Minnesota's banks are straining under the weight of bad loans and dwindling reserves. Some of them, analysts say, may not last the year.
By CHRIS SERRES, Star Tribune
Minnesota banks have yet to pull themselves out of a downward spiral of loan losses, according to financial results released Wednesday by the federal government. And unless the economy rebounds soon, analysts warn that some institutions in this state won't survive the year.
The 429 insured banks with headquarters in Minnesota are still profitable, but their overall credit outlook has grown increasingly bleak as consumers and businesses fall behind on their loans and banks' cash cushion to cover losses dwindles.
Profits for Minnesota banks plunged 65 percent to just $101.4 million in the first quarter from $292.3 million a year ago, according to a Wednesday report by the Federal Deposit Insurance Corp. (FDIC). Statewide, one of six banks lost money in the first quarter -- up from one in 10 just a year ago.
In the Twin Cities, where loan losses have been the most severe, nearly one of three banks is losing money, according to the FDIC.
Industry observers say it's now a near-certainty that one or more Minnesota banks will be shut down by year's end. A string of bank failures in the state could force regulators to tighten lending rules and capital requirements, resulting in fewer loans at a time when the economy most needs them. Available credit, whether to start a business or buy a home, is seen as a key factor in the country's economic recovery.
"Conditions could improve, but with these trends, a bank closing seems inevitable," said Robert Viering, principal of River Point Group, a bank consulting firm in Monticello.
In Minnesota, concern is centered on dozens of small, community banks -- most with assets of less than $1 billion -- that grew frantically earlier this decade by making loans to real estate developers and builders. Many of their loans were based on overly optimistic assumptions of future home sales and land values.
Once the build-out of new subdivisions screeched to a halt, many developers and contractors -- already heavily in debt -- simply stopped paying their bankers.
The result has been a rapid deterioration in bank balance sheets and heightened scrutiny by government regulators. Since early 2008, about 15 banks in Minnesota have been ordered by federal regulators to clean up their lending practices.
At least two institutions -- Horizon Bank of Pine City and Brickwell Community Bank of Woodbury -- have seen capital ratios fall below minimum levels set by federal regulators; a handful of others, including Mainstreet Bank of Forest Lake, are precariously close to falling below capital minimums.
Though most Minnesota banks have strong capital positions, some industry observers argue that's partly because banks here have been slow to write off loans in default as uncollectible.
"It's clear that some banks in Minnesota are waiting and hoping for conditions to improve," said Matt Anderson, an analyst with California research firm Foresight Analytics. "But the hole for some of these banks is so large that it's difficult to see how they will pull themselves out and get back on track."
All told, 36 federally insured institutions have failed or been shut down this year, compared with 25 in 2008 and three in 2007. The FDIC's list of troubled banks has jumped to 305 -- the highest number since 1994 during the savings and loan debacle -- from 252 in the fourth quarter. The FDIC believes U.S. bank failures will cost the deposit insurance fund about $70 billion through 2013.
Congress last week more than tripled the amount the FDIC could borrow from the U.S. Treasury if needed to restore the fund, to $100 billion from $30 billion.
Though Minnesota has not had a bank failure since last May -- when First Integrity Bank of Staples was shut down by federal regulators -- there are concerns banks in this state have not done enough to shore up their reserves to prepare for a severe economic downturn.
Indeed, banks in Minnesota have been setting aside far less money in their loan-loss reserves to cover losses than their national counterparts, which could haunt the banks later in the year if the recession deepens, analysts warned. Minnesota banks held enough money in reserve to cover 50.5 percent of troubled loans as of March 31, compared with 72.3 percent a year ago and 105 percent in 2007, according to the FDIC. Nationally, such reserves account for 66.5 percent of troubled loans.
Many of these troubled loans are unlikely to be repaid, Viering warned, even if the economy stabilizes.
At Mainstreet Bank, nearly 27 percent of the bank's total book of loans is classified as "noncurrent," 90 days or more past due, according to the FDIC. That's the highest in the state. A key measure of the bank's ability to withstand future loan losses -- its so-called Tier 1 capital ratio -- was just 4.1 percent as of March 31. A bank must maintain a Tier 1 ratio of at least 4 percent to be considered adequately capitalized.
Mainstreet Bank, which has assets of about $500 million and nine branches in the metro area, has lost a total of $41.8 million over the past four quarters, including $6.6 million in the first quarter ended March 31. In February, the FDIC issued a cease and desist order against Mainstreet, alleging the bank operated with an excessive level of delinquent loans and did not keep an adequate amount of reserves to cover loan losses.
Another institution straining under the pressure of souring loans is Interbank fsb of Maple Grove. The bank lost $4.4 million in the first quarter after losing $23.4 million in 2008. Its Tier 1 capital ratio has fallen from 9.1 percent a year ago to 7.5 percent. Interbank, a savings and loan with $840 million in assets, attempted to access a piece of the federal bailout program last fall by selling itself to an insurance company; but the deal fell through.
Chris Serres • 612-673-4308
http://www.startribune.com/business/46321532.html?elr=KArksUUUU
Thursday, May 28, 2009
Wednesday, May 27, 2009
Fuel prices rise as demand drops. Speculators to Blame?
Supplies are up, too. Analysts suggest that Wall Street speculators hedging against inflation may be the cause.
By Kevin G. Hall
MCCLATCHY NEWSPAPERS
WASHINGTON - Oil and gasoline prices have risen fast during the approach to Memorial Day weekend, but not because supplies are tight or demand is high.
U.S. crude-oil inventories are the highest in almost two decades, and demand has fallen to a 10-year low, but crude-oil prices have climbed about 74 percent since mid-January. They closed Friday at $61.67 a barrel.
Meanwhile, although refiners are operating at less than 85 percent of capacity, leaving them plenty of room to churn out more gasoline if demand rises during the summer driving season, the price of gasoline at the pump nationally has climbed 33 cents a gallon from a month ago to an average of $2.39.
In the latest run-up in prices, Wall Street speculators - some of them recipients of billions of dollars in taxpayers' bailout money - may be to blame.
Big Wall Street banks such as Goldman Sachs Group Inc., Morgan Stanley, and others are able to sidestep the regulations that limit investments in commodities such as oil, and they are investing on behalf of pension funds, endowments, hedge funds, and other big institutional investors, in part as a hedge against inflation.
