Sunday, January 15, 2012

America Has Woken Up to the Reality: Inequality Matters

America Has Woken Up to the Reality: Inequality Matters

Go To Original

If you’re part of the one percent, even getting fired comes with a cushion made of eiderdown. GMI, a research company that gets paid to keep an eye on such things, just issued a study headlined, “Twenty-One U.S. CEOs with Golden Parachutes of More than $100 Million.” That’s each.

The report’s authors, Paul Hodgson and Greg Ruel, write, “These 21 CEOs walked away with almost $4 billion in combined compensation. In total, $1.7 billion in equity profits was realized by these CEOs, primarily on the exercise of time-vesting stock options and restricted stock.”

This news came the same day as another report, this one from Indiana University, titled, “At Risk: America’s Poor during and after the Great Recession.” Its researchers conclude, “The number of people living in poverty is increasing and is expected to increase further, despite the recovery. The proportion of people living in poverty has increased by 27% between the year before the onset of the Great Recession (2006) and 2010… Poverty is expected to increase again in 2011 due to the slow pace of the economic recovery, the persistently high rate of unemployment, and the long duration of spells of unemployment.”

In fact, the white paper finds that we now have the largest number of long-term unemployed people in the United States since records were first kept in 1948 – four million report they’ve been unemployed for more than a year. Not necessarily counting the former CEO’s gently floating to earth from those golden parachutes.

So no, Mitt Romney, when we say that Americans are waking up to the reality that inequality matters, we’re not guilty of “envy” or “class warfare,” as you claimed to Matt Lauer on NBC’s Today. Nor are we talking about everybody earning the same amount of money – that’s the straw man apologists for inequality raise whenever anyone tries to get serious.

We’re talking what it takes to live a decent life. If you get sick without health coverage, inequality matters. If you’re the only breadwinner and out of work, inequality matters. If your local public library closes down and you can’t afford books on your own, inequality matters. If budget cuts mean your child has to pay to play on the school basketball team, sing in the chorus or march in the band, inequality matters. If you lose your job as you’re about to retire, inequality matters. If the financial system collapses and knocks the props from beneath your pension, inequality matters.

Neither one of us grew up wealthy, but we went to good public schools, played sandlot ball at a good public park, lived near a good public library, and drove down good public highways – all made possible by people we never met and would never know. There was an unwritten bargain among generations: we didn’t all get the same deal, but we did get civilization.

Now the bargain’s being shredded. The people we met from Occupy Wall Street get it—you could tell from their slogans. One of the younger protesters wore a t-shirt emblazoned with the words: “The system’s not broken. It’s fixed.” That’s right – rigged. And that’s why so many are so angry. Not at wealth itself. But at the powerful players who win by fixing the game instead of by honest competition; at the crony capitalists who resort to tricks, loopholes, and cold cash to make sure insiders prosper – and then pull up the ladder behind them.

Americans are waking up to how they’re being made to pay with for Wall Street’s malfeasance and Washington’s complicity – paying with stagnant wages and lost jobs, with slashing cuts to their benefits and social services. To how our financial system profits by moving money around in exotic ways instead of supporting real economic growth. Waking up to the ludicrous Supreme Court decision defining corporation as a person, although it doesn’t eat, breath, make love or sing – or take care of children and aging parents. Waking up to how unlimited and often anonymous campaign contributions corrupt our elections; to the fact that if money is speech, no money means no speech. As one demonstrator’s sign read: “I couldn’t afford a politician, so I bought this sign.”

So while police have cleared many Occupy encampments, a collective cry, loud and clear, has gone up from countless voices across the country: Enough’s enough.

We won’t know for a while if what we’re hearing is a momentary cry of pain, or whether it’s a movement – like the abolitionists and suffragettes, the populists and workers of another era, or the civil rights movement – that gathers forces until the powers-that-be can no longer sustain the inequality, injustice, and yes, immorality of winner-take-all politics and a winner-take-all economy.

10 Reasons The U.S. Is No Longer The Land Of The Free

10 Reasons The U.S. Is No Longer The Land Of The Free


Below is today’s column in the Sunday Washington Post. The column addresses how the continued rollbacks on civil liberties in the United States conflicts with the view of the country as the land of the free. If we are going to adopt Chinese legal principles, we should at least have the integrity to adopt one Chinese proverb: “The beginning of wisdom is to call things by their right names.” We seem as a country to be in denial as to the implications of these laws and policies. Whether we are viewed as a free country with authoritarian inclinations or an authoritarian nation with free aspirations (or some other hybrid definition), we are clearly not what we once were.

