Posts Tagged ‘economists’

How the Media Sold Their Souls to Wall Street

October 3, 2008

by Josh Silver

If you are like me, the pundits, and 99.9% of the American public, you really don’t know much about economics. And despite Monday’s refreshing moment of rebellion in the Congress, in all likelihood the House and Senate will pass a modified version of the $700 billion handout this week to fat cat Wall Street financiers.

The likely result, according to Nobel economist Joseph Stiglitz: “The unemployment rate will still increase, growth will remain anemic, house prices will continue to fall, the number of houses in foreclosure will continue to rise, credit will be harder to get, states and localities will remain in a fiscal crisis, and there will be cutbacks in basic public services. …. Our living standards in the future will be lower than they otherwise would have been. ”

Here’s the problem: None of us really know that the hell is going on, and what the largest financial bailout in the history of our nation would actually achieve. Based on McCain and Obama’s hasty support of the bailout, it would seem they are both too far under the thumb of Wall Street to look at viable alternatives to an unprecedented handout to the same reckless bankers who got us into this mess.

And like they did in the run-up to war in Iraq and the passage of the Patriot Act, the media are compounding the problem rather than helping it. While TV devotes 24/7 coverage to pretending that mudslinging Democrats and Republicans represent the full range of debate, while right-wing radio hosts scream socialism, and while pundits like Thomas Friedman implore Congress “to give them the capital and the flexibility to put out this fire,” the American people are getting virtually no hard economic analysis about what the bailout would achieve or what the range of options are.

Why aren’t Luc Laeven and Fabian Valencia on television right now? They just submitted a comprehensive report to the International Monetary Fund after studying 42 banking crises over the past 37 years. Their conclusion: Bailouts often do not work, they often result in more bad practices, and they distort economies by transferring wealth from taxpayers to bankers and their customers.

Why hasn’t economist Dean Baker been invited onto a single television program in the past week ? He is one of the guys who actually predicted the current crisis. He wrote this week: “There is no way that the failure to do a bailout will lead to more than a very brief failure of the financial system. The worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours. Then the Fed steps in and takes over the major banks. The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money. In other words, the banks have a gun pointed to their heads and are threatening to pull the trigger unless we hand them $700 billion.”

Why isn’t New York University economist Nouriel Roubini all over the news right now? He says the claim that “spending $700 billion of public money is the best way to recapitalize banks has absolutely no factual basis or justification. This way of recapitalizing financial institutions is a total rip-off that will mostly benefit – at a huge expense for the U.S. taxpayer – the shareholders and even unsecured creditors of the banks. ….The pockets of reckless bankers and investors (will) have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession.”

Roubini continues, “Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money. It is pathetic that Congress did not consult any of the many professional economists that have presented alternative plans that were more fair and efficient and less costly ways to resolve this crisis. … and it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners.”

But turn on your television – the place where more than 60% of Americans get their primary news – turn on your radio, or open your local newspaper, and you’re not going to see what these top economists are saying. It’s a McCain quote, an Obama sound byte, and the same pundits who have proven their incompetence over and over. The result is an American public that is fundamentally uninformed about the issues that matter most – like economics, health care, and war – and over-informed about those that matter least: sports, celebrity, the latest campaign ad, and horserace analysis of elections.

We have no reason to believe that the press — and along with it, most politicians — will ask the tough questions, expand the range of debate, and bring the facts to the American people. But until they do, our economy – and our democracy — will continue its race to the bottom.

Josh Silver is the Executive Director of Free Press a national, nonpartisan organization that he co-founded with Robert McChesney and John Nichols in 2002 to engage citizens in media policy debates and create a more democratic and diverse media system.

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The Rise Of The American Oligarch Class

September 30, 2008

The Paulson Plan

Robert Wenzel | Information Clearing House, Sep 29, 2008

The word oligarchy dates back at least to the time of Aristotle and comes from the Greek words for “few” (λίγον olígon) and “rule” (ρχω arkho). An oligarchy is generally considered any form of government where a small elite segment of society, be they from royalty, wealth, family or military, rule. The most current day popular meaning associates an oligarch with an extremely wealthy person who acquires his wealth, or increases it significantly, by incorporating the use of government influence. Oligarchs are not the only ones who become rich, but their success and secretive influence over governments put them into a separate class.

A recent example of a major grab of power and wealth in this type of oligarch fashion comes from the period of the collapse of the Soviet Union. In the confusion during the collapse, and the rise of Boris Yeltsin as president of Russia, the oligarchs made their move. With relatives or close associates as government officials, sometimes even government officials themselves, they achieved vast wealth by acquiring state assets very cheaply during the so-called “privatization” process controlled by the Yeltsin government.

The current $700 billion Paulson bailout plan has brought to the forefront a new class of what must be called American Oligarchs and oligarch wannabes. Some may have originally earned their wealth by supplying consumers with desired goods, but at some point they crossed over to the dark side to use government as a vehicle to take from the poor and the middle class to give to themselves. Others, never produced an honest product and have been career long parasites on the working classes.

