Archive for category Economy

How Lotteries Are Bad For Players, Winners, And States

Posted by Michael B. Calyn in Economy, Social on May 20, 2013


How Lotteries Are Bad For Players, Winners, And States

By Bryce Covert on May 20, 2013 at 12:00 pm

Credit: Associated Press

The highest Powerball jackpot in history, $590.5 million, is waiting to be claimed by the winner in the small town of Zephyrhills, Florida. While the lucky winner may feel a sense of exhilaration, there can be huge down sides of the lottery for those who play, those who win, and the state governments that rely on the revenues.

With odds stacked sky high against actually winning a jackpot, lottery players lose an average of 47 cents on the dollar for each ticket. With such low payouts, tickets act as an implicit tax of 38 percent.

Yet poor people are far more likely to buy tickets than their wealthier counterparts. They spend a larger percentage of their income on the lottery, and many studies of state lotteries have found that low-income Americans account for most of the sales and that sales are highest in the poorest areas. One study found that a reason for this is that “lotteries set off a vicious cycle that not only exploits low-income individuals’ desires to escape poverty but also directly prevents them from improving upon their financial situations.” The loss in income of buying tickets that provide no reward is harder to bear on a slim budget.

Those who win may not be much better off, however. The National Endowment for Financial Education estimates that as much as 70 percent of those who land sudden windfalls lose the money within several years. Lottery winnings have led some to drugs, bankruptcy, and family fractures.

The revenues from lottery tickets act as a regressive tax because states use them to fund many public services, such as education. Lotteries netted 11 states more revenue than their corporate income tax in in 2009. But states don’t fare well either in the long run. While states that have lotteries increased per-capita spending on education at first, after some time they ended up decreasing overall spending, while states without them increased investment. One study found that “nonlottery states spend, on average, 10 percent more of their budgets on education than lottery states.” In fact, lottery revenues may not end up increasing funds and could actually increase budget imbalances. There are only so many tickets that a state’s population can buy, making it a short or medium term fix but not a long term source of revenue.

The chances of winning the Powerball jackpot were very low at just 1 in 175.2 million. One person has likely won it and will now face the challenges of managing a huge influx of new money. The rest of the residents and the state’s revenues are not likely to fare as well.

 How Lotteries Are Bad For Players, Winners, And States.

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Daily Kos: Dairy industry warns of shortages and rising prices if it doesn’t get cheap guest workers

Posted by Michael B. Calyn in Economy, Politics on March 17, 2013


TUE MAR 12, 2013 AT 10:15 AM PDT

Dairy industry warns of shortages and rising prices if it doesn’t get cheap guest workers

By Laura Clawson Follow for Daily Kos Labor

 

Cows in barn with full udders.

The current H-2A agricultural guest worker program just doesn’t work for dairy farmers—and they’re hoping immigration reform will change that. If it doesn’t, they warn, we could see dairy shortages and rising prices. There is this one flaw in the argument, though:

“They can never adequately explain why they can’t raise wages,” said Eric Ruark, research director for the Federation for American Immigration Reform in Washington. “If there’s a labor shortage, you raise wages. That’s classic supply-and- demand. Maximizing profits for the producer should not be the main goal of our food system.”

H-2A visas are only for seasonal or temporary work; since dairy farms operate year round, that’s not very useful to them and they want a guest worker program that meets their needs. Without immigrants, a report by the National Milk Producers Federation claims, retail dairy prices could rise by 61 percent. But that’s if you just subtract immigrant dairy workers and don’t replace them with anyone else, leading to milk shortages. The milk producers apparently aren’t giving any thought to raising wages significantly from their 2008 average of (according to the same report) $9.97. And while subtracting the 41 percent of dairy workers who are immigrants from the industry, leading to major shortages, might well increase retail prices by 61 percent, raising wages even by 50 percent would have a much smaller effect on prices, since wages are hardly the only component of pricing. In other words, it’s a little like when the CEO of Papa John’s exaggerates how much providing health coverage for full-time workers will increase the cost of a pizza.

So when dairy farmers are out talking to reporters about how even though they could sell more milk if they had it, they can’t expand their operations because of a shortage of immigrant labor, and saying they can’t raise wages because it would cut into their profits too much, what you have is a pretty obvious dairy industry campaign for cheap immigrant labor. And while we need immigration reform, it should not be geared toward providing cheap, long-term but ultimately disposable at the whim of the employer, labor to avoid raising wages over $10.