Every year, the State Department issues reports on individual rights in other countries, monitoring the passage of restrictive laws and regulations around the world. Iran, for example, has been criticized for denying fair public trials and limiting privacy, while Russia has been taken to task for undermining due process. Other countries have been condemned for the use of secret evidence and torture.

Even as we pass judgment on countries we consider unfree, Americans remain confident that any definition of a free nation must include their own — the land of free. Yet, the laws and practices of the land should shake that confidence. In the decade since Sept. 11, 2001, this country has comprehensively reduced civil liberties in the name of an expanded security state. The most recent example of this was the National Defense Authorization Act, signed Dec. 31, which allows for the indefinite detention of citizens. At what point does the reduction of individual rights in our country change how we define ourselves?

While each new national security power Washington has embraced was controversial when enacted, they are often discussed in isolation. But they don’t operate in isolation. They form a mosaic of powers under which our country could be considered, at least in part, authoritarian. Americans often proclaim our nation as a symbol of freedom to the world while dismissing nations such as Cuba and China as categorically unfree. Yet, objectively, we may be only half right. Those countries do lack basic individual rights such as due process, placing them outside any reasonable definition of “free,” but the United States now has much more in common with such regimes than anyone may like to admit.

These countries also have constitutions that purport to guarantee freedoms and rights. But their governments have broad discretion in denying those rights and few real avenues for challenges by citizens — precisely the problem with the new laws in this country.

The list of powers acquired by the U.S. government since 9/11 puts us in rather troubling company.

Assassination of U.S. citizens

President Obama has claimed, as President George W. Bush did before him, the right to order the killing of any citizen considered a terrorist or an abettor of terrorism. Last year, he approved the killing of U.S. citizen Anwar al-Awlaqi and another citizen under this claimed inherent authority. Last month, administration officials affirmed that power, stating that the president can order the assassination of any citizen whom he considers allied with terrorists. (Nations such as Nigeria, Iran and Syria have been routinely criticized for extrajudicial killings of enemies of the state.)

Indefinite detention

Under the law signed last month, terrorism suspects are to be held by the military; the president also has the authority to indefinitely detain citizens accused of terrorism. While Sen. Carl Levin insisted the bill followed existing law “whatever the law is,” the Senate specifically rejected an amendment that would exempt citizens and the Administration has opposed efforts to challenge such authority in federal court. The Administration continues to claim the right to strip citizens of legal protections based on its sole discretion. (China recently codified a more limited detention law for its citizens, while countries such as Cambodia have been singled out by the United States for “prolonged detention.”)

Arbitrary justice

The president now decides whether a person will receive a trial in the federal courts or in a military tribunal, a system that has been ridiculed around the world for lacking basic due process protections. Bush claimed this authority in 2001, and Obama has continued the practice. (Egypt and China have been denounced for maintaining separate military justice systems for selected defendants, including civilians.)

Warrantless searches

The president may now order warrantless surveillance, including a new capability to force companies and organizations to turn over information on citizens’ finances, communications and associations. Bush acquired this sweeping power under the Patriot Act in 2001, and in 2011, Obama extended the power, including searches of everything from business documents to library records. The government can use “national security letters” to demand, without probable cause, that organizations turn over information on citizens — and order them not to reveal the disclosure to the affected party. (Saudi Arabia and Pakistan operate under laws that allow the government to engage in widespread discretionary surveillance.)

Secret evidence

The government now routinely uses secret evidence to detain individuals and employs secret evidence in federal and military courts. It also forces the dismissal of cases against the United States by simply filing declarations that the cases would make the government reveal classified information that would harm national security — a claim made in a variety of privacy lawsuits and largely accepted by federal judges without question. Even legal opinions, cited as the basis for the government’s actions under the Bush and Obama administrations, have been classified. This allows the government to claim secret legal arguments to support secret proceedings using secret evidence. In addition, some cases never make it to court at all. The federal courts routinely deny constitutional challenges to policies and programs under a narrow definition of standing to bring a case.

War crimes

The world clamored for prosecutions of those responsible for waterboarding terrorism suspects during the Bush administration, but the Obama administration said in 2009 that it would not allow CIA employees to be investigated or prosecuted for such actions. This gutted not just treaty obligations but the Nuremberg principles of international law. When courts in countries such as Spain moved to investigate Bush officials for war crimes, the Obama administration reportedly urged foreign officials not to allow such cases to proceed, despite the fact that the United States has long claimed the same authority with regard to alleged war criminals in other countries. (Various nations have resisted investigations of officials accused of war crimes and torture. Some, such as Serbia and Chile, eventually relented to comply with international law; countries that have denied independent investigations include Iran, Syria and China.)

