Obama's Speech, His Banks, Our Jobs

Before tomorrow's 2012 pre-election speech in which President Obama's vocal elocution will be earnest, and results - to put it mildly - tepid, about about how he could create jobs dammit, if only the Republicans would behave, it's interesting to note who's supporting Obama keep his job.

A cursory look at the early stages of his campaign fundraising reveals that the same group of people that benefitted from policies (bi-partisan) that lavished them with cheap money, secret loans, debt guarantees and other forms of perks not available to the average citizen, are backing him for President. Big Time. 

And whereas it's true, Obama's most recent poll numbers look as abysmal as any President (save FDR who he will never, ever be) facing a depressed economy and a near double-digit 'official' unemployment rate (worse if you get beneath its massaged surface), this isn't effecting his most important support, the financial kind. To date, Obama's Presidential bid dosh comes largely from - wait for it - the financial sector.

Yes, the same sector that screwed the country over, and that, despite some unpleasant lawsuits they will likely settle,  remains as powerful, unrepentant, unaccountable, selfish and Main-Street-destabilizing as before Obama took office. No wonder he's been able to keep Treasury Secretary, Tim Geithner by his side - someone has to allay Wall Street concerns that true retribution or meaningful regulatory repercussion will befall them.

So far, Obama has raised $49 million dollars. (More than all the GOP wannabes combined, but that's largely because he's got the head-start and incumbent factor going for him. Plus, he's a hit at fundraising events. Here in Los Angeles, he's tied up traffic several times with those already.) Nearly $35 million has come from 'bundlers', those wealthy, connected, folks that circumvent the caps on their individual donations by pooling their dough together. And just over a third of that, or $11.8 million, comes from the Finance Sector (and yes, one of the sector's 44 bundlers is from Goldman Sachs, his number two contributer in the 2008 election). 

Now, it's not shocking that the banks are banking on Obama. Until they see a surer bet on the Republican side emerge, they're not going to be diffusive with their capital that way. And, beyond some scolding words a couple years ago around election time, followed by a Wall Street speech to which none of the CEOs showed, Obama has done zero to expose, denounce, or change the specific fraudulent actions of his supporters - that would be - political suicide for him. Plus, in the game of politics today, the issue for both parties is slamming each other, Wall Street ire has been replaced with entitlement spending cut banter, whether this results in meaningful policy is not even an afterthought.

Meanwhile, Obama will release details of a new $300 billion jobs stimulus program and urge the GOP to allow him to do his job by creating the nation's jobs. He might even throw in a sentence or two about helping downtrodden borrowers refinance, which will require bank approval and facilitation, which therefore will be as successful as HAMP. And the GOP will balk and say we must cut spending not increase it, refusing to acknowledge the extent of debt we created to float a criminal banking system.

Stalemate to the nth degree. Big yawns all around. 

What Obama will not discuss, is the private lending problem that caps the ability of individuals to stay afloat and small and mid-size businesses to hire. Though they have been treated with kids gloves and deep pockets by Washington, the big banks have not shared the joy they received. Small business loans remain anemically at late 2008 levels inhibiting hiring or expansion - and these are the companies that don't offshore in a heartbeat. Refinancing and mortgage restructuring, despite record low interest rates making the transaction sensible and reducing risk all around, are negligible, thus home movement is impossible and consumer confidence and construction jobs are hit in the process as well. Personal and business bankruptcies continue to mount absent opportunity. This isn't a healthy scenario for job growth.

You can blame it on 'the economy', 'tough times' 'all of us struggling together' or any other generic poli-sound bites. Or you can blame it on the biggest banks sitting on extra capital, which either a) is stored at the Fed in the form of $1.6 trillion worth of Treasury bonds that receive interest in excess of the cost of borrowing the money to purchase them, b)  is used to trade and speculate, or otherwise derive ways to make a 'quick' buck, or c) is set aside to deal with lawsuits they brought upon themselves. Again, none of this is nationally productive or job inducing.

The private banking system is holding people's homes, potential jobs, and general confidence and economic well-being hostage. Thus, however Obama phrases whatever he says tomorrow, and even if his plan for a job stimulus package is verbalized in a more coherent strategy than last time - without a loosening of credit - new or re-negotiated or otherwise more befitting the low rate environment that the Fed offers banks, it's just one tiny piece of a giant puzzle that won't be able to do squat to turn the tide. 

