Sir Real - Y No Cheezburger?

Hi, Leah.

by Robert Kuttner

Here are 10:

1. Use Direct Government Loans to Refinance Mortgages.

At most, the complex and largely voluntary (to the banks) system proposed by the administration will refinance about one distressed mortgage in three. That's not enough to stem the foreclosure epidemic or to brake the collapse in housing values. The administration did shift to a direct-loan program for student loans. Why not for housing? Because the mortgage industry would be extremely upset. Prospects: not very good, unless things get a lot worse.

2. Put Insolvent Banks into Government Receivership.

It's a much more direct and efficient way of recapitalizing the banking system than the patchwork that Treasury Secretary Timothy Geithner has just launched. Even if Geithner's plan "works," it will enrich a lot of middlemen at taxpayer expense, and it will provide a far slower path to a recovery of the banking system. Prospects: Obama is committed to the Geithner approach, unless it fails big time. So far, Wall Street loves it, and with good reason. It's another handout to the financial elite.

3. Nationalize the Federal Reserve.

Wait a minute, isn't the Federal Reserve already a public agency? Alas, no. It is a "hybrid," meaning that the regional reserve banks are controlled by a board of directors dominated by bankers. Back in the 1930s, FDR made a run at turning the Fed into a true government institution but was mostly blocked by the power of Wall Street. Today we see the costs of a non-public Fed. The Fed's huge contribution to the rescue of banks operates in secret, with little public accountability. There are proposals to give the Fed new powers, to serve as a "systemic risk regulator." Any such regulator should be a true public institution. Prospects: not any time soon. The Fed belongs to the banks, and the banks want to keep it that way.

4. Pass a Tobin Tax.

The late Nobel Laureate economist James Tobin had the idea of enacting a tiny tax on currency trades. A tax as small as one-tenth of 1 percent could raise large sums of money, because these financial trades have grown to immense scale, over $3 trillion a day by 2007. A modern variant on the Tobin tax would levy a tiny tax on all financial transactions. For ordinary purchases of stocks and bonds, the cost would be trivial. But for the complex, highly leveraged derivative transactions that sunk the economy, the cost would add up and could damp down speculative excess. The revenue proceeds, running into the hundreds of billions a year, could also reduce the budget deficit. Prospects: getting better as government seeks new revenue sources that don't raise taxes on most citizens. But will be resisted mightily by the money markets.

5. Put Tax and Regulatory Havens out of Business.

The most abusive hedge funds and private equity companies operate in offshore havens that have virtually no regulation and that refuse too cooperate with the tax authorities of advanced countries. After September 11, President George W. Bush issued orders to track money laundering but explicitly prohibited using the intelligence gathered for tax-enforcement purposes. Tax experts estimate that hundreds of billions of dollars are illegally evaded every year through these havens. If the major nations of Europe and North America acted in concert and required all entities doing business with European or North American banks or clients to follow common reporting rules, we could shut these abuses down overnight.
Prospects: dim unless Obama decides he wants to really take on Wall Street. Could get better as the government desperately needs more revenue.

6. Enact a Carbon Tax.

"Clean coal" isn't going to do it. And while windmills, solar panels, and energy retrofits are all part of the solution to climate change, nothing changes behavior like a shift in relative prices. Prospects: slim to none, unless President Obama brings us a major economic turnaround first, in which case he has a lot of political capital to spend. In this case, the opposition isn't just the entrenched energy industry. It's also consumers.

7. Pass Comprehensive Pre-Kindergarten and High-Quality Child Care.

There are lots of useful dollops of funding for existing programs in the stimulus package. But nobody is thinking seriously about a seamless public system. A century ago it took a social movement of professionals and parents -- the movement for universal kindergarten as part of public schooling -- to start kids in school at age 5. Today, all the evidence suggests the need to start earlier. The opposition includes both fiscal conservatives and religious ones. But free public education was a pretty radical idea in its time. Prospects: once again it depends on the president's capacity to think outside the box.

8. Guarantee Workers the Right to Join a Union.

The modern labor movement really took hold in the late 1930s, a time when unemployment was still close to 20 percent. Yet unions grew because of militancy on the ground backed by allies in Washington. When full employment returned with World War II, unions were in a position to demand that wartime contractor profits be shared with workers. As Obama himself has declared, it's hard to imagine a broad middle-class society without unions. Prospects: the Employee Free Choice Act could actually become law this year if the president decides to make it a political priority.

9. Provide Health Insurance For All.

Obama's plan hopes to take a big step toward universal health insurance without putting private insurers out of business -- by allowing private plans and a new public one to compete head to head. His way is more expensive than a single-payer system. If enacted, sponsors hope that it would logically lead to a comprehensive system, as the superiority and greater efficiency of the public plan became evident. But to get that tricky maneuver right will require as heavy a political lift as cutting directly to single payer, which would be my preference. Still, if Obama can pull this off, I will take my hat off to him. Prospects: an uphill battle. Bringing the insurance companies into the reform coalition is a delusion. They will destroy all the details needed to make the strategy succeed. Better to flag them as the opposition.

