New Challenges, New Solutions

The Opportunity Agenda was founded with the mission of building the national will to expand opportunity in America, a reflection of the core American belief that where we start out in life should not determine where we end up.  The vision that we will have a country in which your possibilities are determined by you is central to the American self-concept.

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30 Years of Treading Water Leaves You Awfully Tired

For those of us who can still even stomach it, the first Friday of the month—the usual day for the release of the previous month’s federal Employment Situation Summary, known informally as the jobs report—has become a fairly pathetic ritual, particularly for optimists.  We hope for some proof, any proof, that a real recovery is underway.  If jobs were shed across the board, but the unemployment rate trended lightly downward, we try to pretend that it wasn’t because still more people have pulled themselves out of the formal count by giving up looking for work entirely.  If private sector job growth and public sector job loss cancel each other out, we put on our market fundamentalist wishful thinking caps and talk about how private sector jobs are somehow more sustainable than their public sector equivalents.  And when modest job growth does occur, even when it’s below even the basic replacement rate needed to accommodate a growing workforce, well, that’s when we bring out the champagne.

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Weekly Audit: Business Press Gets Nasty as Economy Worsens

by Zach Carter, Media Consortium blogger

The economy is terrible. Jobs are nowhere to be found. Wall Street bonuses are through the roof. But mainstream business journalism is still praising the con-men who created this mess, yet attacking anybody who takes real solutions—like government spending to create jobs—seriously.

Whatever corporate journalists say, the American economy will not recover until policymakers and the media acknowledge the mistakes of the past and move forward with a new economic agenda focused on middle-class prosperity, rather than financial evisceration by elites.

Creating jobs is key

As Annie Lowrey notes for The Washington Independent, while President Barack Obama’s economic stimulus package has dramatically slowed the pace of job losses, it hasn’t been enough to make a serious dent in the unemployment rate, which currently stands at 9.6 percent. Without a serious new set of stimulus measures, we’ll see that rate stay near double-digits for years to come.

But the stimulus package is not the only policy relevant to the economic recovery. The financial excess that sparked the Great Recession was not an accident, and much of it was straightforwardly illegal—even by the remarkably weak regulatory standards of the past decade.

As I emphasize for AlterNet, under President George W. Bush, bankers got away with all kinds of frauds. They’re continuing to get away with them under Obama. The allegations of wrongdoing range from cooking the books to the outright laundering of hundreds of billions of dollars in drug money.

Crime always pays

But you wouldn’t know it from reading a recent Washington Post op-ed by Reuters’ business editor Chrystia Freeland, which defines Wall Street problems exclusively as the product of government inadequacies, not deregulation. And of course, bank regulations were wholly inadequate in recent decades. Bankers lobbied hard for those rules, and pounced on the middle class once they were enacted. But Wall Street didn’t just win weak rules, they routinely violated rules that crimped profits. Crime always pays until you get caught. If bankers know they can caught and avoid punishment, they have no incentive to obey the law when doing so would crimp their bonuses.

And those bonuses are still wild and wonderful for corporate elites. As Sam Pizzigati emphasizes for Yes! Magazine, CEO pay last year was an astonishing four times higher than during the years of elite dominance shepherded by President Ronald Reagan. This kind of pay isn’t good for the economy. It’s a waste of resources that could be going to rank-and-file workers.

Business journalists skewing facts

The editorial pages of major newspapers aren’t the only places where preposterous business journalism pops up. As Kevin Drum notes, you can also read it on the pages of major mainstream business magazines.

In a blog post for Mother Jones, Drum takes down one of the worst articles on both Obama and business that has yet been written. It’s by right-wing writer Dinesh D’Souza, and it reads like a combination between a Birther conspiracy theory, a coded racist rant and a completely incoherent assault on reasonable economic policy.

Without citing any evidence, D’Souza calls Obama, “the most antibusiness president in a generation, perhaps in American history,” and goes on to blame this attitude on the “anticolonialist” views of Obama’s Kenyan father. One might expect this kind of garbage to be running in white nationalist newsletters, but as Drum highlights, the article was published in Forbes magazine, a thoroughly mainstream conservative business rag (don’t confuse Forbes with Fortune, which uncovered the Enron scam).