Will Bank Reform Chase Jobs from NYC?

Today, I was asked to comment on whether bank reform would chase jobs from New York City, for a new 30 issues in 30 days website created for the Brian Lehrer Show. The other commenters (we're all being called 'wonks') think it would. I don't. We'll be talking about it on air this Thursday morning at 10:15 AM EST.

You can follow the debate, or add your thoughts here. 

This is my take: Meaningful bank reform wouldn’t result in a tangible number of jobs leaving New York City (aside from the yearly pilgrimage of hedge fund god wannabe’s to Connecticut for better tax treatment). As we have witnessed firsthand, recently – it is the inevitable crash of improperly restrained, reckless banking activity that gives rise to widespread economic pain, including job cuts, throughout multiple sectors.

During the past two years since the banking system was given an unprecedented adrenalin shot of cheap money, guarantees, toxic asset transfers, and Fed backing for the biggest institutions to become bigger, two things have happened: Wall Street profits and bonuses have come roaring back, and job prospects and conditions for those outside of the financial industry, have deteriorated. None of that is because of the financial reform bill, not least because no stipulation from that bill has taken effect. Secondly, the bill is exceptionally weak in general.

The financial reform bill doesn’t meaningfully alter the banking landscape. It doesn’t make bigger banks smaller – instead, the Federal Reserve decisions to allow Goldman Sachs and Morgan Stanley to become bank holding companies, to enlarge Bank of America through the acquisition of Merrill Lynch, JPM Chase through the acquisitions of Bear, Stearns and Washington Mutual, and Wells Fargo through the acquisition of Wachovia have only consolidated federally backed practices. Any related job cuts came through the cast-offs that occur when companies merge. They were thus, a result of the opposite of bank reform or prudent regulation.

Further, under the Dodd-Frank Act, banks won’t have to separate into investment vs. commercial entities as they did when Glass-Steagall was enacted in 1933, which would contain problems and choices resulting from the creation of speculative assets at entities providing deposit and lending services to Main Street. The bill barely limits proprietary trading and hedge fund ownership, plus banks don’t garner a sufficient enough revenue percentage for this to make a huge difference. At any rate, prop spinoffs are tending to be staffed by current employees, so no job change there.

The financial reform bill won’t change Wall Street – one need only to look at the recent Bloomberg survey stating that half the financial execs polled, expect their bonuses to rise by 50% or more, to know that banking is at status quo. Meanwhile, people in other fields, from fashion to journalism, teaching to sculpting, caring for the sick to caring for the elderly, don’t have the same prospects for bonuses or jobs. If we had meaningful financial reform, we might be better protected from the next round of speculative excess that will explode in our faces, causing more job losses. We would be better insulated from the illusionary highs and crushing lows that Wall Street can imbue on the rest of the city. Meanwhile, job losses in New York City have not been the result of strong regulation, but of a financial sector that wasn't regulated enough, and still isn't.

Non-recovery News: July Existing Home Sales Plummet

With the summer approaching an end, and August a traditionally slow month for home sales even in the best of times, the National Association of Realtors (NAR) released their figures for July existing home sales today. They were ugly, down by 27.2%, from June (which was revised downward from initial estimates), 25.5% from last July, and setting a dramatic new record low for this index that was created in 1999.

Single family home sales are at their lowest point since May 1995. The NAR suggested the silver-lining in their report was that the homes that are selling are doing so at higher prices. That's because the more expensive homes purchased by the wealthiest buyers tend to skew the average. Separately, the amount of time that houses are remaining on the market increased to 12.5 months from June's rate of 8.9 months. That's a very worrying number.

One of the more prevalent reasons cited for this plunge is that the government's tax credit for home buyers disappeared. But, while losing the additional $8000 tax break per home may certainly be a factor, the underlying problem remains the fact that most people (millionaires and billionaires excluded) can't buy new homes because:

a) They can't afford the loss they'd have to take on their current home.

b) They can't get new credit, or negotiate old credit despite low prevailing mortgage rates.

c) They don't have the job stability, or increasingly - a job at all, to consider taking on a new mortgage.

Unfortunately, there is little on the horizon to indicate this will change any time soon.