Another Bank Bailout!

The Daily Escape:

Pronghorn in Las Cienegas National Conservation Area, AZ  – March 2023 photo by Alan Nyiri Photography

More about the Silicon Valley Bank (SVB). A joint announcement by Treasury Secretary Yellen, Fed Chair Powell, and FDIC Chairman Gruenberg said:

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13…”

This appears to be the mechanics of the bailout:

  1. The Fed gives money to the FDIC as needed.
    2. The FDIC makes all deposits available on Monday. Not just those that are FDIC-insured.
    3. The FDIC then sells the assets of the banks, which will take time.
    4. The difference between the cost of bailouts and the net proceeds from the asset sales is the actual amount the FDIC will have lost.
    5. The FDIC will charge all other banks a “special assessment” to cover the losses.
    6. The FDIC will then pay the Fed back with the special assessment funds it collects.

Much about this makes Wrongo’s blood boil. We have a well-defined regulatory system for the US banking industry. But, as with our lax regulation of train traffic that resulted in the Norfolk Southern accident in East Palestine, these pesky banking regulations were considered a major impediment to Mr. Market.

Regional banks argued that they shouldn’t be held to the same standards as the biggest banks because if they failed, they wouldn’t pose systemic risks to the banking industry or the nation.

So in 2018, Dodd-Frank was amended by the Trump administration to raise the asset threshold at which a bank would be considered “too big to fail” from $50 million to $250 billion. The 2010 original law required that banks considered systemically important keep more capital on hand, undergo stress tests and produce a “living will” that would provide for their orderly dissolution.

But now five years later, the FDIC says that SVB and Signature Bank in NY really do pose a systemic risk to the banking system! The regulators are saying that the threat of a systemic risk gives them the authority to hold all SVB depositors harmless, even if their deposits exceed the current FDIC maximum of $250,000.

Few if any average Americans have $250,000 in a single bank account. Who has bank accounts above $250,000? Corporations.

The FDIC insurance on deposits is meant to assure retail customers, not companies that hold very large balances. Why? Because companies have the ability to perform their own risk analysis. This risk analysis should force them to ask questions about the business practices of the bank, to make sure the bank will properly manage their assets.

The US is going to protect the deposits of corporations in this bailout despite the fact that there’s a product called “Insured Cash Sweep” that cuts your large deposits into pieces that are FDIC insured (i.e. $250k each). In the event of a bank run, those deposits would not be over the limit, so they would be safe.

But, for reasons unknown, the Silicon Valley Venture Capital masters of the financial universe didn’t deign to use it.

American capitalism remains a system that privatizes profits until shit happens. And then? We socialize the losses, meaning it’s up to the federal government and taxpayers to handle the problem. When Biden says the banking system will pay fees via a special assessment, that means the cost will ultimately be paid by depositors and borrowers through higher fees and interest costs.

This is why people have so little faith in our government.

The very serious people in finance and politics were worried that the 2023 version of the US banking system might be close to another 2008-style collapse. So the Treasury, Fed and FDIC had to step in.

The basic problem relates to what’s called “asset management” in the banking biz. The goal of asset management is to maximize the return of the bank’s investment portfolio while maintaining an acceptable level of both liquidity and risk.

For banks, that means keeping a certain amount of cash available to meet the needs of depositors and investing the rest in loans or bonds. SVB invested in long-term bonds in order to realize better returns on their investment portfolio, because short-term interest rates were very low. They, like others, felt it was necessary to maintain a portfolio of higher yielding assets to offset the low market rates generally available to them.

But when mass withdrawals from depositors started to happen, they had to sell bonds at a loss, ultimately leading to default and FDIC takeover. Wasn’t it the job of the SVB executives to foresee this? And adjust their asset management accordingly?

This seems to mean that the $250,000 FDIC limit has effectively gone away. If true, there’s systemic risk that taxpayers will have to bail out bank deposits with uninsured deposits at any bank. Most of those depositors will be corporations. So, new rules must be written. And until then, we’re in trouble.

The big picture is that very few people of means in America ever pay a price for bad management.

And none go to jail.

Average Americans who get caught cheating on their taxes might go to jail if you were represented by an overworked public defender. But if you had the means to hire a high-priced lawyer, most likely, you will get community service, or probation.

It’s never been a fair system. Back in the 2008 Great Financial Crisis, then-Treasury Secretary Timothy Geithner worked to save his banker cronies; they didn’t lose money. They didn’t go to jail. The economy was saved, but no one who profited from blowing it up paid a price.

The bottom line: If I’m bad at my job, I’ll get fired. If these bankers are bad, they may get rescued by the government.

And one way or another, we’ll be paying for it.

