Friday, September 14, 2012

The real costs of economic backwardness

If anyone wonders why USA cannot afford to fix its crumbling infrastructure, cope with climate change and Peak oil, and all the other things that need doing, we need only look at what we ARE paying for—pirates who justify their looting with junk economics.

Financial Crisis Cost U.S. $12.8 Trillion Or More: Study

Mark Gongloff  09/12/2012

The 2008 financial crisis cost the U.S. economy at least $12.8 trillion, a new study found -- and that's a "very conservative number," according to the authors.

The study, timed to coincide with the fourth anniversary of the Lehman Brothers bankruptcy, is a direct counter to the banking industry's relentless warnings of the potential costs of new financial regulations.

The cost of letting the banks wreck the global economy again is far, far higher.

The crisis-cost estimate, generated by Better Markets, a non-profit group lobbying for financial reform, is only a measure of actual and potential lost economic growth due to the crisis. It does not include many other costs, including the costs of extraordinary government steps taken to avoid "a second Great Depression." It does not include unquantifiable costs like the "human suffering that accompanies unemployment, foreclosure, homelessness and related damage," the authors noted.

The study also does not include figures related to any damage done to American productivity by long-lasting, widespread unemployment, which is eroding the ability of Americans to earn money and posing a threat to future economic growth.

"Lower growth means, among other things, less innovation and, therefore, less technological progress," the study's authors wrote. "The consequences of such losses to a society are indeterminable, but potentially very far-reaching and long-lasting."

The study mentions, but leaves out of its $12.8 trillion estimate, the $11 trillion or so in household wealth that was vaporized by the crisis and an estimated $8 trillion hole that might be blown in the federal budget deficit between 2008 and 2018 as a result of the crisis.

Banks would like you to know that they are suffering, too, of course. The stock prices of the biggest five U.S. banks have lost more than $500 billion in market value since the crisis began. The industry has beendocked more than $2 billion in crisis-related penalties.

And the banks constantly warn that new regulations could disrupt financial markets and slow economic growth. The Better Markets study points to one frequently-cited estimate, that the "Volcker Rule," which prohibits banks from proprietary trading, could cost the bond market $315 billion in "liquidity" on its own.

The banking industry's whiner-in-chief, JPMorgan Chase CEO Jamie Dimon, on Tuesday warned again of the risks of too much reform. Here's DealBook:

The United States, he added, has the "best, widest, deepest and most transparent capital markets in the world." Cautioning against needless reform, Mr. Dimon said, "Let's make sure we keep that before we do a bunch of stupid stuff that destroys that."

The man who just oversaw a $6 billion trading loss on credit derivatives continues to lecture the rest of us against doing a bunch of stupid stuff. more
Standing up to the pirates requires courage—something our bought-off pols have little of.
Why Bondholders Can’t – and Shouldn’t – be Paid

Wall Street’s War on the Cities


The pace of Wall Street’s war against the 99% is quickening in preparation for the kill. Having demonized public employees for being scheduled to receive pensions on their lifetime employment service, bondholders are insisting on getting the money instead. It is the same austerity philosophy that has been forced on Greece and Spain – and the same that is prompting President Obama and Mitt Romney to urge scaling back Social Security and Medicare.

Unlike the U.S. federal government, most states and cities have constitutions that prevent them from running budget deficits. This means that when they cut property taxes, they either must borrow from the wealthy, or cut back employment and public services.

For many years they borrowed, paying tax-exempt interest to wealthy bondholders. But carrying charges on these have mounted to a point where they now look risky as the economy sinks into debt deflation. Cities are defaulting from California to Alabama. They cannot reverse course and restore taxes on property owners without causing more mortgage defaults and abandonments. Something has to give – so cities are scaling back public spending, downsizing their school systems and police forces, and selling off their assets to pay bondholders.

This has become the main cause of America’s rising unemployment, helping drive down consumer demand in a Keynesian nightmare. Less obvious are the devastating cuts occurring in health care, job training and other services, while tuition rates for public colleges and “participation fees” at high schools are soaring. School systems are crumbling like our roads as teachers are jettisoned on a scale not seen since the Great Depression.

Yet Wall Street strategists view this state and local budget squeeze as a godsend. As Rahm Emanuel has put matters, a crisis is too good an opportunity to waste – and the fiscal crisis gives creditors financial leverage to push through anti-labor policies and privatization grabs. The ground is being prepared for a neoliberal “cure”: cutting back pensions and health care, defaulting on pension promises to labor, and selling off the public sector, letting the new proprietors to put up tollbooths on everything from roads to schools. The new term of the moment is “rent extraction.”

So having caused the fiscal crisis, the legacy of decades of property tax cuts financed by going deeper into debt are now to be paid for by leasing or selling off public assets. Chicago has leased its Skyway for 99 years to toll-collectors, and its parking meters for 75 years. Mayor Emanuel has hired J.P.Morgan Asset Management to give “advice” on how to sell privatizers the right to charge user fees for previously free or subsidized public services. It is the modern American equivalent of England’s Enclosure Movements of the 16th to 18th century.

By depicting local employees as public enemy #1, the urban crisis is helping put the class war back in business. The financial sector argues that paying pensions (or even a living wage) absorbs tax revenue that otherwise can be used to pay bondholders. Scranton, Pennsylvania has reduced public-sector wages to the legal minimum “temporarily,” while other cities are seeking to break pension plans and deferred-wage contracts – and going to the Wall Street casino and play losing games in a desperate attempt to cover their unfunded pension liabilities. These recently were estimated to total $3 trillion, plus another $1 trillion in unfunded health care benefits.

Although it is Wall Street that engineered the bubble economy whose bursting has triggered the urban fiscal crisis, its lobbyists and their Junk Economic theories are not being held accountable. Rather than blaming the tax cutters who gave bankers and real estate moguls a windfall, it is teachers and other public employees who are being told to give back their deferred wages, which is what pensions are. No such clawbacks are in store for financial predators.

Instead, foreclosure time has arrived to provide a new grab bag as cities are forced to do what New York City did to avert bankruptcy in 1974: turn over management to Wall Street nominees. As in Greece and Italy, elected politicians are to be replaced by “technocrats” appointed to do what Margaret Thatcher and Tony Blair did to England: sell off what remains of the public sector and turn every social program into a profit center.

The plan is to achieve three main goals. First, give privatizers the right to turn public infrastructure into tollbooth opportunities. The idea is to force cities to balance budgets by leasing or selling off their roads and bus systems, schools and prisons, real estate and other natural monopolies. In the process, this promises to create a new market for banks: lending to vulture investors to buy rights to install tollbooths on the economy’s basic infrastructure.

Elected public officials could not engage in such predatory and anti-labor policies. Only the “magic of the marketplace” can break public labor unions, downsize public services and put tollbooths on the roads, water and sewer systems while cutting back bus lines and raising fares. more

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