It is instructive that outside of this small group of oligarchs and wannabe oligarchs, few appear to have been in favor of the Paulson “bailout”. (Note: The use of the word “bailout” to describe the Paulson Plan is a misnomer, see my column: THE BIG LIE: The Supposed Paulson ‘Bailout’ Plan).

A letter circulated and signed by many academic economists was sent to Congressional leaders objecting to the plan. The Austrian economists, who are the only ones who understand the business cycle, as would be expected also objected to the plan (See Rockwell: Stop the Bailout and Murphy: The Government Is Not Promoting Stability ).

Even some bankers have objected:

U.S. Treasury Secretary Henry Paulson’s proposed $700 billion bank rescue aims to help “poorly run” companies and the primary beneficiaries would be Goldman Sachs Group Inc. and Morgan Stanley, said BB&T Corp. Chief Executive Officer John Allison in a critique of the plan.

Treasury “is totally dominated by Wall Street investment bankers” and “cannot be relied on to objectively assess” the impact of government policy on the financial industry, Allison wrote in a Sept. 23 letter to Congress…

Allison, 60, said Congress should “hear from well-run financial institutions” as lawmakers consider the plan, which seeks to ease the credit crunch by buying troubled mortgage- related assets. Under Allison, Winston-Salem, North Carolina- based BB&T avoided the subprime mortgage market, whose collapse led to the credit crisis. BB&T has risen 26 percent this year, the best showing in the 24-company KBW Bank Index.

From the right, Newt Gingrich has called the plan “stupid.” From the left, Paul Krugman opposed the plan, calling it “Cash for trash.”

Most noteworthy is the fact that the notoriously pro-Bush FOX television network carried this AP report:

There is scant public support for President Bush’s $700 billion federal rescue plan for the U.S. financial industry and little expectation it would solve the crisis that has roiled the markets and hobbled some of the country’s largest investment firms, according to a poll released Friday.

Just 30 percent of Americans say they support Bush’s package, according to an Associated Press-Knowledge Networks poll released as White House and congressional leaders struggled to rescue the plan after House Republicans rebelled against it. Despite the president’s pleas that the package is urgently needed to prevent an economic meltdown, 45 percent say they oppose Bush’s proposal while 25 percent said they are undecided.

Yet, despite the extremely limited support for the plan, the Oligarchs prevailed and Paulson’s Plan will become law. Indeed, the Oligarchs were out in full force to support the legislation. As I have pointed out before, Paulson with his Goldman Sachs connections must be considered an oligarch, but there are others.

Billionaire David Rubenstein, co-founder of the politically connected Carlyle Group, has come out in favor of Paulson’s Plan. Rubenstein told CNBC that he hopes Congress will move quickly to approve the rescue of the U.S. financial system.

Carlyle Group almost has too many ways to benifit from Paulson’s Plan to count. They ran a mortgage securities firm that went under. Those securities will be coming up for sale under a reorganization, just in time for purchase by the Treasury.

The Federal Reserve has changed regulations which will allow them to buy larger stakes in bank stocks. And Rubenstein wants to buy some of the paper the Treasury acquires. “Private equity can help by buying these assets,” he told CNBC. “Private equity can be among the most significant buyers of assets.”

Billionaire Warren Buffett is in favor of the plan, and he just bought, through Berkshire Hathaway, a $5 billion stake in Goldman Sachs. Goldman Sachs just received approval from the Fed to become a bank holding company, so that they can buy up troubled banks (And then sell the troubled mortgages of the banks to the Treasury?). Buffett called Paulson’s plan “absolutely necessary” and said that “I am betting on the Congress doing the right thing for the American public and passing this bill,”

Billionaire Wilbur Ross , through a firm controlled by Ross, bid $435 million last September to buy the service unit of American Home Mortgage, which collects payments from homeowners. He is in favor of Paulson’s Plan and penned a column published at the New York Post to say so, “…we need this passed, and passed quickly…,”wrote Ross.

There are likely other oligarchs who maintain a low profile and keep their names out of the headlines, and there are oligarch wannabes like former New York City Mayor Rudy Giuliani . Giuliani has put out a press release advising that his firm has formed a “task force” to “guide financial institutions, private investment funds, institutional investors and other market participants through the legislative, regulatory and enforcement challenges posed by the” Paulson Plan.

Clearly, the new oligarchs have arrived in America. It will mean a lower standard of living for the rest of us as it is clear by the Paulson Plan that they are not afraid to think big when grabbing money from the populous at large. Further, they have the political skill and influence to get the legislation passed that will benefit themselves even when there is virtually non-existent popular support. Be scared, very scared. The new American Oligarchs now rule financial America and there is no such thing as enough with them. They will be back for another big bite from our wallets and income streams, all too soon.

Update: Word has reached me (HTrpm) that snuck into Paulson’s plan are changes that will make it easier for the Fed to inflate the money supply. So is the play for the Oligarchs to grab the banks, the assets and the mortgages and then inflate the money supply boosting the value of all these assets by trillions, while the rest of us simply get to deal with the price inflation as higher prices at the grocery store, the gas pump and everywhere else?

Robert Wenzel is an economic consultant and Editor & Publisher of EconomicPolicyJournal.com. He can be reached at rw@economicpolicyjournal.com.


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