Defaulting banks - where will it stop?

[Jan Klimkowski]

Rupert Murdoch and his Faux News network have a solution for the global financial crisis caused by banker and elite greed.

WASHINGTON -- As the recession continues to weigh heavily on the livelihoods of millions, the Fox News Channel on Monday suggested lowering the minimum wage, suggesting it could be "better for workers."

"The minimum wage is kind of like a sacred cow in Washington, with many, many lawmakers thinking it's a win-win for low-skilled workers," said Fox anchor Juliet Huddy. "But what if those good intentions backfired?"

"One school of thought says lowering the minimum wage will actually create more jobs," she continued, without mentioning any counterargument.

Laws enacted by Congress following the Democratic takeover in 2007 have increased the federal minimum wage to $7.25 an hour as of this July. Prior to that, the minimum wage hadn't been raised since 1997.

Inviting Fox News correspondent James Rosen to discuss the issue, Huddy first asked him: "Why don't we often hear about lowering the minimum wage?"
Rosen said the recent minimum wage hike has set off "a furious debate" over its efficacy, and cited a 2008 paper called "Minimum Wages" by David Neumark and William Wascher that argued against the minimum wage. He called it a "landmark study."

To bolster his case, Rosen quoted Washington Post editorial writer Charles Lane as recently saying that cutting the minimum wage "would create some jobs for those who need them most."

Rosen said it's unlikely to happen because of Democratic lawmakers who oppose it for reasons of "social justice." Republicans who favor it, he said, do so because of "macroeconomics."

Fox then played a clip of Rep. Emanuel Cleaver (D-MO) dubbing the minimum wage "a minimum level of justice," along with one of Rep. Dave Camp (R-MI) saying it will "artificially raise the cost of hiring people."

At no point in the segment did either Huddy or Rosen mention an academic case in favor of the minimum wage -- they merely reduced that side of the argument to the nebulous concept of "social justice."

There are, however, accredited economic cases in favor of a strong minimum wage.

One famous study by David Card and Alan B. Krueger called "Minimum Wages and Employment" illustrated various ways by which increasing the minimum wage could decrease unemployment. Its research methods and conclusions have been endorsed by Nobel Laureates Paul Krugman and Joseph Stiglitz.

Another is a 2004 research paper by the Economic Policy Institute called "No Longer Getting By," which finds, among other things, that a robust minimum wage helps mitigate poverty and strengthens consumer purchasing power through periods of inflation.

Although the economy has picked up, job growth remains meek and unemployment is at 10 percent. Americans are anxious for solutions that would create jobs and mitigate their financial woes. According to Fox News, cutting the minimum wage is one answer to their problems.

http://rawstory.com/2009/12/fox-news-cut...r-workers/

[Magda Hassan]

Why don't they just come out and say it - it would be even better if every one worked for free! Even 'better' for workers. And really fucking fantastic for the owners. :flybye:

[Magda Hassan]

Goldman Threatens to “Move” 20% of UK Staff to Spain to Escape Bonus Supertax

So we now have an official demonstration of what we all knew to be true: banksters giving their right to loot their companies top priority, and the greater fool public be damned, with Goldman the most egregious sinner. That firm’s self serving protestations to the contrary, it was a ward of the state, and would not exist now were it not for the munificence of taxpayers. It continues to profit from a raft of subsidies, ranging from FDIC guaranteed debt, a whole alphabet soup of special Fed facilities, and super low interest rates. As Linda Beale points out:

A recent study suggests that big banks in the TBTF category now enjoy a significant cost-of-funds spread compared to other banks. That is, they can borrow money more cheaply, leading to greater ability to make profits, than can other banks, because of the implicit guarantee that the federal government will step in and save them because they are TBTF and pose a systemic risk. That advantage may amount to as much as 48% of the TBTF banks’ profits this year (or as ‘little’ as 9%, on very conservative assumptions). The government, by the way, gets nothing for this implicit guarantee–unlike a commercial guarantor, it is not being paid a regular premium for the service.