Secret court

The government has increased its use of the secret Foreign Intelligence Surveillance Court, which has expanded its secret warrants to include individuals deemed to be aiding or abetting hostile foreign governments or organizations. In 2011, Obama renewed these powers, including allowing secret searches of individuals who are not part of an identifiable terrorist group. The administration has asserted the right to ignore congressional limits on such surveillance. (Pakistan places national security surveillance under the unchecked powers of the military or intelligence services.)

Immunity from judicial review

Like the Bush administration, the Obama administration has successfully pushed for immunity for companies that assist in warrantless surveillance of citizens, blocking the ability of citizens to challenge the violation of privacy. (Similarly, China has maintained sweeping immunity claims both inside and outside the country and routinely blocks lawsuits against private companies.)

Continual monitoring of citizens

The Obama administration has successfully defended its claim that it can use GPS devices to monitor every move of targeted citizens without securing any court order or review. It is not defending the power before the Supreme Court — a power described by Justice Anthony Kennedy as “Orwellian.” (Saudi Arabia has installed massive public surveillance systems, while Cuba is notorious for active monitoring of selected citizens.)

Extraordinary renditions

The government now has the ability to transfer both citizens and noncitizens to another country under a system known as extraordinary rendition, which has been denounced as using other countries, such as Syria, Saudi Arabia, Egypt and Pakistan, to torture suspects. The Obama administration says it is not continuing the abuses of this practice under Bush, but it insists on the unfettered right to order such transfers — including the possible transfer of U.S. citizens.

These new laws have come with an infusion of money into an expanded security system on the state and federal levels, including more public surveillance cameras, tens of thousands of security personnel and a massive expansion of a terrorist-chasing bureaucracy.

Some politicians shrug and say these increased powers are merely a response to the times we live in. Thus, Sen. Lindsey Graham (R-S.C.) could declare in an interview last spring without objection that “free speech is a great idea, but we’re in a war.” Of course, terrorism will never “surrender” and end this particular “war.”

Other politicians rationalize that, while such powers may exist, it really comes down to how they are used. This is a common response by liberals who cannot bring themselves to denounce Obama as they did Bush. Sen. Carl Levin (D-Mich.), for instance, has insisted that Congress is not making any decision on indefinite detention: “That is a decision which we leave where it belongs — in the executive branch.”

And in a signing statement with the defense authorization bill, Obama said he does not intend to use the latest power to indefinitely imprison citizens. Yet, he still accepted the power as a sort of regretful autocrat.

An authoritarian nation is defined not just by the use of authoritarian powers, but by the ability to use them. If a president can take away your freedom or your life on his own authority, all rights become little more than a discretionary grant subject to executive will.

The framers lived under autocratic rule and understood this danger better than we do. James Madison famously warned that we needed a system that did not depend on the good intentions or motivations of our rulers: “If men were angels, no government would be necessary.”

Benjamin Franklin was more direct. In 1787, a Mrs. Powel confronted Franklin after the signing of the Constitution and asked, “Well, Doctor, what have we got — a republic or a monarchy?” His response was a bit chilling: “A republic, Madam, if you can keep it.”

Since 9/11, we have created the very government the framers feared: a government with sweeping and largely unchecked powers resting on the hope that they will be used wisely.

The indefinite-detention provision in the defense authorization bill seemed to many civil libertarians like a betrayal by Obama. While the president had promised to veto the law over that provision, Levin, a sponsor of the bill, disclosed on the Senate floor that it was in fact the White House that approved the removal of any exception for citizens from indefinite detention.

Dishonesty from politicians is nothing new for Americans. The real question is whether we are lying to ourselves when we call this country the land of the free.

Turning America into Pottersville

Turning America into Pottersville

The Republican presidential race has taken a detour into the “class warfare” that the party supposedly despises, with Newt Gingrich and Rick Perry tagging Mitt Romney as an elitist who got rich by laying off workers. But this spat misses the larger point of what the Right is doing to America.

Go To Original

For many years, it appeared that the Right wanted to take the United States back to the 1950s – when blacks “knew their place,” women were “in the kitchen” and gays stayed “in the closet” – but it turns out that the intended back-in-time-travel was to the 1920s, to an era of a few haves and many have-nots, not only before the Civil Rights Movement but before the Great American Middle-Class.