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Saturday Soother – February 17, 2023

The Daily Escape:

Where desert meets mountains, near CA/NV border –  February 2023 photo by Austin James Jackson

Liz Hoffman at Semafor has a short analysis of the value of credit card loyalty programs to airlines. Many of us have them and we use them to purchase our everyday goods in order to earn air miles or points that we later use to get a seat upgrade, or to fly for free.

Everyone knows about this “perk” from the airlines, but few of us know just how profitable these programs are to the carriers. It turns out that they are the most lucrative assets on airlines’ balance sheets. The uncertain profitability of the airline business makes them very important since the airlines often lose money.

The airlines used to be secretive about just how profitable their frequent-flier programs were. But, when they were in deep financial trouble during the pandemic, several US carriers pledged their loyalty programs as collateral for new loans when other financing failed.

That required the airlines to open the books on their loyalty programs. And now we’ve learned that their credit card businesses are more valuable to shareholders than their basic business of flying planes. From Hoffman:

“It turns out that United’s rewards card program with JPMorgan Chase is valued today at $22 billion. But United’s market capitalization is $16 billion, meaning investors are assigning negative value to the part of its business that flies airplanes. The same goes for American and Delta.”

From a market valuation perspective, the basic businesses of the big three US airlines are under water. Hoffman provides an eye-opening chart showing that the airlines’ huge investment in aircraft and ground operations doesn’t produce a dime of market value for their shareholders:

As you can see, none of the big three US carriers get any incremental market value from flying planes. So should they either sell off all of that hardware, or spin off their credit card businesses?

They can’t. They need the flights to create demand for the points/miles. The secret sauce behind the success of their loyalty programs is that the actual value of an air mile isn’t clear. Customers think they’re getting a $3,000 upgrade to first class for a few thousand points, while the airlines know that the upgraded seat is unlikely to sell at all, and if it does, it won’t be for anything like that amount.

Foreign carriers have less reliance on their rewards programs. Many operate with government subsidies, so their flights are more profitable. And they serve consumers who are less comfortable with plastic. So their market valuation is less dependent on loyalty programs:

We have to assume that the board members of the airlines have always known about the value of their loyalty programs. But now everyone is seeing the potential value, and the airlines might be thinking that they can wring even more value from them.

What’s distressing about this is that the airlines needed bailouts only two years ago during Covid. The US airlines received $54 billion in federal aid to pay workers during the Covid pandemic. That agreement prohibited them from share buybacks.

That’s because they had continuously bought back shares in the years prior to the bailout. The four biggest US carriers — Delta, United, American, and Southwest — spent about $40 billion buying back their companies’ stock between 2015 and 2020. That effort to improve their market valuation failed spectacularly, since their loyalty programs are now worth more than the companies themselves.

America added a 1% tax on buybacks excise tax for buybacks this year, passed as a part of the Inflation Reduction Act. This will help reduce the deficit and might dampen American corporations’ appetite for stock buybacks. The largest US airlines are making money again, and labor unions don’t want them to spend it on more stock buybacks. In a public petition, some of the largest airline labor unions — representing more than 170,000 pilots, flight attendants, customer service agents — are urging carriers to stabilize operations and invest in workers before spending on buying back more of their stock. We’ll see if that ever happens.

Enough high finance, it’s time for our Saturday Soother. Here on the Fields of Wrong, we’ve had a few warm days that led to the beginning of our spring cleanup. To settle into your soother, grab a mug of coffee and a seat by the window. Start by forgetting about Nikki Haley’s campaign or what to do now that football is over.

Now listen and watch Renée Fleming sing “Nacht und Träume” (Night and Dreams) written in 1825 by Franz Schubert conducted by Claudio Abbado with The Lucerne Festival Orchestra in 2005:

 

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GOP Attacks ESG Investing Rule

The Daily Escape:

Lake Sammamish, Issaquah, WA – February 2023 photo by Everything Washington

Are you following the Republican war on ESG? ESG stands for Environmental, Social, and Governance, key criteria that may impact a company’s market valuation and its business behavior. ESG has become a red line for Conservatives, who argue that companies that follow it are failing to live up to their fiduciary duty to maximize profits for investors.

The jury is still out on whether ESG investing delivers the same, better, or worse returns. But, despite any definitive evidence, Republicans hate ESG investing. From Semafor’s Liz Hoffman:

“Last year, Republican-controlled legislatures began passing laws blacklisting state investment funds from doing business with money managers that pushed what they deemed to be liberal agendas, like boycotting gun manufacturers and mining companies. BlackRock, run by Larry Fink, an outspoken supporter of so-called ESG principles, has taken the brunt of the pressure, with at least 10 states pulling their money from his firm or threatening to.”