 Daily Kos: Dairy industry warns of shortages and rising prices if it doesn’t get cheap guest workers.

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The Government Has It Bass-Ackwards: Failing To Prosecute Criminal Fraud by the Big Banks Is Killing – NOT Saving – the Economy « naked capitalism

Posted by Michael B. Calyn in Economy on March 9, 2013


The Government Has It Bass-Ackwards: Failing To Prosecute Criminal Fraud by the Big Banks Is Killing – NOT Saving – the Economy

Cross posted from Washington’s Blo

U.S. Attorney General Eric Holder said today:

I am concerned that the size of some of these institutions [banks] becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy

As we’ve repeatedly noted, this is wholly untrue.

If the big banks were important to the economy, would so many  prominent economists, financial experts and bankers be calling for them to be broken up?

If the big banks generated prosperity for the economy, would they have to be virtually 100% subsidized to keep them afloat?

If the big banks were helpful for an economic recovery, would they be prolonging our economic instability?

In fact, failing to prosecute criminal fraud has been destabilizing the economy since at least 2007 … and will cause huge crashes in the future.

After all, the main driver of economic growth is a strong rule of law.

Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:

The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.

***

I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.

***

Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.

Indeed, professor of law and economics (and chief S&L prosecutor) William Black notes that we’ve known of this dynamic for “hundreds of years”. And see this, this, this and this.

(Review of the data on accounting fraud confirms that fraud goes up as criminal prosecutions go down.)

The Director of the Securities and Exchange Commission’s enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

Paul Zak (Professor of Economics and Department Chair, as well as the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate University, Professor of Neurology at Loma Linda University Medical Center, and a senior researcher at UCLA) and Stephen Knack (a Lead Economist in the World Bank’s Research Department and Public Sector Governance Department) wrote a paper called Trust and Growth, showing that enforcing the rule of law – i.e. prosecuting white collar fraud – is necessary for a healthy economy.

One of the leading business schools in America – the Wharton School of Business – published an essay by a psychologist on the causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. “Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.” The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.”

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. “She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

“By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,” Sachs said. “In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.”

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to “hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.” In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.

Note that Sachs urges “hold[ing] the perpetrators of the economic disaster responsible.” In other words, just “looking forward” and promising to do things differently isn’t enough.

Robert Shiller – one of the top housing experts in the United States – says that the mortgage fraud is a lot like the fraud which occurred during the Great Depression. As Fortune notes:

Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt — is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.

Indeed, it is beyond dispute that bank fraud was one of the main causes of the Great Depression.

Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:

The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy.

In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….

This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.

***

The government that permits this to happen is complicit in a vast crime.

Galbraith also says:

There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.

Galbraith recently said that “at the root of the crisis we find the largest financial swindle in world history”, where “counterfeit” mortgages were “laundered” by the banks.

As he has repeatedly noted, the economy will not recover until the perpetrators of the frauds which caused our current economic crisis are held accountable, so that trust can be restored. See this, this and this.

No wonder Galbraith has said economists should move into the background, and “criminologists to the forefront.”

The bottom line is that the government has it exactly backwards.   By failing to prosecute criminal fraud, the government  is destabilizing the economy … and ensuring future crashes.

Postscript:  Unfortunately, the government made it official policy not to prosecute fraud, even though criminal fraud is the main business model adopted by the giant banks.

Indeed, the government has done everything it can to cover up fraud, and has been actively encouraging criminal fraud and attacking those trying to blow the whistle.

The Government Has It Bass-Ackwards: Failing To Prosecute Criminal Fraud by the Big Banks Is Killing – NOT Saving – the Economy « naked capitalism.

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Valiant Lowitz: Robin Hood: Taxing Men in Suits

Posted by Michael B. Calyn in Economy on March 8, 2013


A heroic outlaw prowls the forest with his band of Merry Men, looking for caravans of nobility to loot and plunder for the poor.

While a few individuals controlled the majority of wealth, the poorest people in society slaved away in the harshest of conditions. Someone needed to stand up for the common good and ensure that everyone had a right to live in comfort, free of financial burden. And that person was…Kevin Costner? Wait no, it was Robin Hood.

Whatever you think of Robin Hood, it’s hard to argue his legendary actions were unjustified.