So a significant portion of Goldman and other big bank profits are effectively windfall profits due to government largesse. And they are paying themselves bonuses on it. That was NOT what all these subsidies were supposed to be about. They are a way to recapitalize the banks in a way that is covert not politically contentious. But the finance cohort is abusing that privilege and reverting to its pre-crisis practice of effectively stripping their firms of needed equity to pay themselves, a practice economists George Akerlof and Paul Romer depicted as looting in a classic 1994 paper. Hence the logic behind the 50% bonus supertax: it is explicitly to encourage the big banks to retain more equity and pay less out.
Goldman, per the Independent (hat tip readers Edward and Scott), is out, as usual, to have its cake and eat it too, to enjoy the benefits of all the rescue subsidies but not bear the related tool:

Goldman Sachs has threatened the UK Treasury with plans to move up to 20 per cent of its London-based staff to Spain in a standoff over tax and bonuses.
It’s believed that the Wall Street investment bank, which paid more than £2bn to the Exchequer’s ailing coffers in corporation tax alone last year, has fired a warning shot across the Government’s bows in response to the tax measures unveiled in the pre-Budget report earlier this month.
Goldman Sachs International was the biggest contributor from the financial services sector to Britain’s purse last year. Previous reports suggest that in some years the firm’s staff have contributed more than £1bn in personal income tax to public coffers.
A City source said: “Goldman could move a relatively large number of people if it wants to. Given how much Goldman and its staff contribute to the tax take, the firm has plenty of leverage. This is a bargaining position more than anything.”
The bank, which employs around 5,000 staff in London, is believed to have strong links to the Spanish government, although it has a relatively modest number of employees in the country. Although staff moving to Spain would not receive any special tax incentives, the bank could avoid paying the bonus tax, details of which, so far, remain sketchy. A Goldman Sachs spokesman said it is looking at all options as it negotiates with the tax authorities over the bonus tax.

Yves here. Negotiates? Why should Goldman enjoy any such rights in this matter? It operates in business that require licenses and benefits greatly from the massive and costly safety net that has been deployed under the financial system.
The Bank of England has indicated that it would regard the departure of banksters as a cost it is willing to bear in the interest of having a financial system that operated more prudently than the one we have now. But having Goldman shift staff to Spain and yet be part of the financial grid and therefore still able to suck off the Fed and the Bank of England when it gets itself in trouble is abuse, pure and simple.
The Treasury may blink at the prospective loss of revenues, but if the government in the UK is reasonably unified on this matter and had any guts, it could bring Goldman to heel.
I was in Japan in 1985 when the head of Merrill in Japan, which had one of the longest-standing foreign securities operations in the island nation, told me of a recent conversation with a senior official at the Ministry of Finance. Japan had pretty much no written securities laws (Japan is not a contractual society); everything was subject to bureaucratic “guidance”. Merrill wanted to do something that it regarded as permissible under the rather scanty regulations in existence; the MOF official made it clear he took a dim view of it.
The Merrill chief said, “What can you do if we go ahead anyway?” The MOF official said, “How would you like to be audited every day?”
A MOF audit was a particularly exquisite form of torture. At the start of the business day, a team would arrive, all wearing white gloves. The leader would blow a whistle, and announce, “Let the audit commence!” The auditors would run and slap seals on all the file cabinets (so they could not be opened) and impound the computers.
Now you can’t do that to a TBTF institution these days, but there are plenty of other ways the UK could punish Goldman. This is a starter list, and readers are encouraged to come up with their own ideas:

1. A departure tax on all UK staff relocated to a time zone within two hours of GMT. It should be VERY painful, the only question being whether to levy it on Goldman or the employees.
2. Harassment. This is crude but would be very effective. Given what a total surveillance society the UK has become, the officialdom probably has a pretty good handle on who in the UK works for Goldman, and if it put some effort behind it, could identify the non-UK based Goldman employees who visit England regularly, and in particular, the staffers who would be relocated to Spain. I am sure it could be made very difficult and time consuming for them to enter the UK (being whisked to a holding tank for 4-8 hours on a regular basis would put quite a dent in a busy investment banker’s schedule).

England, unlike the US, was an unashamed imperialist in its heyday (see Niall Ferguson for details) and therefore its officialdom has fewer compunctions about using throwing its weight around in an open fashion.
Upon reflection, this move by Goldman could represent a fantastic opportunity, if the powers that be in England have the will and presence of mind to take advantage of it. Goldman could be made an example of what happens when you bite the hand that feeds you.
http://www.nakedcapitalism.com/2009/12/g...ertax.html

[Peter Lemkin]

Why 20%? Why doesn't Goldman Sucs [sic] move everyone out of the UK - and the USA and start up on a tax free, bank-haven island without extradition treaties with either. All the banksters are sick and criminals beyond those that society hates most, but GS really takes the cake......and that cake should have as its main ingredients greed, inside-connections and excrement. :flute: Enron was child's play next to GS. :elefant:

[Jan Klimkowski]

Typically multi-layered piece from the Daily Telegraph's very spooky International Business Editor, dear ole Ambrose Evans-Pritchard (much discussed in this thread).

