The G Spot

Scenes from the class struggle; or, don't give up on us, baby

By Kathy G.

Kicking off this series of random yet connected observations -- Dean Baker should tell us how he really feels:

The NYT piece on bailout III for Citigroup looks like it was written by Citi's lobbyists. The piece never once points out that the government has handed tens of billions to Citigroup for almost nothing. Let me say that about six more times: the NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing. The NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing. The NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing.I suppose tens of billions for Citi doesn't deserve as much attention as $50 million for the National Endowment for the Arts or $25 million for the Smithsonian.

[. . .]

It's time that the media stopped covering up for Wall Street. The issue is not "nationalization," the issue is a bankruptcy type receivership for insolvent banks. It is absurd to pretend that this is prevented by trade agreements or anything other than the power of the shareholders and executives who run these banks.

As Baker had earlier noted:

I was just at a White House conference listening to a lot of people talking about cutting Social Security and Medicare benefits for retirees. How can the same government that hands tens of billions of dollars to Citi's shareholders and top executives cut key benefits for the retirees? Why aren't the news reports calling attention to this massive give away to some of the nation's richest people?

I'm not sure whether this is the conference to which Baker is referring, but at any rate, it's nice to know Dean was wide awake, even if Larry Summers was sound asleep. And obviously I'd vastly prefer it that way, than the other way around.

Meanwhile, the Wall Street Journal reports that "TARP Said to Be Ripe for Fraud":

The U.S. government's rescue of the financial system is vulnerable to fraud that could potentially cost taxpayers tens of billions of dollars, government watchdogs warned lawmakers Tuesday.

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government's experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud.

[. . .]

Federal officials have already alleged TARP-related fraud. In January, the Securities and Exchange Commission charged a Nashville, Tenn.-based firm with defrauding investors of at least $6.5 million by claiming their money was invested in TARP and other securities that didn't exist. Mr. Barofsky's office is working with the SEC in investigating the case.

Early childhood education: common ground for liberals and libertarians alike?

By Kathy G.

I've got a new post up at Art of the Possible. It concerns early childhood education programs, and the question of whether liberals and libertarians alike might be able to come together in support of such programs. You can find the post here.

The declining fortunes of African-Americans under President George W. Bush

By Kathy G.

I've got another post up at Art of the Possible, which you can check out here. It's about how, on an economic level, the Bush years have sucked for pretty much everyone, especially African-Americans.

Unbe-fucking-lievable

By Kathy G.

It's high bloody time we all take to the streets with pitchforks:

Less than a week after the federal government offered an $85 billion bailout to insurance giant AIG, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, Calif., running up a tab of $440,000, Rep. Henry Waxman (D-Calif.) said today at the the opening of a House committee hearing about the near-failure of the insurance giant.

Showing a photograph of the resort, Waxman said the executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa.

"Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation," Waxman said. "We will ask whether any of this makes sense."

As Thomas Frank once wrote about something similar, "Where be the tumbrels for the malefactors?"

Guest blogging at Art of the Possible

By Kathy G.

I wanted to let you all know that, for the next several Saturdays, I'll be guest blogging at Art of the Possible. For those of you who aren't familiar with it, Art of the Possible is a very interesting site that seeks to facilitate dialogue between liberals and libertarians. You can read my first post here -- it concerns the impact of teenage childbirth on the mother's education and economic well-being.

The roots of the current financial crisis

By Kathy G.

Chris Hayes has a very interesting post explaining the roots of the current financial meltdown. He says it has two basic causes: one is too much leverage, i.e., making investments where the amount of borrowed capital far exceeds the amount you have in assets. That seems fairly obvious.

The other explanation he gives is much more counterintuitive: too much capital. He explains:

This insight isn't mine. It comes largely from an episode of This American Life called The Global Pool of Money (an absolute can't miss episode, the best explanation of the whole crisis I've encountered.) This is a strange way to think about the problem, perhaps, but it's illuminating. The entire amount of capital that needs to find a home in the financial markets is roughly $70 trillion (in fixed income securities). But here's the thing, the size of this pool in 2000 was just 36 trillion. As Adam Davidson says in the TAL: "It took several hundreds years to get to 36 trillion and then it took six years to get to another 36 trillion."