The story harkens back to a simpler time; a time before Collateralized Debt Obligations and whatever other weird financial products bankers dreamed up wrecked the global economy; a time when “socialism” meant a band of thieves roaming around with arrows and swords, taking from the rich and giving to the poor.

But alas, we no longer live in the 15th century and in a modern world, “Robin Hood” isn’t a man, but a tax proposal known as the Financial Transaction Tax (FTT). Yes, we live in complicated (read: boring) times, my friend.

A FTT is a small tax levied against the purchase/sale or transfer of the four main classes of financial assets: bonds, equities, foreign exchange and their derivatives.

But what does this have to do with a bunch of men running around the forest? Quite a lot actually, albeit with an unfortunate lack of bankers and executives wearing green tights around Wall Street.

FTTs are inherently progressive in that the principle buyers/sellers of financial assets – big banks, hedge funds and other financial institutions – shoulder the brunt of the tax. Ordinary people, for the most part, do not trade assets at a frequency high enough to feel any significant burden from a FTT. This means that the wealthiest institutions and individuals in society would feel the greatest impact.

Want to talk about deficit reduction? Given the frequency of financial transactions in the United States, a well-implemented FTT could raise almost $50 billion a year

This is money that could be spent on investments in public education, infrastructure and research and development programs. Money that will create jobs and reduce inequality in America that will send ripples around the world.

Now, Robin Hood was only focused on helping the poor, which is why you may read some literature defining clear distinctions between a “Robin Hood Tax” and a FTT. But let’s place Robin Hood in the 21st century, maybe without a weapon (gun control is kind of a big deal right now) and with skinny jeans instead of tights (he’d fit in well with the younger crowd).

Federal programs that invest in average Americans will inevitably help the poor in the form of greater access to education, reduced inequality, access to high-paying jobs, etc. I think that’s something even a hipster Robin Hood would get behind.

Is a strong FTT politically feasible in the United States, or will it only be known as a legend, a brief policy passing through the annals of history destined for the dusty, untouched shelves of academics? Well, the US has previously levied a FTT on stocks and several bills have been recently introduced in Congress that supports a FTT.

Of course you can be sure that bankers and executives will defend their fiat money like old English nobles defending their gold coins. But the political headwinds point in a different direction, and hopefully soon we’ll finally see the legendary Robin Hood roaming the dense urban jungles of American

 Valiant Lowitz: Robin Hood: Taxing Men in Suits.

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Robin Hood Tax to Reduce Wall Street Greed

Posted by Michael B. Calyn in Economy on March 8, 2013


Sen. Bernie Sanders is calling for a Robin Hood tax. (photo: Kevin Dietsch/UPI/Newscom)
Sen. Bernie Sanders is calling for a Robin Hood tax. (photo: Kevin Dietsch/UPI/Newscom)

Robin Hood Tax to Reduce Wall Street Greed

By Bernie Sanders, Reader Supported News

02 March 13

 

 tax on Wall Street speculators responsible for the worst recession since the 1930s was proposed today in Congress. Sen. Bernie Sanders cosponsored a bill that Sen. Tom Harkin introduced in the Senate. A companion measure by Rep. Peter DeFazio was filed in the House. “Both the economic crisis and the deficit crisis are a direct result of the greed, recklessness, and illegal behavior on Wall Street,” said Sanders. “This bill will reduce gambling on Wall Street, encourage the financial sector to invest in the job-creating productive economy, and significantly reduce the deficit. At a time when we have a record-breaking national debt, the very least we can do is demand that Wall Street pay its fair share in taxes.”

The tax would generate an estimated $352 billion over 10 years, according to the Congress’s Joint Tax Committee.

Ordinary, long-term investors would not be affected by the measure, which would place a small financial transactions tax (three cents per $100 in value) on non-consumer financial trades in stocks, bonds and other debts after an initial public offering. For example, there would be no tax on a loan to a company, but if the financial institution traded the debt, the trade would be subject to the tax. The fee would also cover all derivative contracts, options, puts, forward contracts, swaps and other complex instruments at their actual cost.

By setting the tax rate so low, the measure would not impact the market’s traditional role supporting economic activity. It would, however, reduce certain speculative activities like high-speed computer arbitrage trading. A speculation fee could help to shift Wall Street away from short-term trading. Given the very high volume of financial trading, it will raise considerable funds, badly needed to protect Medicare, Medicaid, and other important federal investments and for reducing deficits.