These investors now far outnumber big fuel consumers such as airlines and trucking companies, which try to protect themselves against price swings, and they are betting that the economy eventually will rebound, that the Obama administration's spending policies and Federal Reserve actions will trigger inflation - or both - and that oil prices will rise.
"They're buying because . . . they think it will diversify their portfolio against inflation, and maybe they think the economy will turn around," said Michael Masters, a hedge fund manager who testified before Congress last year about the consequences of what are called exchange-traded funds.
Oil contracts are traded mostly in U.S. dollars, and inflation would erode the value of oil earnings, stocks, or any other asset denominated in U.S. currency. Thus, many investors are pouring money into oil futures - contracts for future deliveries of oil at specified prices - in the belief that oil prices will rise as inflation erodes the dollar's value.
This turns oil-futures contracts into a way for investors to hedge against inflation at the expense of American consumers, who have to pay more to fill their gas tanks as oil and gasoline prices rise.
Masters and other critics say this speculative flow of money into commodities markets is a self-fulfilling prophecy that is distorting the usual process by which buyers and sellers set prices and is driving up the price of oil, gasoline, grains, and other essentials.
"There is definitely an inflation premium at work here," said John Kilduff, a senior vice president of MF Global Ltd., of New York, a brokerage house that helps large investors trade in energy markets.
In a report May 6, CNBC television senior energy correspondent Sharon Epperson said traders told her that prices were disconnected from supply and demand.
"Nymex traders tell me they're seeing new money coming in from passive funds that are reallocating assets away from precious metals and into energy holdings. It's this money flow, rather than the fundamental supply-demand data, that's driving oil prices higher," she reported.
In a report April 16 on last year's spike in natural gas prices, the Federal Energy Regulatory Commission concluded that similar investment flows drove up the price that consumers paid to heat their homes with natural gas.
Morgan Stanley did not respond to requests for comment via e-mail and telephone. Goldman Sachs declined to comment.
http://www.philly.com/inquirer/business/20090526_Fuel_prices_rise_as_demand_drops.html
By Kevin G. Hall
MCCLATCHY NEWSPAPERS
WASHINGTON - Oil and gasoline prices have risen fast during the approach to Memorial Day weekend, but not because supplies are tight or demand is high.
U.S. crude-oil inventories are the highest in almost two decades, and demand has fallen to a 10-year low, but crude-oil prices have climbed about 74 percent since mid-January. They closed Friday at $61.67 a barrel.
Meanwhile, although refiners are operating at less than 85 percent of capacity, leaving them plenty of room to churn out more gasoline if demand rises during the summer driving season, the price of gasoline at the pump nationally has climbed 33 cents a gallon from a month ago to an average of $2.39.
In the latest run-up in prices, Wall Street speculators - some of them recipients of billions of dollars in taxpayers' bailout money - may be to blame.
Big Wall Street banks such as Goldman Sachs Group Inc., Morgan Stanley, and others are able to sidestep the regulations that limit investments in commodities such as oil, and they are investing on behalf of pension funds, endowments, hedge funds, and other big institutional investors, in part as a hedge against inflation.
These investors now far outnumber big fuel consumers such as airlines and trucking companies, which try to protect themselves against price swings, and they are betting that the economy eventually will rebound, that the Obama administration's spending policies and Federal Reserve actions will trigger inflation - or both - and that oil prices will rise.
"They're buying because . . . they think it will diversify their portfolio against inflation, and maybe they think the economy will turn around," said Michael Masters, a hedge fund manager who testified before Congress last year about the consequences of what are called exchange-traded funds.
Oil contracts are traded mostly in U.S. dollars, and inflation would erode the value of oil earnings, stocks, or any other asset denominated in U.S. currency. Thus, many investors are pouring money into oil futures - contracts for future deliveries of oil at specified prices - in the belief that oil prices will rise as inflation erodes the dollar's value.
This turns oil-futures contracts into a way for investors to hedge against inflation at the expense of American consumers, who have to pay more to fill their gas tanks as oil and gasoline prices rise.
Masters and other critics say this speculative flow of money into commodities markets is a self-fulfilling prophecy that is distorting the usual process by which buyers and sellers set prices and is driving up the price of oil, gasoline, grains, and other essentials.
"There is definitely an inflation premium at work here," said John Kilduff, a senior vice president of MF Global Ltd., of New York, a brokerage house that helps large investors trade in energy markets.
In a report May 6, CNBC television senior energy correspondent Sharon Epperson said traders told her that prices were disconnected from supply and demand.
"Nymex traders tell me they're seeing new money coming in from passive funds that are reallocating assets away from precious metals and into energy holdings. It's this money flow, rather than the fundamental supply-demand data, that's driving oil prices higher," she reported.
In a report April 16 on last year's spike in natural gas prices, the Federal Energy Regulatory Commission concluded that similar investment flows drove up the price that consumers paid to heat their homes with natural gas.
Morgan Stanley did not respond to requests for comment via e-mail and telephone. Goldman Sachs declined to comment.
http://www.philly.com/inquirer/business/20090526_Fuel_prices_rise_as_demand_drops.html
Former Lehman Brothers banker to head New York City’s Housing Authority
By Sandy English
26 May 2009
New York City’s billionaire mayor, Michael Bloomberg, has appointed a fellow Wall Street veteran, former Lehman Brothers top executive John B. Rhea, to head the New York City Housing Authority (NYCHA), the largest administrator of public housing in the Untied States.
Rhea, 43, managed strategy and budget for the failed investment bank. After it collapsed in September, he continued to work for its new owners at Barclays. Previously, he had worked for JP Morgan Chase “where he completed more than $50 billion worth of transactions overseeing corporate finance as well as mergers and acquisitions,” according to the New York Times.
Among Rhea’s biggest deals was a merger involving the Reynolds tobacco company and a manufacturer of smokeless tobacco products. He has no experience whatsoever in managing housing, public or otherwise.
Rhea served on Barak Obama’s Presidential Campaign, working as a “bundler,” gathering more than $500,000, primarily from Wall Street. (Individuals working in Securities and Investments gave more than $8 million to the Obama campaign.) Since 2002, Rhea has contributed to the campaign war chest of New York’s Charles Schumer, the senator most closely tied to Wall St., and to the Illinois congressional campaign of fellow investment-banker-tuned-politician Rahm Emmanuel, now the White House Chief of Staff.