Much of what's gone so wacky is simply that there's too much money chasing too few good investment opportunities and that's led to lots of risky schemes. Now, there's a lot of reasons for all this capital suddenly appearing, but at least one thing to consider is that the distribution between labor and capital is totally skewed, and if labor were capturing more of profits, they'd be consuming, and saving in (relatively safe) commercial enterprises. Which is to say, broadly distributed economic growth is more stable and better over the long-run, than sharply unequal growth.

I'm still working on getting up to speed this stuff myself, and I'm not certain that this explanation is correct. But it's intriguing, and it definitely bears looking into.

Must-read of the day: Dean Baker on progressive conditions for a bailout

By Kathy G.

(Update on the bail-out: Paul Krugman says no deal).

As they say, read the whole thing -- it's an important post. There are two points, however, that seem especially critical to me. First, there's this:

The government can set whatever conditions it wants on participating in the reverse auctions. One of the conditions it should set is that executive compensation be severely constrained at any financial firm that participates. For example, it can set an absolute limit of $2 million in total compensation for any executive at any firm that takes parts in the reverse auction.

Since participation in the auction is completely voluntary, this would make the cap voluntary. Furthermore, there need be little fear about losing good talent, because well-managed firms would not have to participate in the reverse auction.

Restraining compensation on Wall Street will be incredibly important in reversing the pattern of inequality that has developed over the last three decades. The exorbitant compensation packages on Wall Street distorted pay structures throughout the economy.

Executives at non-financial companies looked at the pay on Wall Street and used this as a basis for demanding outrageous pay packages for themselves as well. Presidents of universities often get over $1 million a year, and even top executives at private charities can often earn near $1 million a year. These salaries seem low when compared to their counterparts in the corporate world, but they are outrageous when compared to the pay checks of typical workers. If we can bring about voluntary pay restrain on Wall Street with this bailout, it will be a very big step toward reversing the pattern of inequality that has developed over the last three decades.

Forget Wall Street -- what we need is massive debt relief for individual households

By Kathy G.

As the financial meltdown continues apace, one thing we're bound to be seeing a lot of are articles like this one, inviting readers to join the pity party for the real victims -- all those former Master-of-the-Universe investment bankers whose investment portfolios have taken such a rude hit of late, and who are now forced to make such heartrending decisions as the following:

Who can they let go from the staff? Most would rather do without the nanny than without the cleaner. With any luck the cleaner likes children anyway and will help out in a pinch. If there is a cook, she goes before the nanny. The cleaner also knows how to roast a chicken and wash up. Forget the garden altogether - expect to see a lot of weeds as the crisis worsens - although the unemployed may take some comfort in doing the gardening themselves. 

I'm crying as I type.

Even more tragic are the breathless reports informing readers that "one tumbling titan after another" is being forced to give up his high-end mistress. "I can't afford her anymore!" they plaintively wail.

To which I say  -- cry me a river, bitchez! You were the geniuses who engineered this fiasco, in spite of more than a few credible warnings that a financial disaster of epic proportions was in the making. If these dudes are, in effect, being killed by their own swords -- being economically wiped out by the insanely complex and wildly unsound investment strategies and financial instruments that they themselves invented, refined, and foisted on the rest of the world -- well, that would be poetic justice now, wouldn't it?

But they aren't the only ones who will be hurting, of course. My brother, a middle manager at Merrill Lynch with a mortgage to pay and a wife and three kids to support, is very worried about his job. And he's one of the lucky ones, given that the acquisition of Merrill Lynch by Bank of America has at least allowed that firm to survive.

And there's no question that the turmoil on Wall Street will be reflected on Main Street, as credit becomes much harder to come by for businesses and individuals alike, and the entire economy contracts as a result.