Earlier this year, a group of 11 European governments agreed to implement a financial transaction tax. The action allows for a tax of 10 basis points on stocks and one basis point on derivatives on financial transactions by the following countries: Germany, France, Italy, Spain, Belgium, Austria, Greece, Portugal, Slovakia, Slovenia, and Estonia.

Read Sen. Sanders’ statement here.

 Robin Hood Tax to Reduce Wall Street Greed.

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No More Excuses: Soaring Market Latest Evidence of Need to Tax Wall Street | Alternet

Posted by Michael B. Calyn in Economy on March 8, 2013


No More Excuses: Soaring Market Latest Evidence of Need to Tax Wall Street

With all the pain the economic crash has inflicted, the bill for Wall Street is due.

March 7, 2013 

 

Now that the boom times have returned for Wall Street with consecutive days of record market highs, the time for excuses must end, and the Obama administration and Congress should join with the other world markets in adopting a Robin Hood tax on financial speculation.

The signs could not be more clear. The New York Times, March 3, calls this a “golden age for corporate profits,”  and the financial sector is leading the gold rush. Just last year the top six U.S. banks raked in $63 billion – with Bank of America pulling in more than Walt Disney and McDonalds combined.  

But it remains a different story in Main Street communities across America, a new pauper’s age would be a more apt label.

“How is this recovery if only Wall Street, but not our families and communities, are on the upswing?” asks Amanda Devecka-Rinear of National People’s Action and the Robin Hood  campaign.

“It has always been true that Wall Street can clearly afford to bail out Main Street with enough money to build homes, strengthen education, end the AIDS pandemic, fight global climate change and create jobs. Here is just further proof,” notes Jennifer Flynn, managing director of Health GAP and the Robin Hood campaign.

Just ask the banksters and high rollers themselves.

“What’s amazing about this bull market is that people still don’t think it’s real,” said Richard Bernstein, chief executive of Richard Bernstein Advisors, a money management firm to the New York Times March 5. “We think this could be the biggest bull market of our careers.” 

“The momentum is clearly in the upward direction,” Brian Lazorishak, portfolio manager and quantitative analyst at Chase Investment Counsel told the Wall Street Journal March 6. 

“So far in this recovery, corporations have captured an unusually high share of the income gains,” Ethan Harris, co-head of global economics at Bank of America Merrill Lynch told the New York Times on March 3. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

So will Wall Street share their good fortune voluntarily with those harmed by the economy they wrecked with their reckless gambling with our homes, our savings, and our futures?

Apparently no time soon.  “Right now, C.E.O.’s are saying, ‘I don’t really need to hire because of the productivity gains of the last few years,’ ” said Robert E. Moritz, chairman of the accounting giant PricewaterhouseCoopers to the New York Times March 3. 

With all the pain the economic crash has inflicted, the bill for Wall Street is due. 

A major step forward is within sight.

The Inclusive Prosperity Act, introduced by Rep. Keith Ellison, could raise up to $350 billion every year with a minimal tax of just 50 cents on every $100 of stock trades, and lesser percentages on trading of bonds, currencies, derivatives and other financial instruments.

Most other major markets have already figured this out, including 11 European Union nations, among them the big economies of France, Germany, Italy, and Spain. Major financial centers, including London, Switzerland, Hong Kong and Singapore, also have financial transactions taxes on their stock exchanges.   

Are we just slow learners or does Wall Street throw around too much clout in Washington?

As to claims by the Wall Street opponents of a financial transaction tax that the impact would mostly fall on “ordinary investors,” a video distributed this week by Mother Jones, “The Great American Inequality Video,” tells a different story. 

The video notes that:

  • The wealthiest 1 percent of Americans own half the country’s stocks, bonds and mutual funds
  • The bottom 50 percent own just .5%, half of one percent, of all stocks, bonds and mutual funds

Let’s get off the dime and act now.

 No More Excuses: Soaring Market Latest Evidence of Need to Tax Wall Street | Alternet.