For the many Republican state governors, treasurers, and attorneys-general who joined in, it’s turned out that several hadn’t done their financial homework before joining the culture war. Some failed to calculate the financial cost of their ideological stance. Semafor cites a few examples:

  • Indiana’s budget office found that a bill forcing state pension funds to divest from “woke” money managers would cost $6.7 billion over the next decade in lower-than-market returns. That also would force retirees to increase their paycheck contributions.
  • Executives in one of Kentucky’s retirement funds argued with the state’s treasurer that a recent law requiring them to pull money from BlackRock and 10 other firms seen as hostile to the energy industry would violate their duty to get the highest returns for pensioners.
  • A 2021 Texas investment blacklist cost municipalities an additional $303 million to $532 million in bond interest, according to a study by University of Pennsylvania. JPMorgan, Citigroup, and other banks left the state after the law was passed, leaving less competition for bond underwriting. That raised interest rates about 40 basis points.
  • North Dakota voted down, 90-3, a Texas-style bill that would have required the state treasurer to prepare a blacklist of financial firms that have committed to reducing carbon emissions, but would have stopped short of banning state investment funds from doing business with them.

Hoffman concludes that:

“Owning the libs turns out to be expensive.”

There are always trade-offs between principles and profits. Whether Republican politicians decide the political value of the fight offsets the lost profits is another question. This will at some point become a question for voters, who are the taxpayers and pensioners effected by these decisions.

In one way the GOP has already won a battle in the culture war on ESG. BlackRock has changed its marketing to tout its investments in fossil fuels. It also deployed new technology that allows investors to cast their own ballots in corporate elections instead of outsourcing their votes to the firm. Black Rock hopes these moves may blunt criticism that they are pushing a progressive agenda.

But the GOP isn’t giving up on fighting ESG. Politico is reporting that Sen. Mike Braun (R-IN) has offered a joint resolution under the little-known Congressional Review Act  (CRA) to overturn the Department of Labor’s recent rulemaking on ESG investing. The new rule took effect on January 30.

The rule allows fiduciaries to take ESG factors into consideration when choosing retirement investments. It potentially impacts the retirement savings of 152 million American workers whose accounts are governed by the Employee Retirement Income Security Act, or ERISA. From Braun:

“You cannot direct funds…to ESG. You’ve gotta go for whatever is going to give you the best financial return….That doesn’t mean that someone couldn’t choose to tell their broker to invest in ESG.”

Braun has 60 days to gather a majority in the Senate to overturn the rule. His has all 49 Republican Senators and Democrat Sen. Joe Manchin. If Braun can get 51 votes in the Senate, and given that the House is controlled by Republicans, the new rule would go away.

OTOH, a study by Penn State found that 70% of registered Republicans surveyed opposed government interference in ESG investments, higher than Democrats with the same position (57%). From Forbes:

“This exposes an irony at the heart of the ESG culture war: right-wing critics are seeking to actively interfere in decisions made by investment professionals about how to safeguard their clients’ money. In any other context, they’d be up in arms about the very thing they’re doing here.”

How silly to expect consistency from the GOP. We’ll see if Braun can find another Democrat in the Senate to join the Republican culture war on ESG.

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Auto Loan Delinquencies Are Rising

The Daily Escape:

Tetons twilight from Snake River overlook, WY – November 2019 photo by timtamtoosh. Ansel Adams once shot a picture from this spot.

From Wolf Richter:

“Serious auto-loan delinquencies – auto loans that are 90 days or more past due – in the third quarter of 2019, after an amazing trajectory, reached a historic high of $62 billion, according to data from the New York Fed today….”

Total outstanding balances of auto loans and leases in Q3, according to the New York Fed, rose to $1.32 trillion. That $62 billion of seriously delinquent loan balances are what auto lenders, particularly those who specialize in subprime auto loans, are now attempting to either get to current status, or to repossess. If they cannot cure the delinquency, they’re hiring specialized companies to repossess the vehicles, which will then be sold at auction. And the repo business is booming!

The difference between the loan balance and the proceeds from the auction, plus all of the costs involved, are what a lender stands to lose on each delinquent loan.

Worse, lenders are still making new subprime loans, and a portion of those loans will also become delinquent, and a smaller portion of them will default. Wolf helpfully adds a chart that shows today’s level of delinquencies as a percentage of the auto loan portfolio is the same as it was in 2009, when we were in the middle of the Great Recession:

It’s useful to remember that in 2009 and 2010, the US was confronting the worst unemployment crisis since the Great Depression. People were defaulting on their auto loans because they’d lost their jobs. That isn’t the case today, we’re near full employment.

Let’s differentiate “Prime” auto loans and leases from “Subprime”. Prime auto loans have minuscule default rates. Of the total of $1.3 billion in auto loans and leases outstanding, according to Fitch, Prime auto loans currently have a 60-day delinquency rate hovering at a historically low 0.28%.

