Citizens' Daily Lobby

What does one  say about a system that allows money to flow almost directly from taxpayers into the hands of bailed-out CEOs?    CBS reports a study by Mario Cuomo of New York that finds  some companies paid out more in bonuses than they made in profits last year.    How about that Goldman Sachs?  They paid out almost twice as much in bonuses as they made.  Morgan Stanley:  almost three times as much bonus as profit.    Where is the shareholder outcry?  I’m not counting on a taxpayer outcry, because most people in this country are too complacent to care, but I would expect shareholders to want more bang for their bucks.

This was one of those news days that caused me to take the Lord’s name in vain far more than is probably healthy for a person.  Topping the list of expletive extract0rs were two more items of concern.  First, the Pay Czar (who needs to be relieved of his duties after today) decided not to call AIG executives’  bluff.   Some execs threatened to quit over the $500,000 salary cap.  Instead of saying, “don’t let the door hit you in the butt on the way out,” Mr. Feinberg conceded and allowed them more money.  “The $200 billion in taxpayer bailout AIG?”  you ask.   Yes, that one.

In related news, conservadems promise to sidetrack another of President Obama’s intitiatives: regulation of the banking industry.  The proposed Consumer Financial Protection Agency is under fire, and once again, conservadems are promising to side with Republicans.     House Republicans are expected to introduce amendments to scrap the agency.   This is the time for populists of all stripes to get on the record supporting bank and creditor regulation.  Even in Old Testament times people (and even the Lord) saw usury as a bad practice.

Check out this fantastic discussion about income inequality and how we got where we are today at alternet.

Why do truly Progressive income tax rates generally fail the test of time?  Because the wealthy hate them much more than the average citizen loves them.  The average guy on the street just doesn’t connect the police force, fire squads, highways, parks, and other benefits with high tax rates on the super-rich.  I would add that some people believe the “that could be me” syndrome affects the way the American citizen approaches taxes.  Let’s not tax the multibillionaires too much, because “that could be me one day.”  The rich have more resources to throw into the fight, obviously.

Even the tax hike to the rich proposed by President Obama would only raise the tax rate for the top bracket to 39.6%.  That’s equal to what it was before the Bush tax cuts, and less than half as much as the highest income tax rate under Eisenhower.

British Progressives are proposing what my spouse and I often discuss:  a salary cap.  Let’s all get together and decide what constitutes the highest dollar amount that any individual should be “worth,” monetarily speaking.   The key to this plan is to tie the salary cap to the salary of the lowest paid employee.    Under a plan like this, there would be an incentive for those at the top to make salaries at the bottom grow, too.   Britain’s High Pay Commission is proposing to tie government subsidy to the difference in pay rates.  Ecuador already has such a plan.  In contrast, the US and Britain currently have no such policy.  In fact,” the  CEO at Lockheed Martin, a company that feeds almost exclusively off government contracts, last year took home $26.5 million. That’s over 700 times the take-home of the average American worker.”

There’s a discussion about income disparity in general.

How rich—and powerful—have today’s rich become? Some numbers can help tell the story. In 1974, the most affluent 1% of Americans averaged, in today’s dollars, $380,000 in income.

Now let’s fast-forward. In 2007, the most recent year with stats, households in America’s top 1% averaged $1.4 million, well over triple what top 1% households averaged back in 1974—and, remember, this tripling came after adjusting for inflation.Americans in the bottom 90%, meanwhile, saw their average incomes increase a meager $47 a year between 1974 and 2007, not enough to foot the bill for a month’s worth of cable TV.

The bottom line: top-1% households made 12 times more income than bottom-90% households in 1974, 42 times more in 2007.

The numbers become even more striking when we go back a bit further in time and focus not on the top 1%, but on the richest of the rich, the top 400, the living symbol of wealth and power in the United States ever since America’s original Gilded Age in the late 19th century.  In 1955, our 400 highest incomes averaged $12.3 million, in today’s dollars. But the top 400 in 1955 didn’t get to enjoy all those millions. On average, after exploiting every tax loophole they could find, they actually paid over half their incomes, 51.2%, in federal income tax.

Today’s super rich are doing better, fantastically better, both before and after taxes. In 2006, the top 400 averaged an astounding $263 million each in income. These 400 financially fortunate paid, after loopholes, just 17.2% of their incomes in federal tax.  After taxes, as a group, the top 400 of 2006 had $84 billion more in their pockets than 1955’s top 400, $84 billion more they could put to work bankrolling politicians and right-wing think tanks and Swift Boat ad blitzes against progressive candidates and causes.

I will try to summarize this for the blog, but the post by Elizabeth Warren, Chair of the Congressional Oversight Panel, is something you must read for yourself.  If you read only one blog post this week (other than this one) read hers.  It’s important.

While corporations enjoyed greatly increased wealth from 1970 to the present, the middle class fell into a downward spiral.  Today

One in five Americans is unemployed, underemployed or just plain out of work

One in nine families can’t make the minimum payment on their credit cards.

One in eight mortgages is in default or foreclosure.

One in eight Americans is on food stamps.

More than 120,000 families are filing for bankruptcy every month.

The economic crisis has wiped more than $5 trillion from pensions and savings.