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Detroit Sinks With Belle Isle – NYTimes.com

Posted by Michael B. Calyn in Debt, Economy, Opinion on February 8, 2013


OP-ED CONTRIBUTOR

Detroit, the Billionaire’s Playground

Eric Hanson

By MARK BINELLI

Published: February 7, 2013

 

WITH the fourth anniversary of the Obama administration’s auto bailout approaching, the Detroit comeback narrative has settled into accepted history. Just last week, Chrysler, once the wobbliest of the Big Three, announced a ninefold increase in profits since 2011. In its Sunday Super Bowl ad, the company exuded such confidence, it no longer felt the need to defensively celebrate Rust Belt grittiness with the help of Eminem or Clint Eastwood, going instead with a syrupy paean to the Farm Belt called “God Made a Farmer.”

It wasn’t immediately clear if God also made second-tier assembly line workers starting at 14 bucks an hour, but no matter. Detroit was back! Unless, of course, by “Detroit” you meant the actual city rather than the auto industry, in which case, well, the picture becomes a bit more complicated. Battered for decades by the same problems — a steady loss of people and jobs, a soaring murder rate, a wholesale erosion of its tax base — the city now faces the prospect of running out of cash as soon as the end of the month, which would mean the largest municipal bankruptcy in United States history.

Three recent proposals on ways to patch holes in Detroit’s budget illustrate just how desperate things have become.

The first, and by far the most serious, came from Gov. Rick Snyder of Michigan, who offered to lease Belle Isle, a city-owned island park, around 985 acres, designed by Frederick Law Olmsted in 1883. Under the plan, in the works since last summer, the island would have become a state park with an entry fee, thus covering the annual $6 million in maintenance and operations costs — funds sorely needed for the beloved landmark, which in recent years has fallen into disrepair. When the Detroit City Council president, Charles Pugh, insisted that “Belle Isle is not about to sink into the Detroit River if we don’t approve the lease,” he was incorrect. And I mean literally: the city has not had the money to perform, in the words of The Detroit Free Press, the maintenance needed to keep the park “from sinking into the Detroit River.”

Still, the council, under pressure from a vocal minority suspicious of “outsiders” looting Detroit’s few remaining assets, postponed a long-planned vote on the Belle Isle proposal, prompting Governor Snyder to rescind his offer. Soon after, Mayor Dave Bing, who had supported the governor’s plan, announced that he would be forced to close 51 other parks in order to keep Belle Isle, as it were, afloat. That means, according to another Free Press article, that “Detroit, a city with 700,000 residents, will have only 57 of its 300-plus parks open starting this spring.”

Belle Isle was recently at the center of a different moneymaking scheme. A group of wealthy libertarians suggested that private investors buy the island from the city for the nice, round, Dr. Evil-ish sum of $1 billion and transform it into an independent, self-governing territory. With the price for citizenship set at $300,000, the Commonwealth of Belle Isle would exist as a sort of free-market paradise; within 30 years, the group’s Web site predicted, the island would be known as the “ ‘Midwest Tiger,’ rivaling Singapore as an economic miracle.” One can order from that Web site a novella about this future Belle Isle, which describes the commonwealth’s low taxes, minimal government, even its own currency (called — seriously — “the Rand”).

The book — a preview of its opening chapter has the hero landing on the rooftop helipad of the commonwealth’s 57-story Four Seasons hotel — makes the entire scheme very easy to mock as Objectivist fan fiction. But it’s not entirely a joke: private foundations and deep-pocketed members of the local business elite exercise an outsize influence in a city as broke as Detroit, providing financing for everything from a much-needed light-rail line to the ambitious Detroit Future City plan, which would entirely remap the city.

People like Dan Gilbert, the owner of Quicken Loans and the Cleveland Cavaliers, and Mike Ilitch, a founder of Little Caesars pizza, have been snatching up shuttered skyscrapers and prewar office buildings — since December Mr. Gilbert has bought at least five buildings and, reputedly, an entire downtown city block — as if they’re Monopoly properties.

The third revenue-generating idea, in fact, came via Mr. Gilbert’s Twitter feed. Why not, he mused, build a “world-class Epcot-like car attraction” in downtown Detroit? He bristled at indecorous comparisons to AutoWorld, Flint’s failed 1980s attempt at just such an automobile theme park, made infamous in the documentary “Roger & Me.”

Detroiters who are worried about ceding local power to Michigan’s Republican governor shouldn’t forget the ways in which power has already been ceded to an unelected oligarchy, whose members might, no matter how ostensibly well intentioned, possess questionable ideas about urban renewal.

