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. 

Defiance, Denial and Downgrades Won’t Help our Economy

Yes, the US has a debt problem. But, more than that, it has a priorities and accountability problem. Yet, rather than giving Washington a pause for reflection, the S&P downgrade of US debt from ‘AAA’ to ‘AA+” merely gave Capitol politicians renewed opportunity for elaborately orchestrated hissy fits that won't lead to introspection or policy change.

First, let’s again acknowledge the irony that this rating agency rubberstamped $14 trillion of toxic assets in the five years leading up to the crisis of 2008, thereby enabling the Wall Street manufacturing and global dispersion machine to thrive. Then, let’s sign that Washington still doesn't get it.

We racked up debt predominantly, but not exclusively (less revenue due to fewer jobs and an antiquated system where not everyone pays a comparative share contributed, as did the cost of three wars) because of the choice to subsidize Wall Street.

Nearly 80% of the new debt created by the Treasury since the financial crisis was either sold through the banks, is sitting on the Fed's books doing nothing productive, or was used to bolster various elements of the banking system through cheap loans, guarantees for faulty assets, and other methods.

Chances are near one hundred percent, that this next round of debt will exhibit the same pattern. The Treasury will issue bonds and a big portion will wind up on the Fed’s books, doing zero for the greater population. More bi-partisan squabbling over why the economy isn’t growing quickly enough will eschew.

A few months ago, Treasury Secretary, Tim Geithner made the talk show rounds to declare empathically that there was ‘no chance’ of a downgrade of US debt. After the downgrade, with the stock market plummeting, President Obama took to the airwaves to explain that the US was ‘AAA’ no matter what ‘some rating agency says’.

As Obama opined that ‘there will always be economic factors we can’t control,’ the stock market kept dropping.  Some of that fall was for ‘technical reasons.’ People and firms borrow money to bet on the market, and put down collateral (or margin) in order to do so. When the value of their purchases (stocks) falls beneath a certain amount, they are required to put up more margin to continue to participate in the market. If they don’t have the cash, they have to sell stocks to come up with it, thereby pushing the market down further. These ‘margin calls’ were the technical cause of the Great Crash of 1929.

The other reason for the drop was uncertainty, precipitating cashing out stocks to buy bonds, and reaction to the fact that no matter what anyone says, we’re not in an economic recovery, and things are getting worse. In all, the Dow Jones Index dropped 633 points during the first post-downgrade trading day, regaining a third of it the next day.

The bond market shrugged off the downgrade, meaning global investors were buying, not selling, Treasury bonds. This puts the debt cap drama and catastrophic consequence threats into scary perspective. Recall, the sky was going to fall if we didn’t bail out and subsidize the banks, too. The political fear-mongering would be laughable if it didn’t have dire consequences for the rest of us – an anemic economy unable to add jobs effectively and a banking sector floated on debt.

So, does the downgrade matter? In terms of infusing the market with more uncertainty as to whether it might lead to another one – sort of. But, in terms of Washington, it means nothing. The GOP will blame Obama for causing it by not cutting spending further. President Obama and the Democrats will act defensive and dismissive about it.

Beneath the banter, remains the stark fact that the extra debt wasn’t created to help the economy, it was created to help Wall Street. Any future political fights (and there will be many) about debt, missing that point, will therefore be unable to tackle the most important economic problem we face – lack of job and real (not paper) growth in the US and throughout the globe. Political denial and finger-pointing is not productive growth policy, no matter which party is doing what.

S&P’s downgrade got a bit of this right when it labeled Washington dysfunctional, yet, by denying there’s more to the downgrade, S&P continues to shield its own actions in the crisis build-up and Washington’s reaction to it - massive bank subsidies and a tepid bank regulation bill that didn't even break up the too big to fail banks as Glass-Steagall did in the wake of the pain banks caused leading up to the Great Depression.

A one notch ratings drop from  AAA to AA+ makes no difference to the US production capacity. Indeed, with all the scaremongering about how much more expensive it would be to borrow at a higher rate (reflecting the lower credit rating), the bond market rose in a sigh of relief that the downgrade was ‘over’ rendering the cost of the downgrade minor. As for other countries dumping our bonds, though they should because our policy remains financial market subsidization through debt creation, as long as the dollar remains the dominant global currency, other countries will lend to us though buying our Treasury bonds. They don’t want their own portfolio of US Treasuries to decline in value.

Obama stated that, “we need jobs and growth.” Absolutely. But austerity compromises won’t get us there. A reality check might. He said that Americans have come through (more denial, as we haven’t come through anything, we’re still in it) the biggest financial crisis since the 1930s with grace. He made no mention of the dual DC-banks role at all.

In the 1930s, the government made a bi-partisan decision to smack the banking system into place and separate bank trading and commercial functions so banks couldn’t take risks with other people’s money; it didn’t lavish Wall Street with cheap loans and debt at the public’s expense.

All Americans should be deeply concerned that our government supported, and continues to support, banks over people. The Treasury Department and Fed continue to mislead us over this. And we all pay the price.