Rhea will head an agency that owns 340 developments containing nearly 178,000 apartments in the city’s five boroughs that house about 408,000 people. It also administers the federal Housing Choice Voucher Program or Section 8 rent subsidy for another 95,000 people in privately owned apartments across the city. Between the two programs, it is responsible for housing about 8 percent of the city’s population. On average, the yearly income for a family renting a public housing apartment is $22,728.
The social chasm separating Rhea from the working-class residents of public housing was revealed by a remark he made after Bloomberg announced his appointment to the job last week. According to the New York Times, he joked, “Well, obviously I’m not taking the job for the pay.”
His new position includes a $189,700 a year salary, nearly nine times the income of the average family living in New York City public housing. But undoubtedly this represents a huge pay cut compared to multimillion-dollar compensation packages that went to Lehman Brothers top executives before the 150-year-old banking firm collapsed, bringing much of the world economy down with it.
People living in public housing are some of the few remaining working-class and middle-class New Yorkers who pay anything approaching an affordable rent, although given the unemployment and poverty affecting increasing numbers of workers, even in public housing “affordable” is relative term.
In return for a rent that is less than the nearly unaffordable sums that most ordinary New Yorkers pay, NYCHA residents get decaying and dangerous infrastructure, shoddy services, and the insecurity created by the threat of privatization
This is because the NYCHA is starved for funds. With an annual budget of more than $3.4 billion, the NYCHA ran an operating deficit of $177 million for the 2009 fiscal year. In past years, the deficits have been similar. Fuel costs have skyrocketed in the last five years, and much of the $390 million in federal stimulus funds will go to making units in the system more energy-efficient. Almost none will defray the deficits.
The NYCHA has attempted to balance its budget by raising rents, shutting community centers, and asking residents to pay for services, such as laundry, that were formerly free or provided for a nominal fee. Layoffs have stalled repairs and routine maintenance. The Times noted recently, “Morale among Housing Authority workers remains low, as the agency has eliminated hundreds of jobs to deal with its operating budget deficit.”
Notoriously, breakdowns of many of the 3,335 elevators run by the authority are everyday occurrences. In the 22 buildings of East Harlem’s Wagner Houses, there were an astounding 2,132 reported breakdowns in the 2007 and 2008 fiscal years. Often elevators are so unreliable and so dangerous that many residents must walk—or prefer to walk for their own safety—several flights of stairs rather than use them.
In October, an 11-day-old infant died while being rushed to the hospital when an elevator stalled in the Van Dyke Houses in Brooklyn. Police were forced to pry open the doors. In August, five-year-old Jacob Neuman died after he fell 10 stories as he attempted to escape a stalled elevator at the Taylor Street-Wythe Avenue apartments in Brooklyn.
As the Times later observed: “That elevator was 21 years old and had failed 8 of 11 inspections since February 2004. The technical problems that led to the accident—electrical malfunctions that caused the elevator to lose power and allowed the door to open—were tied to faulty maintenance, according to elevator experts and an accident report by the city’s Department of Buildings.”
In March, the newspaper did a study based on records it obtained from the NYCHA through the Freedom of Information Act that showed that more than 300 people reported being injured by elevators in public housing since 2001, 170 of whom sought medical treatment of some sort.
NYCHA buildings are often plagued by some of the worst social consequences of poverty, including drug abuse and violence. New York University’s Furman Center for Real Estate and Public Policy published a study in November that demonstrated that children who live in public housing fared poorly in school, even compared to “students at the same school who shared similar demographics, like race, gender and poverty status.” Children who lived in NYCHA developments scored worse on standardized tests and had a lower rate of school attendance.
None of these are the problems that Rhea has been appointed to solve. For the wealthy elite, of which he is a member, there is an entirely different problem: how to release a vast amount of publicly owned housing stock onto the rental market.
This has been a longstanding concern for the ruling establishment in New York City. Writing earlier this month in Forbes, the director of the right-wing Manhattan Institute’s Center for Rethinking Development, Julia Vitullo-Martin, proposed that New York City imitate British Prime Minister Margaret Thatcher’s semi-privatization of public housing in the 1980s.
At that time, British public Council flats were opened to private management and purchase, enriching a whole layer of realtors. Vitullo-Martin is forced to admit that one of the byproducts of this profit-taking was a “reduction in the supply of publicly owned housing stock.”
New York, she suggests, should open up its housing system “to choice, competition and flexible responses.” In a comment published on the Manhattan Institute’s web site in November, Vitullo-Martin crowed with delight over the fact that the NYCHA had, for the first time in its 75-year history, allowed market-rate housing to be built by a private realtor on its land in Manhattan, displacing “a cheerless playground and basketball court.”
Vitullo-Martin is not an accidental figure. She is connected to the city’s political establishment at the highest levels, serving under Mayor Rudolph Giuliani as Assistant Commissioner for Planning and Development with the NYC Department of Parks and Recreation.
A WSWS reporting team recently spoke to residents of the Walt Whitman Houses in Brooklyn, home to more than 4,000 people, as they returned from work or sat outside on a warm evening. Residents told us that they are well aware of not only the city’s neglect of their homes, but also the fact that they live on real estate that New York’s super-wealthy developers hope to exploit.
We spoke to two sisters, Missy and Donna, who have lived in the Whitman Houses all their lives. Missy, a public-school social worker, said of Rhea’s appointment: “If he has no experience in public housing, he should not be running the authority. NYCHA is a diverse, multi-ethnic community. We need someone who has grown up here, or who has family here, who knows our struggles here. If you’re living in the White House, you don’t know what it is to live like we do.
“The only thing that is changing around here is the rent. You have people paying $1,300, $1,400. You’ve still got to deal with broken urinals. Sometimes you have to dodge bullets. This man simply does not have the empirical evidence to understand our lives.”
Donna added, “He has no business down here. We need someone who has come from here.”
Missy said, “If you’re middle-class, you might as well move. We don’t have a voice. They’re not taking into consideration our needs. It’s Robin Hood in reverse: they make sure that they’re robbing from the poor and giving to the rich.”
Robert D. Duren
Another resident, Robert D. Duren, told us that most of the people in the development were working class. “The conditions for the working class are getting worse,” he said.
When asked about the impact of the economic crisis on Whitman residents, Robert said, “A lot more people are struggling to make ends meet, while the MTA is hiking up fares. You already have people going to churches and soup kitchens for meals. People that are working are collecting food stamps.