All three of these tragicomic attempts to stanch the bleeding highlight the obvious: Detroit needs money. While the salvation of the auto companies remains a signature achievement of President Obama’s first term, his inability to deal with the entrenched problems of cities like Detroit remains an enormous failure. When New York teetered on the brink of bankruptcy in the 1970s, it was famously told, in the headline of The Daily News, to “Drop Dead.” But then President Gerald R. Ford extended the city $2.3 billion in federal loans. That’s 1975 billions! An impossible sum to imagine in our current age of austerity.

Here’s hoping the libertarian billionaires turn out to be benign sovereigns.

 Detroit Sinks With Belle Isle – NYTimes.com.

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AIG’s board decides not to join lawsuit – The Hill’s On The Money

Posted by Michael B. Calyn in Economy, Finance on January 10, 2013


http://thehill.com/templates/thehill/images/space.gif

AIG’s board decides not to join lawsuit

By Peter Schroeder - 01/09/13 02:57 PM ET

  

The insurance company American International Group (AIG) is opting not to sign on to a lawsuit challenging the terms of its bailout after facing withering criticism from lawmakers.

The company announced Wednesday that it had decided to reject a request to join the $25 billion shareholder lawsuit “in full.”

“In considering and ultimately refusing the demand before us, the Board of Directors properly and fully executed our fiduciary and legal obligations to AIG and its shareholders,” said Robert S. “Steve” Miller, chairman of the AIG Board of Directors. “America invested in 62,000 AIG employees, and we kept our promise to rebuild this great company, repay every dollar America invested in us, and deliver a profit to those who put their trust in us.”

The Wall Street Journal first reported that the company’s board has opted not to join the legal challenge.

The company only recently completed its exit from government support in December, having received a total of $182 billion in funds from the Treasury and the Federal Reserve Bank of New York when it was faced with collapse at the height of the financial crisis.

The mere fact that the company was considering joining the suit set off a rapid-fire and furious response from congressional Democrats Tuesday, who accused the company of showing a galling lack of gratitude.

“AIG’s reckless bets nearly crashed our entire economy,” said Sen. Elizabeth Warren (D-Mass.), who before being elected to the Senate served on a task force that monitored the bailout program. “Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough.”

A group of House Democrats said joining the suit would make AIG “the poster company for corporate ingratitude,” and Rep. Elijah Cummings (D-Md.), the ranking member of the House Oversight Committee, said the move was “an unbelievable insult.”

AIG had confirmed Tuesday that it was considering joining the suit, filed originally by its former CEO Maurice “Hank” Greenberg, who alleged the government charged onerous interest rates on bailout funds and sought compensation for shareholders allegedly harmed by the government’s rescue.

“AIG has paid back its debt to America with a profit, and we mean it when we say thank you to the American people,” said Robert H. Benmosche, AIG’s president and chief executive officer. “At the same time, the Board of Directors has fiduciary and legal obligations to the Company and its shareholders to consider the demand served on us and respond in a fair, appropriate, and timely manner.”

The insurance giant came to serve as a symbol of much of the public anger surrounding the bailouts, especially after the company doled out millions in bonuses to employees just after receiving funds to save it from bankruptcy.

AIG had recently launched an ad campaign to thank the American people for their support.


AIG’s board decides not to join lawsuit – The Hill’s On The Money.

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The Deadly Secret About the Fiscal Cliff Charade | Alternet

Posted by Michael B. Calyn in Economy, Health, Medical on January 8, 2013


The Deadly Secret About the Fiscal Cliff Charade

Let’s stop repeating failures of austerity and move toward solutions that can restore our Federal budget – and us – to health.

January 4, 2013 

 

Photo Credit: Shutterstock.com

Imagine a nation with a terrible problem – one its leaders refuse to discuss. The problem will needlessly drain trillions of dollars from its economy in the next ten years.

Now imagine that this problem also robs that nation’s citizens of life itself, draining years from their lifespans while depriving them of large sums of money. Imagine that it sickens and disables countless others, drives many people into bankrupcty, and kills more than two newborn infants out of every thousand born.

Imagine that fixing this problem would make result in a dramatic decline in publicly-held debt. It wouldn’t just “help” the debt problem, mind you – it would cause that debt to plunge.

And now imagine a national “deficit debate” which completely ignores this problem.

Imagine a news media which pretends the problem doesn’t exist. Imagine a corporate-funded “Fix the Debt” movement that refuses to mention it, and yet is treated as an objective source of information. Imagine a political consensus in which the debate isn’t around how to fix this problem, but how to cut service programs that help people cope with it.