Obama's Budget Banter Omission: The Banks Broke the Bank

Since the White House announced its 2012 budget, the requisite punditry stream has been breaking down its specific pluses and minuses. I could grab illustrative quotes from various places and people, or add to the analytical details, but for the most part, it boils down to something like this:

GOP and GOP supporters: Obama didn't make enough spending cuts, he's not taking this whole budget thing seriously. Oh, and about the cuts he did suggest with regard to corporate tax benefits, high-end mortgage-holder deductions and (his-own) extension of wealthy individual Bushian tax breaks - well, that's just plain anti-American and - will kill jobs. (The fact that corporations were contributing just 6.6% and 7.2% in 2009 and 2010, of the total federal tax receipts, a 50% drop relative to the rate before the financial crisis, or about $150 billion per year, isn't relevant in the scheme of things.) Now, where can we cut another $100 billion? 

DEMs and DEM supporters: Obama inherited a bum economy, bum budget and bum deficit from Bush. And, he's turning around the crap hand he was dealt, slowly.  That means he has to cut back on some important programs, but he's gonna champion a high-speed railway, electric cars (to drive along side the high-speed railway?), and clean energy initiatives, and those will most certainly put millions of people back to work. Yes, he appointed Tim Geithner, one of the lead bank bailout builders, whose Treasury department colluded with the Fed, under Ben Bernanke, the other guy Obama kept on deck to help the economy, to increase the amount of US Treasury debt to $9.4 trillion from $5.4 trillion since the financial system began inhaling subsidies in the fall of 2008, and went on to post record bonuses and profits. But, he had no choice.

The intent of the actual discourse kind of makes me imagine a burning building across the street, raging flames, engulfing smoke, crumbling over its foundation, and there are two people watching, one's a Democrat and one's a Republican. While the fire intensifies, they are arguing over whether it's better to use a thimble or a teaspoon of water as an extinguisher aid. Somewhere, off in the distance, is an engineer trying to figure out how to rebuild the building over its ashes.

The sad truth is that the budget deficit is a direct outcome of the economic policies that were adopted by both parties over the years. National debt nearly doubled under Bush, and continued to grow under Obama, while the financial system pillaged the country for trillions of dollars twice - first, during the leveraged build-up to the economic collapse, and then, via a stockpile of creative subsidization awards afterwards, the underlying debt build-up for which, lingers like a bad hangover.

Unless the real economy becomes healthier, more people are employed and we institute a far more progressive tax and distribution structure, there is simply no mathematical way, to balance this budget.

So, there is no silver bullet amount of spending cuts that is sufficient to balance it either, particularly as long as we are only looking at, and debating about, the spending side of the US balance sheet, and only a portion of the non-discretionary component, at that. Quibbling over whether Obama is cutting enough or not enough, is quibbling over the wrong question. Obama showcasing just the cuts as these 'hard choices' that will get us more towards balance, is meaningless. It is equally misleading for the GOP  to focus on a separate subset of potential spending cuts, and conclude that this extra $100 billion will do the trick. Making $1.1 trillion of cuts over ten years, all things equal, with a projected deficit per year that's higher than that, won't balance any budget, for any political party.

You know what would have been really cool?

If Obama had just said - you know what - the budget can't be balanced, deal with it. And you know why? Because over the past two years, the economy, that was trashed by the banking sector, still sucks. And, during the entirety of the Bush administration, while prepping the economy to suck, debt to pay for wars and tax cuts kept growing. And, when the banking system was facing the abyss, we opened our checkbooks, we stimulated the hell out of it, but we did it mostly through issuing Treasury debt and the magical Fed printing machines - so it doesn't show up in the budget that we're all debating, except for a couple hundred billion to Fannie and Freddie and what remains of the stellar TARP project. And you know what? I admit that was a stupid thing to do. It was stupid when it started under Bush, and it was stupid when it continued under me and the economic team I appointed to keep it going. The bailout binge increased our public debt by 50% under my reckless economic advisors, Treasury Secretary, the Federal Reserve. And, hell if other countries decide to dump Treasuries in bulk, and their interest rates rise, and Bernanke can't QE them down fast enough, our budget deficit will gap like the Grand Canyon. 

Meanwhile folks, we need revenue. Just like banks need profits to pay bonuses. And, that's something that can only be remedied through a healthier economy - not just for corporations, stock market investors and banks - that are sitting on $2 trillion in cash, with $1 trillion parked at the Fed  - but for the general population that still counts 26 million people under or unemployed, not to mention a historically high 48.9% unemployment rate for youth, rising food and basic needs costs, continued foreclosures on entire families, and health insurance rates that will double within the next three years. You know what, when this country needed revenue in the past, Republican presidents and congresses did the math. Now, it's my turn. Let the GOP explain exactly how a lower corporate tax contribution created more jobs in the past two years, and while they're trying to figure that out, I'm gonna show some real leadership, and do everything I can - not to balance the budget - but to balance our economy.

Oh well.