That means that most of the delinquencies are in the subprime category. In fact Wolf says: (emphasis by Wrongo)

“Of the $1.32 trillion in auto loans outstanding, about 22% are subprime, so about $300 billion. Of them roughly, $62 billion are seriously delinquent…around 20% of all subprime loans outstanding.

We know that the subprime delinquencies are not caused by an employment crisis or, by the brutal recession we endured during the 2008 financial crisis. Employment is still growing, and unemployment claims are near historic lows. But subprime auto loans are defaulting at very high rates.

What’s going on? It’s car dealers’ greed. They’re striving to sell more cars. Customers with a subprime credit rating have already been turned down when they try to buy things on credit. But, when they walk on a car lot, their bad credit rating is magically no longer an issue.

The dealers know they’re sitting ducks, who won’t negotiate. They accept the price, the monthly payment, and the trade-in value. They’re just happy to be in a new car. When they drive off the lot, they have a high monthly payment, which, since they already have trouble making ends meet, will soon be late, or in default.

The subprime car buyers really have little choice if they need a car to get to work. Poor people are smart about doing what it takes to survive: If you don’t have a down payment or a good credit rating, and need a car to keep your job, it means a bad deal is better than no deal.

They take the bad deal because if things get worse, they probably will only lose the car.

The kicker is that auto loans aren’t the loan category with the highest delinquencies. Student loans have even higher delinquencies:

  • Outstanding student debt stood at $1.50 trillion in the third quarter of 2019, an increase of $20 billion from Q2 2019
  • 9% of aggregate student debt was 90+ days delinquent or in default in Q3 2019

The student loans total of about $1.5 trillion, is higher than the $1.32 trillion of auto loans.

The system is broken. Someday soon, the job market will deteriorate. We’ll be back listening to why we should bail out lenders and investors who lend, securitize, and sell these loans to investors who are chasing yeild.

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Boeing: Poster Child for Capitalism Reform

The Daily Escape:

La Sal Mountains in background, Canyonlands NP and Colorado River in foreground, UT – 2019 photo by Larnek

The Boeing 737 MAX story is getting worse. Just when you thought you had the whole story, you find more ugliness underneath. Ralph Nader published an open letter to Dennis A. Muilenburg, CEO of Boeing, and it’s quite the takedown, capturing the essence of Boeing’s problem:

“Aircraft should be stall-proof, not stall-prone.”

The stall-prone MAX was supposedly fixed, but then it failed. Nader has a personal interest in the MAX’s problems, since his niece, 24-year-old Samya Stumo, was among the 157 victims of an Ethiopian Airlines flight crash last month. Here’s a part of his letter:

“Your narrow-body passenger aircraft – namely, the long series of 737’s that began in the nineteen sixties was past its prime. How long could Boeing avoid making the investment needed to produce a “clean-sheet” aircraft and, instead, in the words of Bloomberg Businessweek “push an aging design beyond its limits?” Answer: As long as Boeing could get away with it and keep necessary pilot training and other costs low…as a sales incentive.”

Nader draws a connection between Boeing’s decision to “push an aging design” and their financial engineering.

“Did you use the $30 billion surplus from 2009 to 2017 to reinvest in R&D, in new narrow-body passenger aircraft? Or did you, instead, essentially burn this surplus with self-serving stock buybacks of $30 billion in that period?”

Nader notes that Boeing is one of the companies that MarketWatch labelled as “Five companies that spent lavishly on stock buybacks while pension funding lagged.” Their pension fund is only 79.6% funded. More:

“Incredibly, your buybacks of $9.24 billion in 2017 comprised 109% of annual earnings….in 2018, buybacks of $9 billion constituted 86% of annual earnings….in December 2018, you arranged for your rubberstamp Board of Directors to approve $20 billion more in buybacks.”

Nader’s focus on stock buybacks shows that Boeing had the capital to invest in developing a new plane. From Bloomberg in 2019:

”For Boeing and Airbus, committing to an all-new aircraft is a once-in-a-decade event. Costs are prohibitive, delays are the norm and payoff can take years to materialize. Boeing could easily spend more than $15 billion on the NMA, according to Ken Herbert, analyst with Canaccord Genuity….”

NMA means the New Middle-of-the-Market Aircraft. Boeing has already spent a total of $30 billion in share repurchases, with another $8 billion to come in 2019. A new aircraft would have cost half of that amount.

The main reason may have been Boeing’s earlier problems with the launch of the 787:

“In the summer of 2011, the 787 Dreamliner wasn’t yet done after billions invested and years of delays. More than 800 airplanes later…each 787 costs less to build than sell, but it’s still running a $23 billion production cost deficit.…”

The 737 MAX was Boeing’s answer. It allowed them to continue their share buybacks while paying for the 787 cost overruns. Abandoning the 737 for a new plane would’ve meant walking away from its financial golden goose. OTOH, someone should be responsible for the 346 deaths Boeing’s MAX has caused.