Welcome to the United States of America, January 2012.  It’s a land where the population is broke, sick, gypped, and mistreated. But the problem’s fixable – if we can find the political will.

Broke

The problem, of course, is our health care system – although “system” seems like a flattering word for this greed-driven, anarchic three-ring circus. Our health care system – guess we’ll need to call it that for lack of an alternativer – is the worst in the developed world. It costs far more, provides much less, and has worse outcomes than any system that’s even remotely comparable.

How bad is it?

Our health care spending is 17.6 percent of GDP , compared with an average of 9.6 percent for all developed countries. (All figures are from the compendium ofhealth and economic statistics published by the Organization for Economic Cooperation and Development ( OECD ), unless otherwise indicated.)

Total health spending (from all sources, not just insurance-related) averages $7,960 per person in the United States, versus an average of $3,233 for all developed countries.

If we spent the same on health as the average developed country (as a percentage of GDP ) that would inject more than a trillion dollars per year into other parts of the economy. ( 1.14 trillion, by my rough calculation.)

Sick

What are we getting for our money?

  • Life expectancy at birth in the United States is 78.2 years, compared with an OECD average of 79.5 years and Japan’s life expectancy of 83 years.Our expected lifespan is the shortest of any among the countries we normally think of as “developed.” The ones that trail us are newer entrants into the “developed” category — like Mexico, Turkey, Brazil, Indonesia, and the Eastern European countries.
  • Our infant mortality rate is 6.5 deaths per 1,000 live births, as opposed to the OECD average of 4.4 deaths. As with life expectancy, we lag behind all the other long-term “developed” nations.
  • We score even more poorly on another metric, “Premature Mortality,” which measures the number of years someone loses “before their time” (essentially by calculating how many years it would have taken on average to reach the age of 70).

Our high rates of premature mortality are affected by our high rates of accidents and suicide, too, and from a homicide rate for males that’s five times the average. (That’s a figure worth citing in the gun control debate.)

Gypped

The question becomes, Why? Why do we pay so much and get so little for our money?

Part of the answer lies in the fact that, despite the high cost of private-insurance premiums, our health plans don’t provide enough coverage. According to survey data, Americans were unable to meet their medical needs because of cost more often than citizens of ten comparable countries ( OECD , Table 6.1.3).

That statistic applied to lower-income Americans, as might be expected. But interestingly, it was also true for higher-income Americans – those that are most likely to have private health insurance. 39 percent of Americans with higher-than-average income had an unmet medical need due to cost in 2010. For the runner-up, Germany, that figure was 27 percent. (It was 12 percent in Switzlerland and 4 percent in Great Britain.)

Higher-income Americans also led the pack in reporting out-of-pocket expenditures of $1,000 or more per year, along with their lower-income peers, with 45 percent in the higher-earner category spending that much or more per year. The figure was 37 percent for runner-up Switzerland. It was 2 percent in Sweden. And in much-reviled “socialist” Great Britain the figure was effectively zero.

These results reinforce the findings of studies on medical bankruptcies by Prof. Elizabeth Warren, which showed that medical costs were a dominant reason for bankruptcy even for people with health insurance. (She was officially sworn in as Senator Warren today – congratulations!)

Mistreated

Where does all the money go? Much of it goes to profit margins for private insurance companies, of course. (They’re experts at understanding their margins, which are much higher than most observers believe.)  There are also profit margins for a number of health providers, including for-profit hospitals, medical imaging companies, and physician practice management groups.

Underlying much of our explosive cost growth is the phenomenon we described in “Sick Money“: Investors like Bain Capital buy up health care companies, load them up with debt, and demand highly aggressive profit margins. Many of them respond to the problem the way the Bain companies did in our piece: through fraud.

But many other providers overtreat, subjecting the population to a barrage of needless (and sometimes invasive) procedures while other basic health needs go unmet.

Here are two more OECD statistics that illustrate the point:

The United States is second only to technology-crazed Japan in the prevalence of high-cost (and high profit) MRI and CT devices for medical imaging, both in hospitals and in free-standing facilities. Many American facilities were financed by physicians who send their patients there, which poses a significant conflict of interest and which both public and private insurers have been attempting to limit. Many others are owned by sales-driven chains. Unsurprisingly, studies suggest there is significant overuse of this equipment in the United States.