10. Use Very Large-Scale Public Works.

The Obama stimulus package is spending $787 billion over two years, about 2.5 percent of gross domestic product. The economy is now shrinking at the rate of at least 6 percent per year. In the Great Depression, despite FDR's large public-works programs, the unemployment rate never dropped below 14 percent until we mobilized for war. During World War II, government spending finally expanded to a scale adequate to end the Depression, and unemployment melted away. It should not take a war to realize that we have vast unmet public needs that can rendezvous with adequate public outlay. Prospects: Things have to get worse first.

All of these ideas have four things in common.

They are essential if we are to restore broadly shared prosperity.

They are at the far fringes of political debate.

They require dislodging the political influence of powerful lobbies.

They would be supported by a majority of Americans if a president decided to lead.

You will hear over and over from the political right that Obama is spreading himself too thin. They said that about Roosevelt. But a national economic crisis is a political moment for broad reform on multiple fronts.

Social Security was an impossibly radical idea until it was enacted. So was Medicare. And so were the great civil-rights acts of the 1960s. Then they suddenly became utterly mainstream, so well entrenched in the hearts of Americans that they proved impossible to dislodge.

But, before they could be enacted, a titanic struggle was required, and a president had to decide to put his prestige on the line. That's the essence of progressive leadership.

http://www.prospect.org/cs/articles?article=ten_radical_remedies_america...

Greetings, Sederville.

http://www.commondreams.org/view/2009/06/09-8

Bailing out the big US banks has done nothing to improve them.

by Joseph E. Stiglitz

With all the talk of "green shoots" of economic recovery, America's banks are resisting efforts to regulate them. While politicians talk about their commitment to regulatory reform to prevent a recurrence of the crisis, this is one area where the devil really is in the details - and the banks will muster what muscle they have left to ensure that they have ample room to continue as they have in the past.

The old system worked well for the banks so why should they embrace change? Indeed, the efforts to rescue them devoted such little thought to the kind of post-crisis financial system we want, that we will end up with a banking system that is less competitive, with the large banks that were "too big to fail" even larger.

It has long been recognised that the US banks that are too big to fail are also too big to be managed. That is one reason the performance of several has been so dismal. When they fail, the Government engineers a financial restructuring and provides deposit insurance, gaining a stake in their future. Officials know that if they wait too long, zombie or near-zombie banks - which have little or no net worth, but are treated as if they were viable institutions - are likely to "gamble on resurrection". If they take big bets and win, they walk away with the proceeds, if they fail, the Government picks up the tab.

This is not just theory; it is a lesson learned, at great expense, during the savings and loan crisis of the 1980s. In a financial restructuring, shareholders typically get wiped out, and bondholders become the new shareholders. Sometimes, the government must provide additional funds, or a new investor must be willing to take over the failed bank.

The Obama Administration has, however, introduced a new concept: "too big to be financially restructured". The Administration argues that all hell would break loose if we tried to play by the usual rules. Markets would panic. So, not only can't we touch the bondholders, we can't even touch the shareholders - even if most of the shares' existing value merely reflects a bet on a government bail-out.

This judgement is wrong. The Obama Administration has succumbed to political pressure and scare-mongering by the big banks and, as a result, has confused bailing out the bankers and their shareholders with bailing out the banks.

The Obama strategy's current and future costs are very high - and so far, it has not achieved its limited objective of restarting lending. The taxpayer has had to pony up billions, and has provided billions more in guarantees - bills that are likely to come due in the future.

Rewriting the rules of the market economy - in a way that has benefited those that have caused so much pain to the entire global economy - is worse than financially costly. Most Americans view it as grossly unjust, especially after they saw the banks divert the billions intended to enable them to revive lending, to payments of outsized bonuses and dividends.

This ersatz capitalism, where losses are socialised and profits privatised, is doomed to failure. Incentives are distorted. There is no market discipline. The too-big-to-be-restructured banks know that they can gamble with impunity - and, with the Federal Reserve making funds available at near-zero interest rates, there is ample money to do so.

Some have called this "socialism with American characteristics". But socialism is concerned about ordinary individuals. By contrast, the US has provided little help for the millions of its people who are losing their homes. Workers who lose their jobs receive only 39 weeks of limited unemployment benefits, and are then left on their own. And, when they lose their jobs, most also lose their health insurance.

America has expanded its corporate safety net in unprecedented ways, from commercial banks to investment banks, then to insurance, and now to cars, with no end in sight. In truth, this is not socialism, but an extension of long-standing corporate welfarism. The rich and powerful turn to the Government to help them whenever they can, while needy individuals get little social protection.

We need to break up the too-big-to-fail banks; there is no evidence that these behemoths deliver societal benefits that are commensurate with the costs they have imposed.

This raises another problem with America's too-big-to-fail, too-big-to-be-restructured banks: they are too politically powerful. Their lobbying efforts worked well, first to deregulate, and then to have taxpayers pay for the clean-up. Their hope is that it will work again to keep them free to do as they please, regardless of the risks for taxpayers and the economy. We cannot afford to let that happen.

© 2009 The Age

Joseph E. Stiglitz is University Professor at Columbia University. Among many books, he is the author of Globalization and Its Discontents. He received the Nobel Prize in Economics in 2001 for research on the economics of information. Most recently, he is the co-author, with Linda Bilmes, of The Three Trillion Dollar War: The True Costs of the Iraq Conflict.

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