The Right’s goal has been less to recreate the world of “Father Knows Best” than to establish a national “Pottersville,” like in the movie, “It’s a Wonderful Life,” where the existence of the average man and woman was brutish and unfulfilling, while the 1 percent of that age lived in gilded comfort and held sweeping power.

Actor Jimmy Stewart finding himself in Pottersville in "It's a Wonderful Life"

That is the message ironically coming from the expensive ad wars of the Republican presidential battle, where frontrunner Mitt Romney has emerged as the personification of the 1 percent and has been attacked by rivals who – while supporting similar policies favoring the ultra-rich – have savaged his career as a venture capitalist, or as Texas Gov. Rick Perry puts it, a “vulture capitalist.”

Romney’s response has been telling. The former chief executive of the corporate takeover firm Bain Capital went beyond the Right’s usual lament about “class warfare,” terming the criticism of high-flying financiers who use layoffs to fatten their bottom lines “the bitter politics of envy.”

And, if there remained any doubt about Romney’s status as the nation’s “elitist-in-chief,” he added that it was wrong to have a noisy and open debate about the dangers of growing income inequality. He told Matt Lauer on NBC’s “Today” that “I think it’s fine to talk about those things in quiet rooms, and discussions about tax policy and the like.”

In other words, keep the rabble from protesting their lot; leave these matters to the well-bred and the well-off, in their think tanks and their board rooms.

For decades, the Right has largely concealed this elitist agenda behind appeals to social conservatism and flag-waving patriotism. Many working- and middle-class Americans, especially white males, have sided with the economic free-marketers because the hated “lib-rhuls” supported civil rights for blacks, women and gays – and also questioned America’s military might.

Plus, many Americans have forgotten a basic truth: that the Great American Middle-Class was largely a creation of the federal government and its policies dating back to Franklin Roosevelt’s New Deal. For many Americans in the middle-class, it was more satisfying to think that they or their parents had climbed the social ladder on their own. They didn’t need “guv-mint” help.

But the truth is that it was government policies arising out of the Great Depression and carried forward through the post-World War II years by both Republican and Democratic presidents that created the opportunities for tens of millions of Americans to achieve relative comfort and security.

Those policies ranged from Social Security and labor rights in the 1930s to the GI Bill after World War II to government investments in infrastructure and technological research in the decades that followed. Even in recent years, despite right-wing efforts to choke off this flow of progress, government programs – such as the Internet – brought greater efficiency to markets and wealth to many entrepreneurs.

So, not only is Massachusetts Senate candidate Elizabeth Warren right when she notes that “there is nobody in this country who got rich on his own,” it’s also true that government policies enabled large numbers of Americans to climb out of poverty and into the middle-class.

The Dick Cheney Example

Oddly, one of the best examples of this reality is the life of right-wing icon Dick Cheney, as he revealed in his recent memoir, In My Time. In the book, Cheney recognizes that his personal success was made possible by Franklin Roosevelt’s New Deal and the fact that Cheney’s father managed to land a steady job with the federal government.

“I’ve often reflected on how different was the utterly stable environment he provided for his family and wondered if because of that I have been able to take risks, to change directions, and to leave one career path for another with hardly a second thought,” Cheney wrote.

By contrast, in sketching his family’s history, Cheney depicted the hard-scrabble life of farmers and small businessmen scratching out a living in the American Midwest and suffering financial reversals whenever the titans of Wall Street stumbled into a financial crisis and the bankers cut off credit.

After his forebears would make some modest headway from their hard work, they would find themselves back at square one, again and again, because of some “market” crisis or a negative weather pattern. Whether a financial panic or a sudden drought, everything was lost.

“In 1883, as the country struggled through a long economic depression, the sash and door factory that [Civil War veteran Samuel Fletcher Cheney] co-owned [in Defiance, Ohio] had to be sold to pay its debts,” Cheney wrote. “At the age of fifty-four, Samuel Cheney had to start over,” moving to Nebraska.

There, Samuel Cheney built a sod house and began a farm, enjoying some success until a drought hit, again forcing him to the edge. Despite a solid credit record, he noted that “the banks will not loan to anyone at present” and, in 1896, he had to watch all his possessions auctioned off at the Kearney County Courthouse. Samuel Cheney started another homestead in 1904 and kept working until he died in 1911 at the age of 82.

His third son, Thomas, who was nicknamed Bert (and who would become Dick Cheney’s grandfather), tried to build a different life as a cashier and part owner of a Sumner, Kansas, bank, named Farmers and Merchants Bank. But he still suffered when the economy crashed.