Obama’s baby steps

Obama could make outrageous attacks like D’Souza’s easier to defend if he proposed a set of bold, new policies to combat the recession. Instead, as William Greider highlights for The Nation, Obama is going for half-measures that will make things a little less worse, but won’t really put the economy back on track. His recently proposed tax cuts for small businesses and $50 billion in infrastructure spending will indeed create jobs– just not enough of them.

We need a robust government plan to create jobs, which means lots of spending for government hiring, expanded benefits for the unemployed, and robust government investments in the national infrastructure. All of these things will cost money, but if we don’t put people back to work, the resulting lack of economic growth will make the federal budget deficit far worse than the jobs spending will.

Helping the middle class isn’t “antibusiness,” it’s common-sense economics. If all of our economic policies are geared toward throwing money at the rich, we’ll just watch rich people hoard most of that money. Repairing our economy requires repairing the middle class. That means lots of jobs—and in a deep recession, only the government can provide those jobs.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

Weekly Audit: Why Do Deficit Hawks Hate Social Security?

by Zach Carter, Media Consortium blogger

Last week, Social Security advocates learned something they had long suspected. Arguments for cutting Social Security aren’t really about economics or the deficit. They’re all about waging war on social services.

In short, some very prominent policymakers are out to dismantle Social Security on ideological grounds. The most recent example of this view comes from Alan Simpson, a former Republican Senator from Wyoming who now serves as co-Chair of President Barack Obama’s Federal Debt Commission. Earlier this summer, Simpson was caught on video spreading absurd lies about Social Security, but his latest outburst explains why he’s been so willing to distort the facts. Simpson simply hates Social Security.

As Joshua Holland highlights for AlterNet, Simpson fired off a nasty email to Ashley Carson, who advocates for elderly women, in which he referred to the most successful social program in U.S. history as “a milk cow with 310 million tits.”

Social Security is doing just fine

But Simpson has a lot of power on the Debt Commission, which is expected to recommend that Congress reduce the deficit by cutting social programs in a report this year. But as Holland notes, Social Security isn’t in trouble:

Social Security is in fine shape. It’s got a surplus that will run out in 2037, but even if nothing were to change by then, it could still continue to pay out 75 percent of scheduled benefits seventy-five years from now, long after the surplus disappears, and those benefits would still be higher than what retirees receive today.

What’s more, as William Greider notes for The Nation, Social Security has never added one cent to the federal budget deficit. According to the law that created the program, Social Security never can. Targeting Social Security in order to fix the deficit is like invading Iraq to fight Al-Qaeda. The issues are not related.

Raising the retirement age robs workers

The Debt Commission is likely to recommend raising the retirement age—the age at which Social Security benefits begin to be paid out. But as Martha C. White notes for The Washington Independent, it’s a “solution” that simply robs low-income workers of their tax money. Everybody pay Social Security taxes when they work, and when they retire, they receive federal support. If you don’t live long enough to actually retire, you don’t get any benefit from Social Security.

“The hardship of raising the retirement age falls disproportionately on low-income workers who work in physically demanding professions, jobs they may not be able to continue through their seventh decade. … Moreover, though the average lifespan has increased since Social Security’s creation, those extra years aren’t enjoyed equally by all Americans. Overall, Americans are living about 7 years longer. But the poorest 20 percent of Americans are living just two years longer.”

Raising the retirement age, in other words, disproportionately hurts the poor—the very people Social Security is supposed to help most.

Subprime scandal 2.0

So who would pick up the slack if Social Security were to be cut? The same crooked Wall Street scoundrels who brought us the financial crisis. If the government cuts back on retirement benefits, the financial establishment can step in and manage a bigger piece of the retirement pie.  The more we learn about the financial mess, the less we should want to see our retirement money controlled by bigwig financiers. Truthout carries a blockbuster new investigative report by ProPublica’s Jake Bernstein and Jesse Eisinger that reveals a new, multi-billion-dollar subprime scam engineered by the financial elite.

