Income Inequality + Financialization + Globalization = Destruction of the Middle Class
This equation is a work in progress for me. I have tried an econometric model but it crashed my computer. Seriously, we are losing sight of the much bigger picture that is playing out across the country. Our policy makers are distracted by this financial crisis or intentionally ignore the plight of the Middle Class in the U.S.
Naked Capitalism through Guest Posts by Leo Kolivakis, publisher of Pension Pulse, has done an excellent job of chronicling the problems with pension funds. I certainly encourage people to read his posts.
The headline is from a Bloomberg "exclusive" story. This is the lead in paragraph:
U.S. pension funds contributed to the record $1.2 trillion that private-equity firms raised this decade. Three of the biggest investors, state pensions in California, Oregon and Washington, plunked down at least $53.8 billion. So far, they only have dwindling paper profits and a lot less cash to show the millions of policemen, teachers and other civil servants in their retirement plans.
This is a modest proposal and actually may not be very original. But this is a very important topic that is not getting enough attention. This proposal could be implemented easily and quickly if it had the right partners.
Our financial system offers many options for people to save, invest and obtain credit. But having all these options is not necessarily a good thing. These increased options have also added more complexity to a financial system that was already pretty intimidating for many people. Many of us do not have a basic understanding or knowledge about finance to make good financial decisions for ourselves. Studies have shown that this financial "illiteracy" is widespread across the U.S.
Are financial conglomerates in a position to increase lending? Do they still have too many "toxic assets" on the books plus a lot of their own debt on the books which in turn is causing them to not be able to provide any no loans? Are we (households) in a position to incur more debt? If the trillions of dollars that Federal Reserve and Treasury pumped into the financial system to keep interest rates low is not jump starting new lending, did we just waste trillions of dollars? These are the questions that came to mind after reading this Bloomberg article and the Federal Reserve Bank's April 2009 Senior Loan Officer Opinion Survey.
Congress still has a long way to go in representing their constituents and not their special interest benefactors (eg. cram down bill) but we should give credit when credit is due. Yesterday, two potentially significant pieces of legislation were signed by the President: Helping Families Save Their Homes Act of 2009 and the Fraud Enforcement and Recovery Act of 2009. These pieces of legislation are potentially significant not so much because of their main objectives (which are significant in their own way) but for two potentially powerful amendments included in each.
We need a new economic system because the old has failed. American Capitalism has failed so many people in so many ways. We need to transform our economy to one that works for the most people possible. We need a new form of capitalism.
What is the state of American capitalism today? As Professor James Galbraith has stated American capitalism is not what we are told by politicians, media or textbooks: benign competition leads to a greater good for most people. We are far from that. The defining feature of American capitalism today is predation – where a class of people – the oligarchs – feed off the demise of people not within this class. This oligarchy, or as Professor Galbraith calls them the predatory class, has control over the government and the capital in our economic system.
On April 23, the Fed released audited financial statements which included financial statements from a few of the super “structured investment vehicles” that it created in 2008. The Fed called them “Special Purpose Vehicles”. Yeah, right, we know what “Special Purpose” means. Here’s a hint: giveaway. AIG and third-party counterparties to AIG's CDS received the largesse with Maiden Lane II & III. Just like Maiden Lane I, with a stroke of the pen tens of billions of dollars of “toxic assets” were lifted from AIG’s and other financial conglomerates’ balance sheets and transferred to the Fed’s balance sheet.
Background
Please note, that I am having trouble locating detailed financial statements for Maiden Lane II, LLC. The financial results have been consolidated onto the Federal Reserve Bank of New York’s financials but the details were lacking.
On April 23, the Fed released audited financial statements which included financial statements from a few of the super “structured investment vehicles” that it created in 2008. The Fed called them “Special Purpose Vehicles”. Yeah, right, we know what “Special Purpose” means. Here’s a hint: giveaway. JP Morgan Chase got a sweet heart deal with the help of Maiden Lane. With the stroke of a pen $30 billion in assets were moved from Bear Stearns balance sheet to the Feds.
Background
The Fed (Federal Reserve Bank of New York) wanted to help out JP Morgan Chase purchase The Bear Stearns Company. Does Jamie Dimon, CEO of JP Morgan Chase serve on the Board of Directors of FRBNY? No conflict of interest there! But Bearn Stearns had a “toxic asset” problem.
I am not sure who first coined the phrase "House of Cards" to describe the financial crisis that we are facing today. There was a brief piece on "60 Minutes" called House of Cards: The Mortgage Mess and a really good book by William Cohan titled "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street". We are left to deal with this ponzi scheme created by financial conglomerates, mortgage industry and to a lesser extent borrowers who lied about their incomes. But the ways we are dealing with this crisis, particularly Treasury Secretary Geithner's Private-Public Investment Program (PPIP), we are just reshuffling the "House of Cards". We are just re-spreading the risk of the "toxic assets" created by the financial conglomerates to different players including us (again).
The last couple of days we have been hearing from the CEOs of three of largest financial conglomerates (Citigroup, Bank of America and JP Morgan Chase). All three are talking up the profitability of their companies. And of course as a result of public statements about profitability the price of their respective stocks goes up. How convenient is that? Is this stock price manipulation? What they fail to mention is the hundreds of billions of dollars in toxic stuff still on their balance sheets.
There was a time when a person could get in trouble with the Securities and Exchange Commission (SEC) for making publicly misleading statements. But these CEOs statements are probably border line legal. Besides, I am sure that the SEC has its hands full with other matters.
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