is anathema. Without growth to push the hoped for demographic transition, the only way to cure overpopulation is by population control. A second anathema. Without growth the only way to increase funds to invest in environmental repair is by reducing current consumption. Anathema number three. Three anathemas and you are damned—go to hell!
Let us look briefly at ten specific policy proposals for moving to a steady-state economy, i.e., an economy that maintains a constant metabolic flow of resources from depletion to pollution—a throughput that is within the assimilative and regenerative capacities of the ecosystem.
1. Cap-auction-trade systems for basic resources. Caps limit biophysical scale by quotas on depletion or pollution, whichever is more limiting. Auctioning the quotas captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses. This policy has the advantage of transparency.
(5 June 2009)
One problem with policy proposals in the abstract is that the outcome depends on who is carrying them out. Case in point: how cap-and-trade legislation is mutating in the face of industry lobbying (see What a bleeping joke.) -BA
The Looting of America: How Wall Street Fleeced Millions from Wisconsin Schools (book excerpt)
Les Leopold, Chelsea Green Publishingvia alternet
The following is an excerpt from Les Leopold’s new book, “The Looting of America” (Chelsea Green, 2009).
The Hooking of Whitefish Bay
The great economic crash of 2008 tore right through Whitefish Bay, Wisconsin, population 13,500—though you’d never guess it from looking around town.
Located just a few miles north of Milwaukee, this golden village exudes the hopeful self-confidence of the early 1960s. Whitefish Bay’s stately mansions offer breathtaking views of Lake Michigan from cliffs that rise a hundred feet above the shoreline. As you head inland on its tree-lined streets, the houses slowly shrink back into sturdy, middle-class neighborhoods. The stores on Silver Spring Drive, its main shopping strip, have survived despite fierce competition from the nearby Bayshore Mall (a self-contained ultramodern shopping village with faux streets, a faux town square, and real condos). Whitefish Bay also supports an art deco movie theater that serves meals while you watch the show, and a top-notch supermarket, fish market, and bakery. Nothing is out of place—except you, if you happen to be brown or black. Whitefish Bay is 94 percent white and only 1 percent black. There’s a reason the town’s unfortunate moniker is White Folks Bay.
Yet this white-collar town voted for Obama—and has always voted for its schools, which are considered among the best in the state. Its residents’ deep pockets supply the school system with all the extras: In 2007, $700,000 in donations provided “opportunities, services and facilities for students.” The investment has paid off. An average of 94 percent of Whitefish Bay’s high school graduates go on to college immediately. And the school dropout rate is less than half of 1 percent.
The school district takes its fiscal responsibilities seriously. It has set up a trust fund to pay benefits, primarily health insurance, for retired school employees. When these benefits (called “Other Post-Employment Benefits” or OPEB) were originally negotiated, the expense was modest. But then health care costs exploded. What’s more, accounting rules now require that school districts amortize these costs and post them on their books as a liability each year. Whitefish Bay, like many other school districts, became worried about how to meet these liabilities.
…Meanwhile, Wall Street investment houses had set their sights on school-district trust funds like Whitefish Bay’s. They hoped to persuade districts to stop stashing this money—valued at well above $100 billion nationwide in 2006—in treasury bonds and federally insured certificates of deposit (CDs). Wall Street’s “innovative” securities could provide higher returns—not to mention more lucrative fees for the investment firms.
So an old-fashioned financial romance began: Supply (Wall Street’s hottest financial products) met Demand (school districts seeking to build up their OPEB trust funds). It looked like a perfect match.
…As in many romances, one party seduces and the other is seduced. Noack certainly came across as a caring, considerate suitor. He started his sales drive by inviting area school administrators and board members to tea, “with food and beverage provided by Stifel Nicolaus,” making the gathering seem more like a PTA fund-raiser than a high-powered investment pitch. He merely wanted to introduce the local officials to these new “AA-AAA” investments, as the invitation pointed out.
…But the seduced are rarely passive. In this affair, several key board members helped the process along. On the Kenosha videotapes, for example, one board member, Mark Hujik, a hulking, ex–Wall Street player who now owns a Wisconsin financial advisory service, repeatedly sealed the deals. The self-confident Hujik never asked a question he didn’t already know the answer to. He made sure everyone knew that he knew the ins and outs of finance. At a key meeting before Kenosha signed on to its first deal, he stressed that the tens of millions in loans the board would be taking out were “moral” but not “contractual” obligations on behalf of the town. He implied that if things went wrong, the town really wasn’t on the hook for $28.5 million in loans. (Unfortunately, he didn’t mention that the town could still be successfully sued and see its debt ratings plummet if it defaulted on its “moral” financial obligations. And when a town’s debt rating falls, it faces higher interest rates for all its other borrowing needs, assuming anyone will ever lend to it again.)
…Whitefish Bay and the other school districts got something substantial too: nearly all of the risk. The school districts are about to lose all of their initial $37.3 million. They will also lose another $165 million of the money they’d borrowed from Depfa. As soon as the default rate is reached, $200 million will go to pay insurance claims to the Royal Bank of Canada. And the schools still will owe the full $165-million Depfa loan, and they will still owe on the bonds they had issued to raise much of their $37.3 million in collateral. The risk of reaching total default currently is so high that Kenosha’s entire piece of the CDO investment ($35.6 million) was valued at only $925,000, as of January 29, 2009—a decline in value of $36,575,000. Now the school districts are paying hefty fees not just to bankers but also to lawyers, as they sue to unwind the deal and recover damages.
“This is something I’ll regret until the day I die,” said Shawn Yde of the Whitefish Bay schools.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America (Chelsea Green Publishing, 2009).
(3 June 2009)