We’ve known about Wall Street’s subprime shenanigans for some time, but the report reveals that banks were essentially selling their own products to themselves in order to create the illusion that people really wanted lousy mortgages. It’s called “self-dealing,” and it’s supposed to be illegal.

Subprime Disaster, meet Mortgage Nightmare

Here’s how the scam worked: Wall Street crammed thousands of mortgages into securities, then sliced and diced those securities into new products called CDOs. Those CDOs, in turn, were divided into different “buckets” and sold to investors. The riskiest buckets paid out the most money to investors, but were the most likely to take losses if the underlying mortgages ever went bad. As the housing bubble grew more and more out-of-control, investors became wary of these risky buckets, and stopped buying them.

Wall Street banks were still making a killing from the packaging and sale of everything else, though, so they devised a plan to get rid of some risky bits: they’d buy them up themselves, without telling anybody. A bank would create a CDO called, say, Mortgage Nightmare CDO. Then it would create a separate CDO, called, say, Subprime Disaster CDO. Subprime Disaster would buy up a risky bucket from Mortgage Nightmare, creating the illusion to the market that banks were still able to sell off risky mortgage assets without any trouble, even though the bank was basically just selling garbage to itself.

That illusion propped up the prices of these risky assets and created more revenue for the tricky bankers who sold them, and plump, short-term profits for the banks. It also strongly encouraged other bankers to issue lousy mortgages to the public, since those loans could be packaged into lousy CDOs and score short-term profits for Wall Street’s schemers.

Ultimately, this scheming resulted in a multi-billion-dollar disaster for Wall Street, which taxpayers ended up footing the bill for. Anybody want to see that happen with Social Security?

Social programs did not cause the deficit

As Seth Freed Wessler notes for ColorLines, deficit hawks’ emphasis on social programs is at odds with the factors that actually created the deficit. The Bush tax cuts, the wars in Iraq and Afghanistan and the bank bailouts are the big-ticket items when it comes to government revenues and expenses. Yet deficit hawks in Congress have been refusing to extend paltry unemployment benefits or food stamps to the people hit hardest by the recession. And pretty soon they’re going to go after Social Security too.

In reality, the deficit is only a problem if investors are afraid that the government will default on its debt. Markets measure this worry with interest rates—high rates mean investors are worried, low rates mean they are not. Right now, interest rates on government bonds are at their lowest in decades. With the recession dragging on and the recovery weakening, now would be a great time for the government to spend more money to create jobs and help those knocked out of work.

Instead, the policy debate features cranky old men whining about 310-million-titted cows.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

Weekly Audit: Save Affordable Housing, Help Revive America’s Middle Class

by Zach Carter, Media Consortium blogger

Over the past decade, Fannie Mae and Freddie Mac transformed themselves into some of the worst-run companies in recent history. But contrary to current talking points, the firms’ failings had almost nothing to do with their programs for low-income borrowers. As policymakers debate what should be done with the mortgage giants, a battle is now beginning in which the very availability of affordable housing for the middle class may be at stake.

A history of affordable housing

As Tim Fernholz emphasizes for The American Prospect, before the U.S. government created Fannie Mae in 1938, mortgages were very pricey 5-year loans, so expensive that only very wealthy Americans could ever hope to own a home. Fannie Mae changed all that by rolling out the 30-year mortgage, which lowered monthly payments for borrowers by providing a government guarantee against losses for banks. It worked.

But as Fernholz notes, without some kind of government involvement in the housing market, home ownership will revert to its pre-Depression status a privilege reserved for elites. Policymakers will have to implement significant changes in the mortgage finance system to ensure stability in the U.S. housing market, but whatever changes may come, a robust role for the government in housing will be essential.

Fannie and Freddie have been justifiably but inaccurately maligned in the aftermath of the mortgage crisis. In recent years, their executives ran the firms like out-of-control hedge funds, lobbied Congress like arrogant Wall Street banks and did nothing beyond the bare minimum required by law to help low-income borrowers. But Fannie and Freddie did not go headlong into subprime mortgages—the primary source of their losses came from loans to relatively high-quality borrowers.