“Bloomberg’s trying to give money to the rich. He’s got money. He’s trying to price us right out. They’re going to raise the rent, but where’s all that money that Obama is sending out [in stimulus funding for public housing]?”
Robert noted that multimillionaire developer Bruce Ratner’s project to develop a sports arena complex in the neighborhood would evict people from their homes.
“They’re building a big stadium to move the [professional basketball team] Nets to, with new condos all over downtown Brooklyn—look around. They want us gone. If you could look at all the contracts and the plans, you’d see that the developers have blueprints of all the housing in the area, including the developments, and they have this property divided up among themselves. The public doesn’t know what’s going on.
“This is going to be Starrett City all over again,” he said, referring to the large, private housing development for working people in Brooklyn that was recently sold, and whose residents face massive rent increases.
Lajuna
His friend Lajuna added bitterly, “They’re already selling out. They’re getting rid of our apartments to make way for condos. And still no one can get Section 8. They’re already painting over apartments and are going to raise the rent by $700 or $800 a month. For two years this building has been empty.”
Another resident passing by overheard her and brought us for a closer look at the apartments under renovation, to which Lajuna was referring. She told us that they were going to be rented for substantially more than most people in the development could afford.
The super-rich have looted the public treasury of trillions of dollars in the last few months. Now this financial oligarchy has placed one of it own, John B. Rhea—a major fundraiser for Barak Obama and an experienced hand at financial criminality—as the manager of billions of dollars’ worth of public housing stock—and the homes of tens of thousands of New York’s working poor.
The author also recommends:
New York City demands rent from the homeless
[14 May 2009]
http://gangbox.wordpress.com/2009/05/26/breaking-the-projects-will-bloombergs-new-housing-authority-chairman-wall-street-banker-john-rhea-privatize-public-housing-in-new-york-city/
26 May 2009
New York City’s billionaire mayor, Michael Bloomberg, has appointed a fellow Wall Street veteran, former Lehman Brothers top executive John B. Rhea, to head the New York City Housing Authority (NYCHA), the largest administrator of public housing in the Untied States.
Rhea, 43, managed strategy and budget for the failed investment bank. After it collapsed in September, he continued to work for its new owners at Barclays. Previously, he had worked for JP Morgan Chase “where he completed more than $50 billion worth of transactions overseeing corporate finance as well as mergers and acquisitions,” according to the New York Times.
Among Rhea’s biggest deals was a merger involving the Reynolds tobacco company and a manufacturer of smokeless tobacco products. He has no experience whatsoever in managing housing, public or otherwise.
Rhea served on Barak Obama’s Presidential Campaign, working as a “bundler,” gathering more than $500,000, primarily from Wall Street. (Individuals working in Securities and Investments gave more than $8 million to the Obama campaign.) Since 2002, Rhea has contributed to the campaign war chest of New York’s Charles Schumer, the senator most closely tied to Wall St., and to the Illinois congressional campaign of fellow investment-banker-tuned-politician Rahm Emmanuel, now the White House Chief of Staff.
Rhea will head an agency that owns 340 developments containing nearly 178,000 apartments in the city’s five boroughs that house about 408,000 people. It also administers the federal Housing Choice Voucher Program or Section 8 rent subsidy for another 95,000 people in privately owned apartments across the city. Between the two programs, it is responsible for housing about 8 percent of the city’s population. On average, the yearly income for a family renting a public housing apartment is $22,728.
The social chasm separating Rhea from the working-class residents of public housing was revealed by a remark he made after Bloomberg announced his appointment to the job last week. According to the New York Times, he joked, “Well, obviously I’m not taking the job for the pay.”
His new position includes a $189,700 a year salary, nearly nine times the income of the average family living in New York City public housing. But undoubtedly this represents a huge pay cut compared to multimillion-dollar compensation packages that went to Lehman Brothers top executives before the 150-year-old banking firm collapsed, bringing much of the world economy down with it.
People living in public housing are some of the few remaining working-class and middle-class New Yorkers who pay anything approaching an affordable rent, although given the unemployment and poverty affecting increasing numbers of workers, even in public housing “affordable” is relative term.
In return for a rent that is less than the nearly unaffordable sums that most ordinary New Yorkers pay, NYCHA residents get decaying and dangerous infrastructure, shoddy services, and the insecurity created by the threat of privatization
This is because the NYCHA is starved for funds. With an annual budget of more than $3.4 billion, the NYCHA ran an operating deficit of $177 million for the 2009 fiscal year. In past years, the deficits have been similar. Fuel costs have skyrocketed in the last five years, and much of the $390 million in federal stimulus funds will go to making units in the system more energy-efficient. Almost none will defray the deficits.
The NYCHA has attempted to balance its budget by raising rents, shutting community centers, and asking residents to pay for services, such as laundry, that were formerly free or provided for a nominal fee. Layoffs have stalled repairs and routine maintenance. The Times noted recently, “Morale among Housing Authority workers remains low, as the agency has eliminated hundreds of jobs to deal with its operating budget deficit.”
Notoriously, breakdowns of many of the 3,335 elevators run by the authority are everyday occurrences. In the 22 buildings of East Harlem’s Wagner Houses, there were an astounding 2,132 reported breakdowns in the 2007 and 2008 fiscal years. Often elevators are so unreliable and so dangerous that many residents must walk—or prefer to walk for their own safety—several flights of stairs rather than use them.
In October, an 11-day-old infant died while being rushed to the hospital when an elevator stalled in the Van Dyke Houses in Brooklyn. Police were forced to pry open the doors. In August, five-year-old Jacob Neuman died after he fell 10 stories as he attempted to escape a stalled elevator at the Taylor Street-Wythe Avenue apartments in Brooklyn.
As the Times later observed: “That elevator was 21 years old and had failed 8 of 11 inspections since February 2004. The technical problems that led to the accident—electrical malfunctions that caused the elevator to lose power and allowed the door to open—were tied to faulty maintenance, according to elevator experts and an accident report by the city’s Department of Buildings.”
In March, the newspaper did a study based on records it obtained from the NYCHA through the Freedom of Information Act that showed that more than 300 people reported being injured by elevators in public housing since 2001, 170 of whom sought medical treatment of some sort.