“Despite all his plans and success, Bert Cheney found that, like his father, he couldn’t escape the terrible power of nature,” Dick Cheney wrote. “When drought struck in the early 1930s, farmers couldn’t pay their debts, storekeepers had to close their doors, and Farmers and Merchants Bank went under. … My grandparents lost everything except for the house in which they lived.”

Finding Security

Bert Cheney’s son, Richard, ventured off in a different direction, working his way through Kearney State Teachers College and taking the civil service exam. He landed a job as a typist with the Veterans Administration in Lincoln, Nebraska.

“After scraping by for so long, he found the prospect of a $120 monthly salary and the security of a government job too good to turn down,” his son, Dick Cheney, wrote. “Before long he was offered a job with another federal agency, the Soil Conservation Service.

“The SCS taught farmers about crop rotation, terraced planting, contour plowing, and using ‘shelter belts’ of trees as windbreaks – techniques that would prevent the soil from blowing away, as it had in the dust storms of the Great Depression. My dad stayed with the SCS for more than thirty years, doing work of which he was immensely proud.

“He was also proud of the pension that came with federal employment – a pride that I didn’t understand until as an adult I learned about the economic catastrophes that his parents and grandparents had experienced and that had shadowed his own youth.”

Like many Americans, the Cheney family was pulled from the depths of the Great Depression by the New Deal of Franklin Roosevelt, cementing the family’s support for the Democratic president and his party. The family celebrated when little Dick was born on FDR’s birthday.

“When I was born [on Jan. 30, 1941] my granddad wanted to send a telegram to the president,” Cheney wrote in his memoir. “Both sides of my family were staunch New Deal Democrats, and Granddad was sure that FDR would want to know about the ‘little stranger’ with whom he now had a birthday in common.”

However, Dick Cheney took a different path. Freed from the insecurity that had afflicted his father and earlier Cheneys – caused by the cruel vicissitudes of laissez-faire capitalism – Dick Cheney enjoyed the relative comfort of middle-class life in post-World War II America. He took advantage of the many opportunities that presented themselves.

Most notably, Cheney attached himself to an ambitious Republican congressman from Illinois named Donald Rumsfeld. When Rumsfeld left Congress for posts in the Nixon administration, he brought Cheney along. Eventually Rumsfeld became White House chief of staff to President Gerald Ford and – when Rumsfeld was tapped to become Defense Secretary in 1975 – he recommended his young aide, Dick Cheney, to succeed him.

Cheney’s career path through the ranks of Republican national politics, with occasional trips through the revolving door into lucrative private-sector jobs, was set. He became a major player within the GOP Establishment, building a reputation as an ardent conservative, a foreign policy hawk – and a fierce opponent of the New Deal.

Demonizing Guv-mint

The Right’s ongoing campaign to dismantle the New Deal also has hinged on the demonization of “guv-mint,” a darkening of attitudes that became more possible when many middle-class Americans lost their memory of how their families had moved into the middle-class.

In the 1960s and 1970s, middle-class white men in particular came to view the government as a force for helping the poor, women and minorities, while putting pressure on white males to change long-established attitudes. Plus, they were told that the government was taking their hard-earned dollars to give to the undeserving.

When these messages – along with a mix of patriotic hoopla and coded appeals to bigotry – were delivered by the personable Ronald Reagan in 1980, middle- and working-class whites rallied to the Right’s banner. It was time, they felt, to dismantle many government programs for the poor and to get tough on foreign adversaries.

But Reagan’s most important policy was slashing taxes, especially those on the rich. Under Reagan’s “supply-side economics,” the top marginal tax rate – that is what the richest Americans pay on their highest tranche of income – was more than halved, from 70 percent to 28 percent.

Yet, since the promised surge in “supply-side” growth didn’t materialize, one result was a dramatic rise in the national debt. Another less obvious change was the incentivizing of greed. Under presidents from Dwight Eisenhower (when the top marginal tax rate was 90 percent) through Jimmy Carter (with a 70 percent top rate), taxes had been a disincentive against greed.

After all, if 70 to 90 percent of your highest tranche of income went to the government to help pay for building the nation, you had little personal incentive to press for that extra $1 million or $2 million. So corporate CEOs – while well-compensated – were happy earning about 25 times as much as their average worker in the 1960s. A few decades later, that ratio on CEO pay was about 200 times what the average worker was making.