Finally, there are reports that some pilots are giving the MAX a vote of no confidence. The FAA has opened another 737 Max investigation based on reports on the FAA whistleblower hotline:

“A source familiar with the matter says the hotline submissions involve current and former Boeing employees describing issues related to the angle of attack sensor — a vane that measures the plane’s angle in the air — and the anti-stall system called MCAS, which is unique to Boeing’s newest plane.”

Reuters says:

“American Airlines pilots have warned that Boeing’s draft training proposals for the MAX do not go far enough to address their concerns, according to written comments submitted to the FAA.”

Stock buybacks like Boeing’s were once illegal because they are a type of stock market manipulation.

But in 1982, then President Reagan wanted to do his banker buddies a favor. So his Securities and Exchange Commission passed rule 10b-18, which created a legal process for share buybacks. That opened the floodgates for companies to start repurchasing their stock en masse.

Is it too much to ask that the Boeing CEO be asked to resign, even if he did kill a lot of people?

After all, wasn’t he only trying to maximize shareholder value?

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Monday Wake Up Call – March 18, 2019

The Daily Escape:

View from Angel’s Landing, Zion NP – 2019 photo by ducc517

Sen. Elizabeth Warren (D-MA) says that she favors “capitalism with serious rules.” David Leonhardt wrote in Sunday’s NYT:

Her platform aims to reform American capitalism so that it once again works well for most American families. The recent tradition in Democratic politics has been different. It has been largely to accept that big companies are going to get bigger and do everything they can to hold down workers’ pay. The government will then try to improve things through income taxes and benefit programs.

Warren is trying to treat not just the symptoms of inequality, but the underlying disease. Warren also called for an annual wealth tax, for people with assets greater than $50 million. She has proposed a universal child-care and pre-K program. She favors tougher guidelines on future mergers, and also a breakup of the giant tech companies (Google, Facebook) that resemble monopolies.

Of the current crop of Democrats, she’s the reform capitalism candidate. But one idea that Warren hasn’t espoused is the Financial Transactions Tax, (FTT). Wrongo first wrote about a FTT in March 2013.

Sen. Brian Schatz, (D-HI) and Rep. Peter DeFazio (D-OR) introduced a tax of one-tenth-of-one-percent, or 10 basis points (100 basis points equals 1 percentage point), on securities trades, including stocks, bonds, and derivatives. The CBO estimates that the FTT would raise $777 billion over 10 years. Sens. Chris Van Hollen (D-MD), Jeff Merkley (D-OR), and Kirsten Gillibrand (D-NY) are co-sponsors of the bill.

For the math-challenged, 10 basis points on a $1,000 trade equals one dollar. Jared Bernstein says:

FTTs exist in various countries, including the UK and France, with Germany considering the tax (also, Brazil, India, South Korea, and Argentina). The UK is a particularly germane example, where an FTT has long co-existed with London’s vibrant, global financial market.

More from Bernstein: (brackets by Wrongo)

Because the value of the stock holdings is highly skewed toward the wealthy, the FTT is highly progressive: The TPC [Tax Policy Center] estimates that 40% of the cost of the tax falls on the top 1% (which makes sense as they hold about 40% of the value of the stock market and 40% of national wealth).

Vox also reports that an FTT would mostly affect wealthy Americans, because an estimated 84% of the value of stocks is owned by the wealthiest 10% of households. Schatz isn’t the first Democrat to suggest an FTT, Bernie Sanders ran on a similar idea in the 2016 Democratic primary. He pitched it as a way to pay for free college.

Globally, there is plenty of experience with FTTs. In the UK, a 0.5% “stamp tax” is charged when someone buys shares on the stock market, and the UK market is fine. France in 2012 introduced a tax on financial transactions, and a study from the European Commission found that trading volumes declined slightly, but share prices and volatility weren’t meaningfully changed. France and Germany have pushed for a European Union-wide FTT.

Opponents include the high-frequency traders, who note that even a small FTT could upend their extremely low margin business model. Although a dollar on a $1,000 trade doesn’t sound like much, if the industry is making 4 billion trades a day, it can add up.

Time to wake up and support an FTT, America. Sens Warren and Sanders support this idea, and you should too. Those who think that the government should use the tax code to ensure that everyone has an equal opportunity to get ahead, and that we should do more to ensure the well-being of our citizens aren’t socialists.

If that makes us socialists, then Eisenhower, who presided over a 90% top tax bracket, was also a socialist.