AE-P pretty much admits that Kleinian Shock Therapy is being applied to southern Europe (colloquially "Club Med"), and that the poor and the young are being targeted for exploitation.

AE-P then raises the spectre of hard left and anarchist terrorism - Red Brigade-style bombing campaigns etc.

All of course without mentioning Gladio's false flag strategy of tension, which was the real hallmark of terrorist bombing in southern and central Europe in the 70s and early 80s.

See eg here:

http://www.deeppoliticsforum.com/forums/...ght=gladio

http://www.deeppoliticsforum.com/forums/...ght=gladio

http://www.deeppoliticsforum.com/forums/...ght=gladio

AE-P then pens the following oh-so-resonant passage:

The EMU system has condemned Club Med to structural depression, with no way out. The logical – yet politically absurd – response of German Chancellor Angela Merkel is to talk of overriding national democracies in order to save the euro. "The question arises over what authority Europe has to tell national parliaments what to do, in order to avoid damage to Europe itself? National parliaments don't like to be dictated to about such things, but we need to address the problem," she said.

I do not wish to paint this is as German bullying, let alone a conspiracy by Berlin. Germany is being swept along by events like every other country that entered EMU blindly. Yet here is a German Chancellor talking about "dictating" to the Hellenic Parliament, within living memory of the Axis occupation, the Swastika flag on the Acropolis, and the hated Security Battalions. Neither Greece's Communist unions, nor Greek army officers, will react well to such diktats. That goes double for Epanastatikos Agonas and fellow terrorists.

:driver::ridinghorse::damnmate:

I do not wish - opines AE-P but, hell, why not go ahead and say it anyway....

Here's the article in full.

Euro 'Diktats’ risk terrorist response across Southern Europe
It is becoming dangerous to associate with economic and ideological power in Southern Europe, or what Europol calls the "Mediterranean triangle" of anarchist violence.

By Ambrose Evans-Pritchard, International Business Editor
Published: 6:50PM GMT 20 Dec 2009

Greece's Revolutionary Struggle detonated a car bomb at the Athens Stock Exchange in September. Citigroup's branches have been targeted twice this year.

Hooded extremists attacked the rector of Athens University in his office this month, sending him to hospital with head injuries.

In Milan, the Informal Anarchist Federation (FAI) planted 2kg of dynamite last week at Bocconi University, the symbol of the free market in Italy.

The FAI left a note threatening a "bloodbath" for capitalists. Security forces have issued alerts for the Milan bourse, Unicredit, and Barclays. Italians have begun to ask whether their country is returning to the 1970s, the "years of lead" when the Red Brigades murdered ex-premier Aldo Moro.

The FAI is no friend of Europe either. It sent letter bombs earlier this decade to the heads of the Commission and the European Central Bank and to the European Parliament.

In Spain, Barcelona's anarchists have been conducting a low-level campaign against bank cash machines, supermarkets, and firms such as Manpower. Valencia and Galicia have seen a wave of attacks.

"Activities by left-wing and anarchist terrorists and extremists are increasing in quantity and geographical spread in the EU," said Europol.

Portugal has its own twist. The Trotskyist-Maoist Bloco emerged as third party with 11pc of the vote in the June elections. Premier Jose Socrates is attempting to impose austerity by minority government. Good luck.

The hard-Left resurgence cannot be blamed on monetary union as such, yet the two are linked. EMU has always been viewed as a capitalist conspiracy – a "bankers' ramp" – in Left-wing circles. While their view may seem odd to us, they are entirely right to think that poor people in certain countries are victims of the experiment.

Unemployment is 19pc in Spain (43pc for youth) on Eurostat data. Greece is catching up fast. Labour minister Andreas Loverdos said Greek joblessness has jumped above 18pc over the last two months as EU-funded workfare schemes expire.

This will get worse. Southern Europe is being ordered to carry out IMF-style austerity, without the IMF-style devaluation required to rectify the massive imbalances that have built up between North and South under the euro. The victims are caught like France and Germany under the Gold Standard of the early 1930s, when society was broken on a wheel of deflation decrees.

The EMU system has condemned Club Med to structural depression, with no way out. The logical – yet politically absurd – response of German Chancellor Angela Merkel is to talk of overriding national democracies in order to save the euro. "The question arises over what authority Europe has to tell national parliaments what to do, in order to avoid damage to Europe itself? National parliaments don't like to be dictated to about such things, but we need to address the problem," she said.