As the Washington Post’s Peter Whoriskey framed this historic development in a June 19, 2011, article, U.S. business underwent a cultural transformation from the 1970s when chief executives believed more in sharing the wealth than they do today.

Whoriskey described the findings of researchers with access to economic data from the Internal Revenue Service. The numbers revealed that the big bucks were not flowing primarily to athletes or actors or even stock market speculators; America’s new super-rich were mostly corporate chieftains.

The article cited a U.S. dairy company CEO from the 1970s, Kenneth J. Douglas, who earned the equivalent of about $1 million a year. He lived comfortably but not ostentatiously. Douglas had an office on the second floor of a milk distribution center, and he turned down raises because he felt it would hurt morale at the plant, Whoriskey reported.

However, just a few decades later, Gregg L. Engles, the CEO of the same company, Dean Foods, averaged about 10 times what Douglas made; worked in a glittering high-rise office building in Dallas; owned a vacation estate in Vail, Colorado; belonged to four golf clubs; and traveled in a $10 million corporate jet. He apparently had little concern about what his workers thought.

“The evolution of executive grandeur – from very comfortable to jet-setting – reflects one of the primary reasons that the gap between those with the highest incomes and everyone else is widening,” Whoriskey reported.

“For years, statistics have depicted growing income disparity in the United States, and it has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent.”

The old New-Deal-to-post-World-War-II notion had been that a healthy middle-class contributed to profitable businesses because average people could afford to buy consumer goods, own their own homes and take an annual vacation with the kids. That “middle-class system,” however, had required intervention by the government as the representative of the everyman.

The consequences of several decades of Reaganism and its related ideas (such as shipping many middle-class jobs overseas) are now apparent. Wealth has been concentrated at the top with billionaires living extravagant lives while the middle-class shrinks and struggles. One everyman after another gets shoved down the social ladder into the lower classes and into poverty.

Those real-life consequences are painful. Millions of Americans forego needed medical care because they can’t afford health insurance; young people, burdened by college loans, crowd back in with their parents; trained workers settle for low-paying jobs or are unemployed; families skip vacations and other simple pleasures of life.

Beyond the unfairness, there is the macro-economic problem which comes from massive income disparity. A strong economy is one in which the vast majority people can buy products, which can then be manufactured more cheaply, creating a positive cycle of profits and prosperity.

Instead, Mitt Romney — and even his Republican rivals who criticize his personal business methods — are intent to press ahead down the dark road of Reaganism toward some nightmarish Pottersville. Instead of a vibrant debate about whether this is the right way to go, Romney instructs the masses to keep their mouths shut with the only permitted conversations about the nation’s future restricted to “quiet rooms.”

The Foreclosure Crisis: A Government in Denial

The Foreclosure Crisis: A Government in Denial

Go To Original

The Federal Reserve sent a warning shot that housing is the greatest threat to the economy. The government should take note.

As we start the New Year, the executive branch and Congress continue to pretend the gravest risk to our economy and social stability does not exist: the ongoing foreclosure crisis. The financial crisis began with the housing crisis and it will not end until we resolve housing. Government policymakers who seemingly ignore this basic fact are leading the nation to another potential catastrophe.

This past week, a number of important events occurred in Washington, including important recess appointments by President Obama. However, the most noteworthy event did not make front page news: the Federal Reserve’s (apparently) unsolicited memo to the committees of Congress that oversee financial services warning of the dangers the current housing market poses for the economy.

This represents an extraordinary action and underscores both the seriousness of the continuing crisis and the absence of meaningful discussion of the problem in Washington. Bernanke’s memo reviewed federal actions to date and effectively concluded that they were unlikely to solve this national tragedy. The memo concluded, in part:

The challenges faced by the U.S. housing market today reflect, in part…a persistent excess supply of homes on the market; and losses arising from an often costly and inefficient foreclosure process (and from problems in the current servicing model more generally)… Absent any policies to help bridge this gap, the adjustment process will take longer…pushing house prices lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.

This memo is notable for several reasons. First, it’s important to remember that when the Fed speaks, it does so in sober, limited terms. So an unprompted Fed warning suggesting “a persistent excess of supply” and a “resultant drag on the economy” is comparable to the Secretary of Homeland Security holding a press conference to warn of the risk of an imminent national emergency. Second, an unprompted memo from Bernanke to the House means that he is so deeply worried he felt the need to speak out in as strong a voice as his position permits. Third, the Fed rarely speaks on issues unrelated to its direct activities. Indeed, The Wall Street Journal subsequently wrote, “For an institution that jealously guards its independence, the Federal Reserve is wading into treacherous political waters.”