As we've seen thus far, when it comes to the suffering of their buddies on Wall Street, Bush, Paulson, and company have been the milk of human kindness itself, engineering lavish, taxpayer-funded bailouts for Bear Sterns, Fannie, Freddie, and AIG. But when it comes to the suffering of middle Americans, that same milk abruptly turns dry, sour, and very curdled indeed. We've seen precious little help, for example, for individuals overwhelmed by debt and in danger of losing their homes. Yet, according to economist Nouriel Roubini, the most effective way to deal with the current crisis would be a program that brings relief to distressed homeowners in danger of defaulting on their mortgages.

The fine line between clever and stupid

By Kathy G.

In today's Wall Street Journal, University of Chicago economist Casey Mulligan has an op-ed entitled "Vote Republican if You Want Equal Pay." Mulligan looked at Census data on women's pay relative to men's in every presidential administration from LBJ to the present. And lo and behold, he found that women's relative pay increased far more under Republican presidents than Democrat ones.

What to make of this? Well, I for one am thrilled that, after all these years, University of Chicago economists and the Wall Journal editorial page are demonstrating such a touchingly fervent devotion to the cause of women's pay equity -- that's an unexpected development, to say the least. And the piece certainly stands squarely in the grand tradition of the cutely counterintuitive op-ed -- no doubt about that. But, to paraphrase David St. Hubbins in This Is Spinal Tap, there's a fine line between clever and stupid. And in this piece, Mulligan has crossed it.

For decades, the Republicans have proved themselves time and time again to be no friends of women's pay equity. This, after all, is the same party that thought appointing Clarence Thomas as head of the Equal Employment Opportunity Commission was a swell idea. It's also the party that appointed Thomas and the other four Supreme Court Justices who, in the recent Lilly Ledbetter case, voted to severely restrict women's ability to sue their employers for pay discrimination. And it's the party that, earlier this year, defeated the Ledbetter Fair Pay Act, a law that would have overturned that Supreme Court decision and restored the right to file gender-based pay discrimination lawsuits. John McCain and the vast majority of Republican senators and Congressional representatives strenuously oppose the Ledbetter Act.

Given the Republicans' strong anti-equality record, Mulligan's finding that Republican presidents increase pay equity for women surely demands an explanation. What is the causal mechanism here? But curiously, Mulligan is entirely silent on this point. He offers no explanation for these findings -- not even the usual blather about how Republicans let the magic of the market do its thing.

Wages are falling for just about everybody

By Kathy G.

Chart from the Wall Street Journal

Today, the Wall Street Journal reports the sobering news that, since 2000, real wages have fallen for every educational group in America except folks with professional degrees (doctors, lawyers, and the like). All other groups, even those with master's degrees and Ph.D.'s, saw declining wages over this period. The WSJ piece is based on recently released Census data (you can find the most recent Census Bureau report on income and earnings here).

In recent years, the college earnings premium has decreased substantially. As the Journal points out:

In 1975, for instance, workers with college degrees earned 60% more per year on average than workers with high-school diplomas only, according to the 2006 Economic Report of the President.

Workers with a college degree saw their earnings premium grow steadily over the next quarter century, and by 2000 their average earnings were roughly double what workers with a high-school diploma made. Over the next four years the trend reversed: By 2004, workers with a college diploma only were earning about 80% more than high-school grads, on average.

The Journal article identifies globalization (including the outsourcing of both blue- and white-collar jobs) and rising health costs as possible causes for the decline in wages. One reason workers' wages aren't keeping up with inflation is that health care costs have risen dramatically in recent years, so employers are shelling out more for health coverage, and less in wages.

For most Americans, these data paint a fairly bleak picture of their economic prospects. About the only good thing I can say about this is that, given this economic climate, I find it almost impossible to believe that the Republicans triumph this November. The seven-year period during which wages have been in freefall just happen to be seven years in which a Republican was president and Republicans, for the most part, controlled Congress. There's no way in hell that the Republicans should be able to get away with this. If, in spite of everything, they end up winning this fall, it will be the con job of the century.