To help you wake up, here’s Steely Dan with “Any World That I’m Welcome To” from their 1975 album “Kay Lied”. This tune gives you the benefit of hearing the late, great, Hal Blaine on drums. Blaine may have been the most recorded drummer in pop music history. From the late 50s through the mid-70s, Blaine did sessions with Sam Cooke, Ray Charles, The Righteous Brothers, Henry Mancini, Ike & Tina Turner, The Monkees, Nancy Sinatra, The Fifth Dimension, The Byrds, Sonny & Cher, Mamas and the Papas, and The Grass Roots.

The famously picky Steely Dan only used Blaine for this one tune:

Those who read the Wrongologist in email can view the video here.

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Sunday Cartoon Blogging – November 4, 2018

Truthout reports:

Wall Street donors have been lavishing the Democrats in the Senate with far more money than their GOP colleagues. The top six recipients (and nine of the top 10) of Wall Street money in 2018 among senators are Democrats. Of the top 20 Senate candidates to receive donations from Wall Street this cycle, 17 are Democrats, up from six in the last midterm in 2014…

Here are the top 12 recipients of Wall Street money. Eleven are Democrats:

Screen shot from Center for Responsive Politics

Why is Wall Street supporting these Dems? Seventeen Democrats helped repeal portions of the Obama-era Dodd-Frank legislation by voting with Republicans on the Dodd-Frank repeal. Nine Democrats also crossed party lines to appoint Goldman Sachs bailout attorney Jay Clayton to lead the Securities and Exchange Commission. 37 Democratic Senators opposed his confirmation.

This is despite Pew saying in a May 2018 poll that two-thirds of Americans support laws to limit money in politics. Truthout says that for this mid-term, Wall Street has donated nearly $43 million to Senate Democrats, compared with only $19 million for Republicans, a departure from typical election years.

The Democrats’ dependence on Wall Street money is not new. In fact, President Obama raised more money from finance than any candidate in history in his first presidential campaign. Even though polling shows deep distrust over Wall Street, most politicians don’t seem to care.

Will taking Wall Street money be worth it? Will McCaskill, Tester and Heitkamp hold on? If voters really want this to change, they’ll have to stop electing politicians who represent Wall Street. On to cartoons:

Will Tuesday bring nightmares?

Tuesday’s choice:

Shouldn’t we be more worried about the gerrymandering, the crooked voting machines, the $ billions in corporate money, and the slander and attack ads?

Trump’s parade:

And a yoga class. The home of the brave has become the fortress of fear:

Keeping out the criminals:

It’s getting tougher for the GOP to keep using terrorism as their rallying call:

 

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Letter From Russia, Part III

The Daily Escape:

The Assumption Cathedral, Yaroslavl, RU. Originally built in 1210, it was  blown up by the Soviets in 1937 as part of their anti-religion policy. This new cathedral was constructed in 2010 on the same spot. In front is an eternal flame memorializing the soldiers and the workers of WWII.

Wrongo and Ms. Right spent the day in Yaroslavl, Russia. It’s a mid-sized town of about 600k residents, and an important port on the Volga River. The Volga is more than 2,000 miles long, tying the western Russian cities together. Yaroslavl is an ancient city, founded in 1010.

In Yaroslavl, we learned two interesting facts about Russian towns. Any town of size has a fortress that includes a church. In Russia, that space is called a “Kremlin”. Second, despite the collapse of the the Soviet Union, statues of the heroes of the revolution were not taken down. The idea is that young people should understand their history, both the good and the bad. Major streets have kept their revolutionary names as well.

Maybe there is a lesson in that for America.

In visiting both tiny towns and large cities, it quickly becomes evident that the peoples of Russia have suffered immensely over the centuries. They endured long periods of starvation, and their losses in blood and treasure at the hands of both their enemies and their rulers were truly extraordinary:

  • As many as 17 million died under Stalin in the Gulags. At their high point, there were thousands of Gulags across the Soviet Union.
  • In WWII, during the war with Germany, Russia lost 27 million people.
  • During the 400 years of serfdom, millions of serfs died during forced labor. They built the palaces, roads and waterways that remain in use today between Moscow and St. Petersburg.

If history teaches us just one thing about Russia, it is that its people know suffering. They have survived, and in Wrongo’s brief visit, appear to have thrived. Stores are full of product, markets are busy with the purchase of fresh vegetables, meats and fish. New cars are on the streets, theaters are open, and everything looks very clean.

How have a people who have endured so much suffering, succeeded in the modern world? How were they not irretrievably damaged by their multiple tragedies?

How are they so resilient?

Perhaps their legendary winters forge a determination to do whatever is necessary to survive a long, hard fight with limited resources. Perhaps Russia’s long history of invasion and occupation by hostile powers has played a role: Russians have been invaded by the Mongols, the Turks, the Poles, the Swedes, the Germans and the French. Their story is ultimately one of resilience despite tremendous loss of life, repeated destruction of infrastructure, and against long odds.