NYCHA buildings are often plagued by some of the worst social consequences of poverty, including drug abuse and violence. New York University’s Furman Center for Real Estate and Public Policy published a study in November that demonstrated that children who live in public housing fared poorly in school, even compared to “students at the same school who shared similar demographics, like race, gender and poverty status.” Children who lived in NYCHA developments scored worse on standardized tests and had a lower rate of school attendance.
None of these are the problems that Rhea has been appointed to solve. For the wealthy elite, of which he is a member, there is an entirely different problem: how to release a vast amount of publicly owned housing stock onto the rental market.
This has been a longstanding concern for the ruling establishment in New York City. Writing earlier this month in Forbes, the director of the right-wing Manhattan Institute’s Center for Rethinking Development, Julia Vitullo-Martin, proposed that New York City imitate British Prime Minister Margaret Thatcher’s semi-privatization of public housing in the 1980s.
At that time, British public Council flats were opened to private management and purchase, enriching a whole layer of realtors. Vitullo-Martin is forced to admit that one of the byproducts of this profit-taking was a “reduction in the supply of publicly owned housing stock.”
New York, she suggests, should open up its housing system “to choice, competition and flexible responses.” In a comment published on the Manhattan Institute’s web site in November, Vitullo-Martin crowed with delight over the fact that the NYCHA had, for the first time in its 75-year history, allowed market-rate housing to be built by a private realtor on its land in Manhattan, displacing “a cheerless playground and basketball court.”
Vitullo-Martin is not an accidental figure. She is connected to the city’s political establishment at the highest levels, serving under Mayor Rudolph Giuliani as Assistant Commissioner for Planning and Development with the NYC Department of Parks and Recreation.
A WSWS reporting team recently spoke to residents of the Walt Whitman Houses in Brooklyn, home to more than 4,000 people, as they returned from work or sat outside on a warm evening. Residents told us that they are well aware of not only the city’s neglect of their homes, but also the fact that they live on real estate that New York’s super-wealthy developers hope to exploit.
We spoke to two sisters, Missy and Donna, who have lived in the Whitman Houses all their lives. Missy, a public-school social worker, said of Rhea’s appointment: “If he has no experience in public housing, he should not be running the authority. NYCHA is a diverse, multi-ethnic community. We need someone who has grown up here, or who has family here, who knows our struggles here. If you’re living in the White House, you don’t know what it is to live like we do.
“The only thing that is changing around here is the rent. You have people paying $1,300, $1,400. You’ve still got to deal with broken urinals. Sometimes you have to dodge bullets. This man simply does not have the empirical evidence to understand our lives.”
Donna added, “He has no business down here. We need someone who has come from here.”
Missy said, “If you’re middle-class, you might as well move. We don’t have a voice. They’re not taking into consideration our needs. It’s Robin Hood in reverse: they make sure that they’re robbing from the poor and giving to the rich.”
Robert D. Duren
Another resident, Robert D. Duren, told us that most of the people in the development were working class. “The conditions for the working class are getting worse,” he said.
When asked about the impact of the economic crisis on Whitman residents, Robert said, “A lot more people are struggling to make ends meet, while the MTA is hiking up fares. You already have people going to churches and soup kitchens for meals. People that are working are collecting food stamps.
“Bloomberg’s trying to give money to the rich. He’s got money. He’s trying to price us right out. They’re going to raise the rent, but where’s all that money that Obama is sending out [in stimulus funding for public housing]?”
Robert noted that multimillionaire developer Bruce Ratner’s project to develop a sports arena complex in the neighborhood would evict people from their homes.
“They’re building a big stadium to move the [professional basketball team] Nets to, with new condos all over downtown Brooklyn—look around. They want us gone. If you could look at all the contracts and the plans, you’d see that the developers have blueprints of all the housing in the area, including the developments, and they have this property divided up among themselves. The public doesn’t know what’s going on.
“This is going to be Starrett City all over again,” he said, referring to the large, private housing development for working people in Brooklyn that was recently sold, and whose residents face massive rent increases.
Lajuna
His friend Lajuna added bitterly, “They’re already selling out. They’re getting rid of our apartments to make way for condos. And still no one can get Section 8. They’re already painting over apartments and are going to raise the rent by $700 or $800 a month. For two years this building has been empty.”
Another resident passing by overheard her and brought us for a closer look at the apartments under renovation, to which Lajuna was referring. She told us that they were going to be rented for substantially more than most people in the development could afford.
The super-rich have looted the public treasury of trillions of dollars in the last few months. Now this financial oligarchy has placed one of it own, John B. Rhea—a major fundraiser for Barak Obama and an experienced hand at financial criminality—as the manager of billions of dollars’ worth of public housing stock—and the homes of tens of thousands of New York’s working poor.
The author also recommends:
New York City demands rent from the homeless
[14 May 2009]
http://gangbox.wordpress.com/2009/05/26/breaking-the-projects-will-bloombergs-new-housing-authority-chairman-wall-street-banker-john-rhea-privatize-public-housing-in-new-york-city/
Bogus Solutions to the Financial Crisis or "The Latest in Junk Economics"
by Prof. Michael Hudson, from "The Common Man"
Marginalist Panaceas to Today’s Structural Problems
It looks like bookstores are about to be swamped this summer and fall by a forest of advice for which publishers gave respectable advances a year ago as the economy was going off the rails. Seeking to minimize the risk of cognitive dissonance, the marketing strategy seems to be to offer advice by well-placed or celebrity insiders on how to recover the kind of free lunch that American pension plans – and popular hopes for easy wealth – have long assumed to be part of the natural law of economic growth, if only it can be better managed. The fantasy people want to buy is that the happy 1981-2007 era of debt-leveraged price gains for real estate, stocks and bonds can be brought back. But the Bubble Economy was so debt-leveraged that it cannot reasonably be restored. This means that publishers have achieved the marketer’s dream of planned obsolescence: Readers a year or so from now will have to buy a new slew of books as they feel hungry again from the lack of intellectual protein.
For the time being we are supposed to be satisfied Wall Street defenses of the Bush-Obama (Paulson-Geithner) attempt to re-inflate the Bubble by a bailout giveaway that has tripled America’s national debt in the hope of getting bank credit (that is, more debt) growing again. The problem is that debt leveraging is what caused the economic collapse. A third of U.S. real estate is now estimated to be in negative equity, with foreclosure rates still rising. So publishers have only a short window of opportunity to sell the current spate of books before people wake up to the fact that attempts to renew the Bubble Economy will make our financial overhead heavier.