Finally, co-ordinated speeches by three top Fed officials further indicate the depth of the Fed’s concerns. On Friday, the presidents of the New York and Boston Fed banks and Betsy Duke, a Fed Governor, all gave speeches detailing the need for aggressive action to spur a housing recovery. For example, William Dudley, President of the New York Fed, told a group, “The ongoing weakness in housing has made it more difficult to achieve a vigorous economic recovery.”

There are a multitude of other indicators that our current treatment of the housing sector will at minimum prevent an economic recovery and at worst have disastrous consequences for the stability of the financial sector as well as the health of the middle class. (For the record, my analysis leans toward the latter of these two viewpoints.) These include the reportedly poor health of our financial institutions (zombie banks), the administration’s seeming efforts to cover this fact up, and the inevitable failure of federal homeowner assistance programs that rely on the cooperation of financial institutions whose profit incentives are in the reverse direction.

Consumer spending represents 70 percent of the nation’s economy and is central to any economic recovery. To achieve sufficient aggregate demand (i.e. total spending on goods and services), this will require spending by middle-income individuals in addition to what we now call the 1%. The Fed report suggests that the housing crisis makes such a recovery unlikely.

Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

The report found that, in the aggregate, more than $7 trillion in home equity — more than half of the aggregate home equity that existed in early 2006 — has now been lost, noting, “This substantial blow to household wealth has significantly weakened household spending and consumer confidence.” Moreover, “Middle-income households, as a group, have been particularly hard hit hit because home equity is a larger share of their wealth in the aggregate than it is for low-income households (who are less likely to be homeowners) or upper-income households (who own other forms of wealth such as financial assets and businesses).” These households have seen their home equity decline by an estimated 66 percent.

Moreover, the fear of a continuing loss of wealth (which is a cushion against job loss or other economic emergencies), the fear of job loss itself, the negative effects of underwater homes, lack of forbearance for unemployment (a point the Fed particularly emphasizes), and consumers struggling to meet mortgage payments in a far more difficult environment are all dragging the economy down.

There is also a far worse possibility. Today, an estimated 29 percent of all homes with mortgages are underwater. In addition, at least one respected analyst estimates that a total of 14 million homes will be foreclosed on from 2007 to the end of the crisis. This represents a hard-to-imagine one in every four mortgages. With foreclosures increasing, there is now such a looming imbalance of supply and demand that, as the Fed notes, further decreases in home prices are likely. Some believe home price reductions of another 20 percent are likely. This would, in all likelihood, have disastrous consequences on at least three fronts — and ripple effects that are impossible to predict.

First, so many homeowners would be so far underwater that massive walkaways would be likely. The negative impact on consumer spending of such price declines would almost certainly lead to a vicious cycle of more job losses, leading to further walkaways by struggling consumers.

Second, the mortgage securities market would be in chaos. Nonperforming loans would lead to the forced recognition that bank capital (based on the value of mortgages in bank portfolios) is weak or insufficient.

Third, it is almost impossible to imagine foreclosures on the massive scale anticipated without dire social consequences or even some form of social unrest. As Peggy Noonan has observed, the real meaning of Occupy Wall Street is that this is just the beginning of the protests we are likely to see. “OWS is an expression of American discontent, and others will follow,” she predicts. Protests and social unrest are particularly likely if people feel they are unfairly losing their homes to support irresponsible, law-breaking institutions that have successfully disregarded the fundamental rules of capitalism and good citizenship. Mechanisms to avoid this possibility are one of the central issues I address in my forthcoming book, Making Capitalism Work for the 99%: A Manifesto.

What is shocking is the almost total lack of attention the administration has paid to suffering homeowners. It’s hard for me (and apparently Chairman Bernanke) to understand how the administration can possibly hope to revitalize the economy without seriously addressing the overhang of consumer housing debt. Moreover, the failure to address the risk this poses for a broader economic catastrophe borders on the inexcusable.

If President Obama is serious about saving the middle class and reducing income inequality, the administration needs to be far more aggressive in developing policies to keep homeowners as homeowners. As I have written before, this was one of FDR’s central goals in the New Deal. Detailed proposals for addressing this extraordinary risk do exist. However, they will require a determined effort. There are solutions, but they are not simple.

What is most important right now is that we recognize we are in a lifeboat that will not reach land. We need to focus on implementing a meaningful solution to the problem. A clock is ticking and Washington needs to acknowledge that a witching hour is approaching.