Another thing is that the people seem to have a profound and deep feeling for their homeland, Mother Russia. That seems to be true, regardless of who is in control in the Kremlin, or which Tsar was in charge at the time.

So they fought and died for the motherland, regardless of who was leading them.

Compare that with America’s resilience. How resilient are we, in the 21st Century? We have never faced invasion, but we have faced attack. On our homeland, we fought a seven-year revolution, and a bloody civil war. We’ve faced natural disasters.

After 9/11, we overreacted to the threat of Islamic extremists by weakening our First Amendment rights with the Patriot Act. We launched wars in Afghanistan and Iraq. But, we didn’t come together as a nation. In fact, 9/11 threw gasoline on the fire of America’s already factionalized politics.

When Japan attacked us at Pearl Harbor in 1941, we came together as a people. There were a few who said we shouldn’t go to war, but the vast majority of our people got behind a global war against fascism. We sent our fathers, brothers and husbands off to war. Women worked in the factories for the war effort. Some were on the front lines with the troops. We rationed butter and sugar.

Our people knew hardship, and pulled together in common cause.

The question is: Will today’s America still pull together in common cause? Do we have the strength of character, the grit, to fight for something larger than ourselves? Could we again sacrifice for what we believe to be the right thing?

Our response to the Great Recession of 2008 showed us that in an American financial crisis, it’s every person for themselves, unless that citizen happens to be a financial institution.

When you think about it, do you still love Lady Liberty enough to fight for her?

To send your kids to fight for her?

And, do you think that we love her as much as Russians seem to love Mother Russia?

 

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Monday Wake Up Call – August 13, 2018

(Wrongo will be taking the next few days off. He has blog fatigue, and also needs to work on some deferred maintenance here on the fields of Wrong. He’ll be back later this week, unless events require him to jump back in sooner.)

The Daily Escape:

Abandoned house, Wasco, OR – 2018 photo by Shaun Peterson.

We wake up today to Yanis Varoufakis, the former finance minister of Greece’s, review of “Crashed: How a Decade of Financial Crisis Changed the World” by Adam Tooze posted in The Guardian. Tooze is an economic historian at Columbia University in NYC.

This isn’t a review of Tooze’s book, which sounds fascinating. Rather, it’s a meditation on one of Varoufakis’s ideas in his review of the book. Varoufakis says: (emphasis by Wrongo)

Every so often, humanity manages genuinely to surprise itself. Events to which we had previously assigned zero probability push us into what the ancient Greeks referred to as aporia: intense bafflement urgently demanding a new model of the world we live in. The financial crash of 2008 was such a moment. Suddenly the world ceased to make sense in terms of what, a few weeks before, passed as conventional wisdom – even McDonald’s, for goodness sake, could not secure an overdraft from Bank of America!

Tooze focuses on the causes of the Great Recession in 2008, and the implications for our 10-year long economic recovery. He observes that neoliberalism’s mantra about markets had to be shelved to save the US economy: (emphasis by Wrongo)

Whereas since the 1970s the incessant mantra of the spokespeople of the financial industry had been free markets and light touch regulation, what they were now demanding was the mobilization of all of the resources of the state to save society’s financial infrastructure from a threat of systemic implosion, a threat they likened to a military emergency.

We have no idea where the current aporia will take us, particularly since this “moment” has already lasted 10 years, and the hard-won economic progress may be easily reversed. Varoufakis continues:

Moments of aporia produce collective efforts to respond to our bewilderment. In the late 18th century, the pains of the Industrial Revolution begat free-market economics. The crisis of 1848 brought us the Marxist tradition. The great depression produced both Keynes’s General Theory and Friedman’s monetarism.

We are clearly at a point of intense bewilderment. What direction is correct for our economy and our society? The concept of aporia may explain why no real solutions have emerged in the past 10 years.

Tooze thinks that the world economy today is at a similar point to where it was in 1914. That is, we’re headed to a global war based on the competition of the advanced economies for resources (this time, it’s markets, water and energy), while the Middle East is at war, competing to determine which variant of Islam will be transcendent.

Varoufakis thinks we are more likely to be where we were in 1930, just after the crash. Since 2008, like back then, income inequality has continued to grow, and we have a potential fascist movement in the wings. Varoufakis asks if today’s politicians have the vision, or the ability, to corral corporatist power on one side, and the emerging nationalist movement on the other.

We’re into the post-2008 world, one in which the owners of society, the largest corporations along with the international capitalists, portray austerity as our only answer. They stress the need for continued globalization and the upward transfer of wealth via tax cuts as the best chance to survive and prosper after the 2008 crash.

This is global capitalism at work: Continuing to extract all the wealth that it can in every economy with a compliant government.