In the face of this stultifying financial trend, the book-buying public is being fed appetizers pretending that economic recovery simply requires more “incentives” (a euphemism for special tax breaks for the rich) to encourage more “saving,” as if savings automatically finance new capital investment and hiring rather than what really happens: Money is being lent out to create yet more debt owed by the bottom 90 percent to the economy’s top 10 percent. Publishers evidently believe that the way to attract readers – and certainly to get reviews in the major media – is to propose easy solutions. The theme of most of this year’s Bubble books therefore is how we could have avoided the Bubble “if only…” If only there had been better regulation, for instance.
But to what aim? After blaming Alan Greenspan for playing the role of “useful idiot” by promoting deregulation and blocking prosecution of financial fraud, most writers trot out the approved panaceas: federal regulation of derivatives (or even banning them altogether), a Tobin tax on securities transactions, closure of offshore banking centers and ending their tax-avoidance stratagems. But no one is going so far as to suggest attacking the root of the financial problem by removing the general tax deductibility of interest that has subsidized debt leveraging, taxing “capital” gains at the same rate as wages and profits, or closing the notorious tax loopholes for the finance, insurance and real estate (FIRE) sectors.
Right-wing publishers are re-warming their articles of faith such as giving more tax incentives to “savers” (another euphemism for more giveaways to the rich) and a re-balanced federal budget to avoid “crowding out” private investment. One of Wall Street’s dreams is to privatize Social Security to create yet another Bubble to feed off of. (Fortunately, such proposals failed during the Republican-controlled Bush administration as a result of taxpayer outrage after the dot.com bubble burst in 2000.)
What is not heard is a call to finance Social Security and Medicare out of the general budget instead of keeping their funding as a special regressive tax on labor and its employers, available for plunder by Congress to finance tax cuts for the upper wealth brackets. Yet how can America achieve competitiveness in global markets with its pre-saving retirement tax (Social Security) and privatized health insurance, debt-leveraged housing costs and related personal and corporate debt overhead? The rest of the world provides much lower-cost housing, health care and related employee costs – or simply keeps labor near subsistence levels. Our lack of affordability is a major problem for continued dreams of a renewed Bubble Economy, yet the international dimension is ignored.
The latest panacea being offered to jump-start the economy is to rebuild America’s depleted infrastructure. Alas, Wall Street plans to do this Tony Blair-style, by public-private partnerships that incorporate enormous flows of interest payments into the price structure while providing underwriting and management fees to Wall Street. Falling employment and property prices have squeezed public finances so that new infrastructure investment will take the form of installing privatized tollbooths over the economy’s most critical access points such as roads and other hitherto public transportation, communications and clean water.
Surprisingly, one does not hear even an echo of calls to restore state and local property taxes to their Progressive Era levels so as to collect the “free lunch” of rising land prices and harness its gains over time as the main fiscal base. This would hold down land prices (and hence, mortgage debt) by preventing rising location values from being capitalized into new mortgage loans against “capital” gains and paid out as interest to the banks. Restoring Progressive Era tax philosophy (and pre-1930 property tax levels) would have the additional advantage of shifting the fiscal burden off income and sales – a policy that would make labor, goods and services more affordable. Instead, most reforms today call for further cutting property taxes to promote more “wealth creation” in the form of higher debt-leveraged property price inflation. Instead of housing prices falling and income and sales taxes being reduced, rising site values merely will be recycled to the banks for ever larger mortgages, not taxed to benefit local government. In this scenario, local governments are forced to shift the fiscal burden onto consumers and business, impoverishing the community.
The new books advocate merely marginal changes to deep structural problems. They include the usual pro forma calls to re-industrialize America, but not to address the financial debt dynamic that has undercut industrial capitalism in this country and abroad. How will these timid “reforms” look in retrospect a decade from now? The Bush-Obama bailout pretends that banks “too-big-to-fail” only face a liquidity problem, not the growing bad-debt problem we now face along with the economy’s widening inability to pay. The reason why past Bubbles cannot be re-inflated is that they have reached their debt limit, not only domestically, but also the international political limit of global Dollar Hegemony.
What needs to be written about is what the marginalists leave out of account and what academic jargon calls “exogenous” considerations, which turn out to be what economics really is all about: the debt overhead; financial fraud and crime in general (one of the economy’s highest-paying sectors); military spending (a key to the U.S. balance-of-payments deficit and hence to the buildup of central bank dollar reserves throughout the world); the proliferation of unearned income and insider political dealing. These are the core phenomena that “free market” idea strippers have relegated to the “institutionalist” basement of the academic economics curriculum.
For example, the press keeps on parroting the Washington mantra that Asians “save” too much, causing them to lend their money to America. But the “Asians” saving these dollars are the central banks. Individuals and companies save in yuan and yen, not dollars. It is not these domestic savings that China and Japan have placed in U.S. Treasury securities to the tune of $3 trillion. It is America’s own spending – the trillions of dollars its payments deficit is pumping abroad, in excess of foreign demand for U.S. exports and purchases of U.S. companies, stocks and real estate. This payments deficit is not the result of U.S. consumers maxing out on their credit cards. What is being downplayed is that military spending in most years since the Korean War (1951) that has underlain the U.S. balance-of-payments deficit. Now that foreign countries are starting to push back, this trend cannot continue much longer.
Inasmuch as China’s central bank is now the largest holder of U.S. Government and other dollar securities, it has become the main subsidizer of the U.S. balance-of-payments deficit – and also the domestic U.S. federal budget deficit. Half of the federal budget’s discretionary spending is military in character. This places China in the uncomfortable position of being the largest financier of U.S. military adventurism, including U.S. attempts to encircle China and Russia militarily to block their development as economic rivals during the past fifty years. That is not what China intended, but it is the effect of global dollar hegemony.
Another trend that cannot continue is “the miracle of compound interest.” It is called a “miracle” because it seems too good to be true, and it is – it cannot really go on for long. Heavily leveraged debts go bad in the end, because they accrue interest charges faster than an economy’s ability to pay. Basing national policy on dreams of paying the interest by borrowing money against steadily inflating asset prices has been a nightmare for homebuyers and consumers, as well as for companies targeted by financial raiders who use debt leverage to strip assets for themselves. This policy is now being applied to public infrastructure into the hands of absentee owners, who will themselves buy these assets on credit and build the resulting interest charges into the new service prices they collect, in addition to being allowed to treat these charges as a tax-deductible expense. This is how banking lobbyists have shaped the tax system in a way that steers new absentee investment into debt rather than equity financing.