I do not wish to paint this is as German bullying, let alone a conspiracy by Berlin. Germany is being swept along by events like every other country that entered EMU blindly. Yet here is a German Chancellor talking about "dictating" to the Hellenic Parliament, within living memory of the Axis occupation, the Swastika flag on the Acropolis, and the hated Security Battalions. Neither Greece's Communist unions, nor Greek army officers, will react well to such diktats. That goes double for Epanastatikos Agonas and fellow terrorists.

Matters will be tested over the next two to three years. Standard & Poor's said Greece's public debt will reach 138pc of GDP by 2012 (from 99pc last year) as it downgraded Greek bonds to BBB+.

The IMF expects Spain to contract by a further 0.7pc next year, even assuming a global recovery. Moody's delivered its axe-blow last week, downgrading a third of all Spanish mortgage bonds and a string of regions.

Italy will bounce along in perma-slump, as it has for a decade. The country has lost 30pc in labour competitiveness against Germany since the late 1990s.

Across Southern Europe there is a mood of national powerlessness, a feeling that events have moved beyond their control – as indeed they have.

Eurosceptics argued from the start that EMU would prove unworkable over time without a debt-union; that the inevitable euro crisis would be used (consciously or not) to create an EU central government; that weak states on the edges would be reduced to colonies and that far from binding Europe together, EMU would lead to acrimony and perhaps reopen Europe's can of historical worms. Were the critics wrong?

http://www.telegraph.co.uk/finance/comme...urope.html

[Peter Lemkin]

British Lord Sir Josiah (John) Stamp,
former director of the Bank of England and 2nd richest man in England in the 1920s said this speaking at the
University of Texas in 1927 and repeated it at an address at Central Hall, London 1937, said: “The modern banking
system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was
every invented. Banking was started in iniquity and born in sin. Bankers own the Earth; take it away from them but leave
them with the power to create credit, and, with a stroke of the pen, they will create enough money to buy it back again.
Take this power away from them and all great fortunes, like mine, would disappear, for then this World would be a
happier and better World to live in. But, if you want to be the slaves of Bankers and pay the cost of your own slavery,
then let the Bankers create money and control credit.”

[Myra Bronstein]

This is the biggest thread on DPF. It's over a year old. Clearly the titular question has been answered.

US members, please visit this thread to see what you can do to help yourself, and send a message to Wall Street and their subsidiary Washington, DC.

http://www.deeppoliticsforum.com/forums/...#post15156

International members, is this an international problem?

[Magda Hassan]

We have community banks here which are very good. Bendigo bank is probably the best known but there are others. We also have credit unions most of which are occupationally based - Teachers Credit Union, Police Credit Union etc. Others are geographical/locational. Annecdotally people certainly have a better experience with them than the big banks. We have 4 big banks (Commonwealth, Westpac, ANZ, National Australia) and there is legislation which prevents these banks from taking each other over as I am sure they would have by now if it was not in place. There is much more regulation of the banking industry here than in the US. Certainly, none of the banks have disappeared and the government guarantees deposits in these banks. We didn't even have a recession (technically) let alone a 'Depression'. But that is because we are tied in more to the Asian economy and mostly China as a supplier of minerals and energy and other raw materials. Life has gone on here fairly much unchanged but there certainly have been foreclosures and job losses and business closures. Just more so than in the last 30 years which, to my observation, hasn't been that great for anyone regardless of what the economic statistics have said. We've had our own housing bubble and jobs lost to overseas over the decades.

[Myra Bronstein]

We have community banks here which are very good. Bendigo bank is probably the best known but there are others. We also have credit unions most of which are occupationally based - Teachers Credit Union, Police Credit Union etc. Others are geographical/locational. Annecdotally people certainly have a better experience with them than the big banks. We have 4 big banks (Commonwealth, Westpac, ANZ, National Australia) and there is legislation which prevents these banks from taking each other over as I am sure they would have by now if it was not in place. There is much more regulation of the banking industry here than in the US. Certainly, none of the banks have disappeared and the government guarantees deposits in these banks. We didn't even have a recession (technically) let alone a 'Depression'. But that is because we are tied in more to the Asian economy and mostly China as a supplier of minerals and energy and other raw materials. Life has gone on here fairly much unchanged but there certainly have been foreclosures and job losses and business closures. Just more so than in the last 30 years which, to my observation, hasn't been that great for anyone regardless of what the economic statistics have said. We've had our own housing bubble and jobs lost to overseas over the decades.