Victory for Internet Freedom: Obama Announces Opposition to SOPA, Congress Shelves Bill

Victory for Internet Freedom: Obama Announces Opposition to SOPA, Congress Shelves Bill

Go To Original

Misguided efforts to combat online privacy have been threatening to stifle innovation, suppress free speech, and even, in some cases, undermine national security. As of yesterday, though, there’s a lot less to worry about.

At issue are two related bills: the Senate’s Protect IP Act and the even more offensive Stop Online Piracy Act in the House, both of which are generated intense opposition from tech giants and First Amendment advocates. The first sign that the bills’ prospects were dwindling came Friday, when SOPA sponsors agreed to drop a key provision that would have required service providers to block access to international sites accused of piracy.

The legislation ran into an even more significant problem yesterday when the White House announced its opposition to the bills. Though the administration’s chief technology officials officials acknowledged the problem of online privacy, the White House statement presented a fairly detailed critique of the measures and concluded, “We will not support legislation that reduces freedom of expression, increases cybersecurity risk or undermines the dynamic, innovative global Internet.” It added that any proposed legislation “must not tamper with the technical architecture of the Internet.”

Until now, the Obama administration had not taken a position on the issue. The response was published yesterday as part of the online “We The People” petition initiative launched by the White House last year.

Though the administration did issue a formal veto threat, the White House’s opposition signaled the end of these bills, at least in their current form.

A few hours later, Congress shelved SOPA, putting off action on the bill indefinitely.

House Oversight Chairman Darrell Issa (R-Calif.) said early Saturday morning that Majority Leader Eric Cantor (R-Va.) promised him the House will not vote on the controversial Stop Online Piracy Act (SOPA) unless there is consensus on the bill.

“While I remain concerned about Senate action on the Protect IP Act, I am confident that flawed legislation will not be taken up by this House,” Issa said in a statement. “Majority Leader Cantor has assured me that we will continue to work to address outstanding concerns and work to build consensus prior to any anti-piracy legislation coming before the House for a vote.”

It’s possible that a related version of SOPA could come back at some point down the road — though probably not this year — but for now, the push against the bill has succeeded beautifully

Home Seizures May Jump 25% This Year as U.S. Foreclosures Resume

Home Seizures May Jump 25% This Year as U.S. Foreclosures Resume

Go To Original

Banks may seize more than 1 million U.S. homes this year after legal scrutiny of their foreclosure practices slowed actions against delinquent property owners in 2011, RealtyTrac Inc. said.

About 1.89 million properties received notices of default, auction or repossession last year, down 34 percent from 2010 and the lowest number since 2007, the Irvine, California-based data seller said today in a statement. One in 69 U.S. households received a filing.

While the seizure process has been “highly dysfunctional,” there were “strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets,” RealtyTrac Chief Executive Officer Brandon Moore said in the statement.

The number of home repossessions is likely to rise about 25 percent from the more than 804,000 properties seized last year as lenders resume foreclosure actions, Daren Blomquist, a spokesman for RealtyTrac, said in a telephone interview. Settlement talks are continuing with state attorneys general over documentation flaws, known as “robo-signing,” that surfaced in October 2010.

About 400,000 additional homes would have been repossessed without the slowdown, Blomquist said. The ramp-up in foreclosure proceedings that began in 2011’s second half is likely to continue this year, Moore said in the statement.

Foreclosure filings totaled almost 2.7 million last year as some properties got multiple notices, RealtyTrac said.

Highest in Nevada

Nevada had the nation’s highest rate of foreclosure filings per household for the fifth straight year, at one in 16, while total filings were down 31 percent from 2010. A new state law that took effect in October requires lenders to file an additional affidavit before starting the foreclosure process.

Arizona had the second highest foreclosure rate, with one in 24 households receiving a notice, and California ranked third at one in 31. Georgia was fourth, with one in 37, and Utah fifth at one in 43, according to RealtyTrac.

Michigan, Florida, Illinois, Colorado and Idaho also ranked among the states with the 10 highest rates in 2011.

Las Vegas had the highest rate among metropolitan areas with populations over 200,000, at one foreclosure filing per 14 households. Stockton, Modesto, Vallejo-Fairfield and Riverside- San Bernardino, all in California, ranked second through fifth.

Phoenix; Merced, California; Reno, Nevada; Bakersfield, California; and Sacramento, California, rounded out the top 10, said RealtyTrac, which sells default data from more than 2,200 counties representing 90 percent of the U.S. population.