The irresponsible cheerleaders applauding a Bubble Economy as “wealth creation” (to use one of Alan Greenspan’s favorite phrases) would like us, their audience, to believe that they knew that there was a problem all along, but simply could not restrain the economy’s “irrational exuberance” and “animal spirits.” The idea is to blame the victims – homeowners forced into debt to afford access to housing, pension-fund savers forced to consign their wage set-asides to money managers at the large Wall Street firms, and companies seeking to stave off corporate raiders by taking “poison pills” in the form of debts large enough to block their being taken over. One looks in vain for an honest acknowledgement of how the financial sector has turned into a Mafia-style gang more akin to post-Soviet kleptocrat insiders than to Schumpeterian innovators.
The cursorily reformist gaggle of post-Bubble tomes assumes that we have reached “the end of history” as far as financial problems are concerned. What is missing is a critique of the big picture – how Wall Street’s collaboration in financializing the public domain has inaugurated a neo-feudal tollbooth economy while privatizing the government itself, headed by the Treasury and Federal Reserve. Left untouched is the story how industrial capitalism has succumbed to an insatiable and unsustainable finance capitalism, whose newest “final stage” seems to be a zero-sum game of casino capitalism based on derivative swaps and kindred hedge fund gambling innovations.
What has been lost are the Progressive Era’s two great reforms. First, minimization of the economy’s free lunch of unearned income (e.g., monopolistic privilege and privatization of the public domain in contrast to one’s own labor and enterprise) by taxing absentee property rent and asset-price (“capital”) gains, keeping natural monopolies in the public domain, and anti-trust regulation. The aim of progressive economic justice was to prevent exploitation – e.g., charging more than the technologically necessary costs of production and reasonable profits warranted. Progressive Era reforms had a fortuitous byproduct: Minimization of the free lunch enabled economies such as the United States to out-compete others that didn’t embrace progressive fiscal and financial policy, creating a Leviathan that has now fallen to its knees.
The second Progressive Era reform was to steer the financial sector so as to fund capital formation. Industrial credit was best achieved in Germany and Central Europe in the decades prior to World War I. But the Allied victory led to the dominance of Anglo-American banking practice based on loans against property or income streams already in place. Because of this, today’s bank credit has become decoupled from capital formation, taking the form mainly of mortgage credit (80%), and loans secured by corporate stock (for mergers, acquisitions and corporate raids) as well as for speculation. The effect is to spur asset-price inflation on credit, in ways that benefit the few at the expense of the economy at large.
The consequences of debt-leveraged asset-price inflation are clearest in the post-Soviet “Baltic syndrome,” to which Britain’s economy is now succumbing. Debts are run up in foreign currency (real estate mortgages, tax-avoidance funds and flight capital), without exports having any prospect of covering their carrying charges as far as the eye can see. The result is a debt trap – chronic austerity for the domestic market, causing lower capital investment and living standards without hope of recovery.
These problems illustrate the extent to which the world economy as a whole has pursued the wrong course since World War I. This long detour has been facilitated by the failure of socialism to provide a viable alternative. Although Russia’s bureaucratic Stalinism got rid of the post-feudal free lunch of land rent, monopoly rent, interest and financial or property-price gains, its bureaucratic overhead overpowered the economy in the end and Russia fell. Ideology aside, the question is whether the Anglo-American brand of finance capitalism will follow suit from its own internal contradictions.
The flaws in the U.S. economy are tragic because they are so intractable, embedded as they are in the very core of post-feudal Western economies. This is what Greek tragedy is all about: A tragic flaw that dooms the hero from the outset. The main flaw embedded in our own economy is rising debt in excess of the ability to pay, which is part of a larger flaw – the financial free lunch that property and financial claims extract in excess of corresponding costs as measured in labor effort and an equitably shared tax burden (the classical theory of economic rent). Like land seizure and insider privatization deals, such wealth increasingly is inherited, stolen or obtained through political corruption. Adding insult to injury, wealth and revenue extracted via today’s finance capitalism avoids taxation, thereby receiving an actual fiscal subsidy as compared to tangible industrial investment and operating profit. Yet academics and the popular media treat these core flaws as “exogenous,” that is, outside the realm of economic analysis.
Unfortunately for us – and for reformers trying to rescue our post-Bubble economy – the history of economic thought has been suppressed to give the impression that today’s stripped-down, largely trivialized junk economics is the apex of Western social history. One would not realize from the present discussion that for the past few centuries a different canon of logic existed. Classical economists distinguished between earned income (wages and profits) and unearned income (land rent, monopoly rent and interest). The effect was to distinguish between wealth earned through capital and enterprise that reflects labor effort, and unearned wealth from appropriation of land and other natural resources, monopoly privileges (including banking and money management) and inflationary asset-price “capital” gains. But even the Progressive Era did not go much beyond seeking to purify industrial capitalism from the carry-overs of feudalism: land rent and monopoly rent stemming from military conquest, and financial exploitation by banks and (in America) Wall Street as the “mother of trusts.”
What makes today’s Bubble different from previous ones is that instead of being organized by governments as a stratagem to dispose of their public debt by creating or privatizing monopolies to sell off for payment in government bonds, the United States and other nations today are going deeply into debt simply to pay bankers for bad loans. The economy is being sacrificed to reward finance instead of remaining viable by subordinating and channeling finance to promote economic growth via an affordable economy-wide cost structure. Interest-bearing debt weighs down the economy, causing debt deflation by diverting saving into debt payments instead of capital investment. Under this condition “saving” is not the solution to today’s economic shrinkage; it is part of the problem. In contrast to the personal hoarding of Keynes’s day, the problem is that the financial sector is now using its extractive power as creditor instead of wiping out the economy’s bad-debt overhang in the historically normal way, by a wave of bankruptcies.