Productivity has increased steadily since 1970, but wages have remained relatively flat when adjusted for inflation.  During economic booms, real income has gone up, it’s true.  But compare the increase in real income during the boom of the 1970s (33%) to that during the 2000s (1.4%).   What these statistics are telling us is that the middle class is no longer reaping benefits of economic growth.   While the average family pays less today for food, appliances and cars, and more than twice as much for a house and health care, the banking industry has reaped billions from selling consumer credit.  (Perhaps the statistic that should have been looked at here when comparing the price of cars and other purchases is the real cost to the consumer including credit fees and interest).

Then, when the bankers made poor choices and ruined the economy, the bankers got a bailout.  As Dr. Warren says, Americans know that no family is too big to fail.  We know that the rules we played by in the late 20th century have changed, and not in our favor.  For these reasons,  the average American should be getting behind health insurance reform and the proposed Consumer Credit Protection Agency.  The financial industry and corporate America are fighting against reform.   Americans need to take their “populist rage” and direct it appropriately:  at the politicians who have allowed the decline of the middle class to happen and at the corporations that have profited by it.

President Obama hit a nerve yesterday.   The words were hardly past his lips when the predictable pushback from the financial industry began.    Taking a cue from the wildly successful health care fear tactics, the industry is promoting the idea that a Consumer Financial Protection Agency would target everybody from your auto dealer to local mom and pop operations (all 9 of them still standing in the age of Wal-Mart, that is).    They even have a “grassroots” website,   stopthecfpa.com , with a generic old white man (who could be your friendly neighborhood grocer if there were such a thing)  standing guard over his right to issue credit or sell derivatives, or something.    It’s the same old tired argument against increased government oversight of the financial industry with a new focus.

Don’t let them fool you.  This isn’t about Mom or Pop.  This is about big business.  According to 24/7, big banks and securities firms have spent more than $90 million dollars to lobby Congress this year alone, and the US Chamber of Commerce has spent more than $26 million.   You can bet conservative Democrats, who have already shown themselves willing to throw the chance for real, substantial change in this country under the wheels of the corporate bus are special targets for these lobbyists.    Let Blanche Lincoln and Mark Pryor know that Arkansans want to see the financial industry regulated to prevent another greed-induced financial meltdown at the expense of taxpayers.

Progressives must take control of this issue early in the battle for public opinion.  We can’t afford to let Corporate America use fake grassroots front groups to dupe the American people this time.

The address to Wall Street given by Pres. Obama today is a breath of fresh air for battle-weary and discouraged Progressives.    The message was terse, but strong, as Mr. Obama chided some Wall Street execs for their quick return to the risky behaviors that brought on the current financial crisis:  Wall Street will be more tightly regulated again.  Finally.

We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.  Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

Mr. Obama emphasized that the Administration is looking to work with the financial industry to ensure that regulations do not stifle the economy, but he made it perfectly clear that regulation to promote “transparency and accountability”  would come with or without the support of  Wall Street.

And taken together, we’re proposing the most ambitious overhaul of the financial regulatory system since the Great Depression.  But I want to emphasize that these reforms are rooted in a simple principle:  We ought to set clear rules of the road that promote transparency and accountability.  That’s how we’ll make certain that markets foster responsibility, not recklessness.  That’s how we’ll make certain that markets reward those who compete honestly and vigorously within the system, instead of those who are trying to game the system.

What is the plan, specifically?

1) New rules to protect consumers and a new agency, the Consumer Financial Protection Agency to provide oversight.  -There is currently no single agency in our government charged with protecting us from financial fraud, and that needs to change.

2) Closure of the legal loopholes that allowed the financial crisis to occur.   President Obama listed a few examples:

Under existing rules, some companies can actually shop for the regulator of their choice — and others, like hedge funds, can operate outside of the regulatory system altogether.  We’ve seen the development of financial instruments — like derivatives and credit default swaps — without anyone examining the risks, or regulating all of the players.  And we’ve seen lenders profit by providing loans to borrowers who they knew would never repay, because the lender offloaded the loan and the consequences to somebody else.  Those who refused to game the system are at a disadvantage.

…And that’s why we’ll create clear accountability and responsibility for regulating large financial firms that pose a systemic risk.  While holding the Federal Reserve fully accountable for regulation of the largest, most interconnected firms, we’ll create an oversight council to bring together regulators from across markets to share information, to identify gaps in regulation, and to tackle issues that don’t fit neatly into an organizational chart.  We’ll also require these financial firms to meet stronger capital and liquidity requirements and observe greater constraints on their risky behavior.

3) Creation of  “resolution authority” (aka ending the idea that some firms are “too big to fail”).

With so much at stake, we should not be forced to choose between allowing a company to fail into a rapid and chaotic dissolution that threatens the economy and innocent people, or, alternatively, forcing taxpayers to foot the bill.  So our plan would put the cost of a firm’s failures on those who own its stock and loaned it money.  And if taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay the taxpayer back — every cent.

4)  Work with world leaders to ensure global financial stability.

For this President, and for our country, “normalcy will not lead to complacency.”   Someone must stand between the consumer/taxpayer and those whose only motive is profit.