And let’s not forget drugs. When it comes to per-person pharmaceutical costs the United States is off the charts, spending $947 per person on average. That’s nearly twice the OECD average of $487.

And remember: Congress won’t even let Medicare negotiate with the drug companies.

Fixable

Pharmaceutical corporations, for-profit hospital companies, private insurers — our system is sick. The diagnosis: Corporate greed.

Our “sick secret” can be fixed. In our next piece we’ll discuss how to attack it — and what it will take to shift the debate away from a “consensus” plan to adopt the miserly failures of austerity and toward real solutions that can restore our Federal budget – and us – to health.

 The Deadly Secret About the Fiscal Cliff Charade | Alternet.

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The Emergency Debt Plan That Would Put U.S. Citizens Second – NationalJournal.com

Posted by Michael B. Calyn in Economy, Government on January 8, 2013


The Emergency Debt Plan That Would Put U.S. Citizens Second

By Niraj Chokshi

Updated: January 7, 2013 | 6:00 p.m. 
January 7, 2013 | 5:23 p.m.

AP PHOTO/BRADLEY C. BOWER, FILE

If the government hits its borrowing limit, Social Security checks, above, could be delayed.

In just a few weeks, the federal government won’t be able to pay all its bills on time. If that happens, the nation could start paying its lenders, many of them foreign, before its citizens.

At some point no later than March 1, the government will reach what the Bipartisan Policy Center has ominously named the X-Date, “the day on which Treasury no longer can pay the debts of the United States except with money that is coming in on that day,” according to Steve Bell,  the center’s senior director of economic policy and a former longtime senior Capitol Hill staffer. Unless Congress intervenes to raise the country’s borrowing limit, the U.S. will default on its debt. There might be one way for the government to avoid defaulting, however. Treasury could pick and choose which bills to pay, with a preference toward paying interest on U.S. debt, much of it held by foreign investors.

Between Feb. 15 and March 15, the BPC predicts the nation will collect just $277 billion to pay $452 billion in obligations, including payments related to tax refunds, Medicare and Medicaid, Social Security, debt interest and more. In other words, Treasury will only collect enough to meet about 60 percent of its obligations.

The process of paying off the interest on the debt before other obligations is called “prioritization,” and it was proposed during the last debt-ceiling fight in 2011 and more recently by Pennsylvania Republican Sen. Pat Toomey. The reasoning behind it is simple: The United States’ reliable payment on its debts is crucially important, not just to the nation but to the world, which uses U.S. debt as a basic benchmark for all kinds of other financial instruments. If the nation were ever to stop meeting its debt obligations, the ripple effect would be devastating.

“We’re talking about the reserve currency of the world, we’re talking about the deepest and most liquid markets in the world …  and we’re talking about the possibility of that country not meeting its financial obligations,” said the BPC’s Bell, who in a Monday meeting with reporters described how prioritization could work, though neither he nor the group endorses it.

So how does the government maintain its debt obligations, even if lawmakers fail to raise the debt ceiling? Simple: End, reduce, or delay other payments, such as those to Social Security, Medicare or Medicaid beneficiaries or to government contractors.

“Projects would be postponed, some vendor payments would be delayed, certain programs would be suspended, and many government employees might be furloughed,” Toomey wrote in a Wall Street Journal op-ed two years ago, describing the effects of prioritization. “Default would easily be avoided, but these cuts would certainly be disruptive.” Toomey sponsored a bill (which went nowhere) that would have provided Treasury with the authority to prioritize its bills just in case a potential default scenario was reached.

But whether Treasury currently has authority to decide the order it pays its bills is up for debate. The administration and Treasury Department have argued that it doesn’t. “Legislation to ‘prioritize’ payments would simply represent default by another name,” according to Treasury. And one official at Standard & Poor’s, which downgraded the government after its last debt-ceiling fight, told The Wall Street Journal that the debt could be downgraded—with potentially damaging consequences for confidence and the economy — even if prioritization were employed.

On March 1 alone, the BPC’s outside estimate of when the nation will truly hit its debt ceiling, the government is expected to collect only one-fourth of the amount it needs to pay out — enough to cover Medicare and Medicaid payments, but nothing else.  

Treasury is currently using so-called “extraordinary measures” to postpone hitting the debt limit, but has yet to release an official estimate of when the borrowing limit will be reached.

 

 

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