People are getting near a breaking point. They want a better life, and they want to regain political control. The challenge for capitalists and their politicians is: Can they continue to distract the base, keeping them compliant with corporatism and the financialization of our capital markets?

Capitalism ought to fear nationalism, because a nationalist movement could easily rally the poor and the middle class against Wall Street and corporate America. But, for the moment, capitalism seems to be stirring the nationalist pot. To what end?

Whether a fight against Wall Street and Corporatism will emerge, whether it will evolve into a fascist-style rallying cry remains to be seen.

We’re too early in this iteration of aporia to know or to see where we are going clearly. We need an alternative to today’s global capitalism because the track we’re on could easily turn the world into a gigantic Easter Island-like landscape.

What alternative to today’s capitalism (if any) will develop? Will ordinary people have some say in the alternative?

Stay tuned.

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Send Establishment Democrats to the Bench

The Daily Escape:

City Hall Subway Station, NYC – via @themindcircle

We live in disorienting times. Disorienting in that our society, and our values, are in motion. We are no longer anchored by social mores, beliefs, or any shared vision of the future. Our politics are evolving as well. We can’t simply blame Trump, or those who elected him for taking us to this scary place. The bipartisan consensus that’s ruled this country since the 1940s — neoliberal domestic policy, and neoconservative foreign policy ─ no longer produces the same results for our citizens that it has produced since the Eisenhower era.

Establishment Democrats bear some of the blame. And looking forward to the mid-terms and beyond, they have failed to do the simplest work — forming a worldview, then persuading others about their vision, and the steps to achieve it.

We can also blame establishment Republicans, but they have collapsed. The new right is much farther right, more authoritarian, and whiter. And who would have thought they would be the pro-Russia, anti-FBI, anti-DOJ, and (maybe not a complete surprise), the pro-police state party?

History shows that when society turns like this, the establishment parties can disappear, as did the Federalists and the Whig parties. And when one party changes, the other must as well. After Lincoln, neither the Republicans, nor the Democrats, were the same parties.

Perhaps it’s time to take these words in the Constitution to heart:

…to secure these rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed…

Therefore, if the Dems are to win back the hearts and minds of the people, regardless of what the banks and corporations want to do, Government must be the advocate for the People.

That requires that our political parties confront the banks, corporations, military contractors, and the other oversized creatures that feed at the government trough.

Is that something that the establishment Democrats (Wrongo likes calling them the “Caviar Dems”) are willing to do? They used to champion social and economic justice, but not so much today. Today, they follow the same neo-liberal economic policies that Republicans champion.

And with few exceptions, they are as neo-conservative on foreign policy as any Republican.

Republicans have undergone a different mutation. They celebrate the globalized economy, and support the domestic gig economy as a means of growing corporate profits. They still celebrate Christian values, so controlling Supreme Court appointments is their great achievement, along with ruinous tax cuts.

America’s corporate tax revenues are going down, while social and infrastructure costs keep rising. So far, under both parties, government has continued to spend money it doesn’t have. It borrows, and pretends that everything is under control.

Now, after 10 years of economic expansion, we continue to pile up deficits. What’s going to happen in the next recession? The truth is, we are poorer, and weaker, as a country than we think. But few politicians are willing to help us face reality.

We see both Bernie Sanders and Alexandria Ocasio-Cortez, the Democratic nominee for Congress in NY, describe themselves as socialists. But, in fact, that’s not what they are. Merriam-Webster defines socialism as:

Any of various economic and political theories advocating collective, or governmental ownership and administration of the means of production and distribution of goods.

Obviously, they hope to take over the corporate-friendly establishment Democratic Party, but if you call yourself a socialist, then, at a minimum, you need to advocate for government ownership of the means of production, i.e., industry. You’re only a socialist to the extent that you advocate that.

Will Bernie or Alexandria nationalize General Motors, Apple, or ExxonMobil? No.

Even advocating for “Medicare for all,” isn’t socialism. Neither Medicare, nor other single-payer programs like Medicaid, are really socialized medicine. No one is advocating for an actual government takeover of hospitals, or turning doctors into government employees. If they really wanted socialized medicine, their cry would be “VA for all,” not “Medicare for all.”

Sanders and Ocasio-Cortez are social democrats. In a social democracy, individuals and corporations continue to own the capital and the means of production. Wealth remains produced privately.

But taxation, government spending, and regulation of the private sector are much more muscular under social democracy than is the case under today’s neo-liberal economic system.

Joel Pett has a great illustration of the difference between Sanders/Ocasio-Cortez and Republicans:

It’s time for the Dems to change direction. Carry the “Medicare for all” banner proudly. Work to end income inequality. Work to add jobs for the middle class.

Send the establishment Democrats to the bench.

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