The terrible mortgages that crashed the economy were issued by banking conglomerates and Wall Street megabanks—Fannie and Freddie were almost entirely divorced from that line of business. The problem with Fannie and Freddie was largely structural– investors and managers saw the potential for big profits from taking on loads of risk, but believed (accurately) that the government would eat losses if those risks backfired. So Fannie and Freddie ramped up risk, taking on as many mortgages as they could while keeping as little money as possible on hand to cushion against losses. Eventually the strategy destroyed them.

Fixing the mortgage system

Exactly how the government stays involved in the mortgage market is still open to debate, as Annie Lowrey emphasizes for The Washington Independent. Nearly every member of the private sector who testified at a recent housing forum sponsored by the Treasury Department endorsed some kind of government backing for the housing market. This was a meeting of private-sector bigwigs—no community groups or affordable housing advocates were invited to speak at the meeting. Proposals ranged from scaling back government support for some types of mortgages, to the full nationalization of Fannie Mae and Freddie Mac (Fannie was a nationalized entity for the first 30 years of its existence).

In other words, the government is going to have to keep subsidizing housing, but it will have to find new ways to do it. The old Fannie and Freddie model didn’t work, but the private sector will be unable to get the job done by itself. Private-sector banks and mortgage brokers, after all, were the source of all the predatory loans issued during the subprime crisis, and the source of all of the most offensive loans that drove the economy off a cliff.

Inefficient and often predatory players on Wall Street are still causing problems today. As Ellen Brown highlights for Yes! Magazine, the mortgage system is so bizarre that banks are finding themselves unable to document their right to foreclose on properties—and courts are (fortunately) refusing to let them do it.

It’s a rare situation in which borrowers may actually hold the higher legal ground against powerful corporations. About 62 mortgages are registered through an electronic documentation system called the Mortgage Electronic Registration System (MERS), which helps banks with the foreclosure process. But MERS has repeatedly been unable to show proper documentation assigning a mortgage to a specific bank, and courts are now challenging its right to foreclose on behalf of big banks.

That’s good news, Brown notes, because MERS’ shoddy documentation has made it very difficult for borrowers to figure out who actually owns their loan. If you don’t know who owns your mortgage, it’s impossible to modify it if you find yourself unable to pay it off.

As Shamus Cooke argues for Truthout, even successful innovations like the 30-year mortgage are beginning to look a little outdated in an era of heavy, chronic unemployment. Many people can no longer expect to be gainfully employed for three decades on end. If the government refuses to repair our damaged jobs infrastructure, even simply maintaining the status quo in housing could become impossible.

Deficit reduction is not a cure-all

That brings us to another favorite conservative bogeyman, the federal budget deficit. The deficit and jobs generally stand in direct opposition. Creating jobs costs money, and spending that money expands the deficit. Cutting the deficit, by contrast, means cutting support for jobs.

As Steve Benen emphasizes for The Washington Monthly, conservative lawmakers are still harping on deficit reduction as a cure for everything that ills the nation, when the real solution to our problems is a serious jobs bill.

Even if the deficit were a huge problem, trying to cut important social services in the middle of a deep recession is not a good way to go about solving it. Drastic cuts to government spending in a recession result in lower tax returns for the government, which can often be self-defeating, especially in the face of expanding joblessness. The resulting push for deficit reduction—known in economic circles as an “austerity policy,” is better understood as the active pursuit of economic decline. As economist Robert Johnson notes in a New Deal 2.0 piece carried by AlterNet:

Deterioration of government services is bad enough, but imposing austerity due to lack of trust in a time of high unemployment and slack resources is tragic. It is a means to accelerate the decline of living standards of those who have taken a beating since 2007. Double dip or stagnation is too subtle a distinction. We are amidst an unfolding collective choice to pursue a downward spiral.

The government has taken several dramatic steps to repair the nation’s financial system, but it has done almost nothing to help troubled borrowers and not nearly enough to create jobs. Some of this is due to misguided policies enacted by President Barack Obama, and much of it is due to cynical obstructionism. But we cannot repair the economy without fixing jobs and housing. Both are still in a full-blown crisis, and policymakers should feel an urgent need to deal with them.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

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