Interesting. I was just reading this column by Joseph Stiglitz (one of the few honest high profile economists--the Obama administration has ignored him completely, but I digress) that mirrors what you said Maggie. (The section in red.)


http://www.chinadaily.com.cn/opinion/200...249981.htm

Harsh lessons we may need to learn again

By Joseph E. Stiglitz (China Daily)
Updated: 2009-12-31 07:51

The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world. The world has also learned some valuable lessons, though at great cost both to current and future prosperity - costs that were unnecessarily high given that we should already have learned them.
The first lesson is that markets are not self-correcting. Indeed, without adequate regulation, they are prone to excess. In 2009, we again saw why Adam Smith's invisible hand often appeared invisible: it is not there. The bankers' pursuit of self-interest (greed) did not lead to the well-being of society; it did not even serve their shareholders and bondholders well. It certainly did not serve homeowners who are losing their homes, workers who have lost their jobs, retirees who have seen their retirement funds vanish, or taxpayers who paid hundreds of billions of dollars to bail out the banks.

Under the threat of a collapse of the entire system, the safety net - intended to help unfortunate individuals meet the exigencies of life - was generously extended to commercial banks, then to investment banks, insurance firms, auto companies, even car-loan companies. Never has so much money been transferred from so many to so few. We are accustomed to thinking of government transferring money from the well off to the poor. Here it was the poor and average transferring money to the rich. Already heavily burdened taxpayers saw their money - intended to help banks lend so that the economy could be revived - go to pay outsized bonuses and dividends. Dividends are supposed to be a share of profits; here it was simply a share of government largesse.

The justification was that bailing out the banks, however messily, would enable a resumption of lending. That has not happened. All that happened was that average taxpayers gave money to the very institutions that had been gouging them for years - through predatory lending, usurious credit-card interest rates, and non-transparent fees.

The bailout exposed deep hypocrisy all around. Those who had preached fiscal restraint when it came to small welfare programs for the poor now clamored for the world's largest welfare program. Those who had argued for free market's virtue of "transparency" ended up creating financial systems so opaque that banks could not make sense of their own balance sheets. And then the government, too, was induced to engage in decreasingly transparent forms of bailout to cover up its largesse to the banks. Those who had argued for "accountability" and "responsibility" now sought debt forgiveness for the financial sector.

The second important lesson involves understanding why markets often do not work the way they are meant to. There are many reasons for market failures. In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay. Moreover, when information is imperfect, markets often do not work well - and information imperfections are central in finance. Externalities are pervasive: the failure of one bank imposed costs on others, and failures in the financial system imposed costs on taxpayers and workers all over the world.

The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit - raise taxes or cut expenditures - to "restore confidence." But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence - most recently when the International Monetary Fund insisted on them in East Asia in the 1990's.

The fourth lesson is that there is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to the costs imposed on economies when central banks allow asset bubbles to grow unchecked.

The fifth lesson is that not all innovation leads to a more efficient and productive economy - let alone a better society. Private incentives matter, and if they are not well aligned with social returns, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation. For example, while the benefits of many of the financial-engineering innovations of recent years are hard to prove, let alone quantify, the costs associated with them - both economic and social - are apparent and enormous.

Indeed, financial engineering did not create products that would help ordinary citizens manage the simple risk of home ownership - with the consequence that millions have lost their homes, and millions more are likely to do so. Instead, innovation was directed at perfecting the exploitation of those who are less educated, and at circumventing the regulations and accounting standards that were designed to make markets more efficient and stable. As a result, financial markets, which are supposed to manage risk and allocate capital efficiently, created risk and misallocated wildly.

We will soon find out whether we have learned the lessons of this crisis any better than we should have learned the same lessons from previous crises.

Regrettably, unless the United States and other advanced industrial countries make much greater progress on financial-sector reforms in 2010 we may find ourselves faced with another opportunity to learn them.

The author is an Economics Nobel laureate and university professor at Columbia University. He has many books, including Globalization and Its Discontents and The Roaring Nineties, to his credit. His latest book, Freefall, will be published in January.

[Magda Hassan]

Interesting. I was just reading this column by Joseph Stiglitz (one of the few honest high profile economists--the Obama administration has ignored him completely, but I digress) that mirrors what you said Maggie. (The section in red.)


http://www.chinadaily.com.cn/opinion/200...249981.htm

Harsh lessons we may need to learn again

By Joseph E. Stiglitz (China Daily)
Updated: 2009-12-31 07:51



The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Yes, pensioners and other welfare recipients and their dependents were given about $1,000 each just before Christmas 2008 with which they duly spent at the shops. I think there was another one about 6 months later. There were also bonuses and rebates and grants to buy new houses, cars, insulation, install water tanks, solar panels etc. Most of these are finished now and what ever effect it has has gone through the system. It will be interesting to see how the next year pans out now it is back to just business as usual.