Today, the financial sector is translating its affluence (at taxpayer expense), into the political power that threatens to pry yet more public infrastructure away from state and local communities and from the public domain at the national level, Thatcher- and Blair-style. It will be sold off to absentee rentier buyers-on-credit to pay off public debt (while cutting taxes on wealth yet further). No one remembers the cry for what Keynes called “euthanasia of the rentier.” We have entered the most oppressive rentier epoch since feudal European times. Instead of providing basic infrastructure services at cost or subsidized rates to lower the national cost structure and thus make it more affordable – and internationally competitive – the economy is being turned into a collection of tollbooths. How disheartening that this year’s transitory wave of post-Bubble books fails to place the financialization of the U.S. and global economies in this long-term context.
http://themancommon.blogspot.com/2009/05/bogus-solutions-to-financial-crisis.html
Marginalist Panaceas to Today’s Structural Problems
It looks like bookstores are about to be swamped this summer and fall by a forest of advice for which publishers gave respectable advances a year ago as the economy was going off the rails. Seeking to minimize the risk of cognitive dissonance, the marketing strategy seems to be to offer advice by well-placed or celebrity insiders on how to recover the kind of free lunch that American pension plans – and popular hopes for easy wealth – have long assumed to be part of the natural law of economic growth, if only it can be better managed. The fantasy people want to buy is that the happy 1981-2007 era of debt-leveraged price gains for real estate, stocks and bonds can be brought back. But the Bubble Economy was so debt-leveraged that it cannot reasonably be restored. This means that publishers have achieved the marketer’s dream of planned obsolescence: Readers a year or so from now will have to buy a new slew of books as they feel hungry again from the lack of intellectual protein.
For the time being we are supposed to be satisfied Wall Street defenses of the Bush-Obama (Paulson-Geithner) attempt to re-inflate the Bubble by a bailout giveaway that has tripled America’s national debt in the hope of getting bank credit (that is, more debt) growing again. The problem is that debt leveraging is what caused the economic collapse. A third of U.S. real estate is now estimated to be in negative equity, with foreclosure rates still rising. So publishers have only a short window of opportunity to sell the current spate of books before people wake up to the fact that attempts to renew the Bubble Economy will make our financial overhead heavier.
In the face of this stultifying financial trend, the book-buying public is being fed appetizers pretending that economic recovery simply requires more “incentives” (a euphemism for special tax breaks for the rich) to encourage more “saving,” as if savings automatically finance new capital investment and hiring rather than what really happens: Money is being lent out to create yet more debt owed by the bottom 90 percent to the economy’s top 10 percent. Publishers evidently believe that the way to attract readers – and certainly to get reviews in the major media – is to propose easy solutions. The theme of most of this year’s Bubble books therefore is how we could have avoided the Bubble “if only…” If only there had been better regulation, for instance.
But to what aim? After blaming Alan Greenspan for playing the role of “useful idiot” by promoting deregulation and blocking prosecution of financial fraud, most writers trot out the approved panaceas: federal regulation of derivatives (or even banning them altogether), a Tobin tax on securities transactions, closure of offshore banking centers and ending their tax-avoidance stratagems. But no one is going so far as to suggest attacking the root of the financial problem by removing the general tax deductibility of interest that has subsidized debt leveraging, taxing “capital” gains at the same rate as wages and profits, or closing the notorious tax loopholes for the finance, insurance and real estate (FIRE) sectors.
Right-wing publishers are re-warming their articles of faith such as giving more tax incentives to “savers” (another euphemism for more giveaways to the rich) and a re-balanced federal budget to avoid “crowding out” private investment. One of Wall Street’s dreams is to privatize Social Security to create yet another Bubble to feed off of. (Fortunately, such proposals failed during the Republican-controlled Bush administration as a result of taxpayer outrage after the dot.com bubble burst in 2000.)
What is not heard is a call to finance Social Security and Medicare out of the general budget instead of keeping their funding as a special regressive tax on labor and its employers, available for plunder by Congress to finance tax cuts for the upper wealth brackets. Yet how can America achieve competitiveness in global markets with its pre-saving retirement tax (Social Security) and privatized health insurance, debt-leveraged housing costs and related personal and corporate debt overhead? The rest of the world provides much lower-cost housing, health care and related employee costs – or simply keeps labor near subsistence levels. Our lack of affordability is a major problem for continued dreams of a renewed Bubble Economy, yet the international dimension is ignored.
The latest panacea being offered to jump-start the economy is to rebuild America’s depleted infrastructure. Alas, Wall Street plans to do this Tony Blair-style, by public-private partnerships that incorporate enormous flows of interest payments into the price structure while providing underwriting and management fees to Wall Street. Falling employment and property prices have squeezed public finances so that new infrastructure investment will take the form of installing privatized tollbooths over the economy’s most critical access points such as roads and other hitherto public transportation, communications and clean water.
Surprisingly, one does not hear even an echo of calls to restore state and local property taxes to their Progressive Era levels so as to collect the “free lunch” of rising land prices and harness its gains over time as the main fiscal base. This would hold down land prices (and hence, mortgage debt) by preventing rising location values from being capitalized into new mortgage loans against “capital” gains and paid out as interest to the banks. Restoring Progressive Era tax philosophy (and pre-1930 property tax levels) would have the additional advantage of shifting the fiscal burden off income and sales – a policy that would make labor, goods and services more affordable. Instead, most reforms today call for further cutting property taxes to promote more “wealth creation” in the form of higher debt-leveraged property price inflation. Instead of housing prices falling and income and sales taxes being reduced, rising site values merely will be recycled to the banks for ever larger mortgages, not taxed to benefit local government. In this scenario, local governments are forced to shift the fiscal burden onto consumers and business, impoverishing the community.
The new books advocate merely marginal changes to deep structural problems. They include the usual pro forma calls to re-industrialize America, but not to address the financial debt dynamic that has undercut industrial capitalism in this country and abroad. How will these timid “reforms” look in retrospect a decade from now? The Bush-Obama bailout pretends that banks “too-big-to-fail” only face a liquidity problem, not the growing bad-debt problem we now face along with the economy’s widening inability to pay. The reason why past Bubbles cannot be re-inflated is that they have reached their debt limit, not only domestically, but also the international political limit of global Dollar Hegemony.
What needs to be written about is what the marginalists leave out of account and what academic jargon calls “exogenous” considerations, which turn out to be what economics really is all about: the debt overhead; financial fraud and crime in general (one of the economy’s highest-paying sectors); military spending (a key to the U.S. balance-of-payments deficit and hence to the buildup of central bank dollar reserves throughout the world); the proliferation of unearned income and insider political dealing. These are the core phenomena that “free market” idea strippers have relegated to the “institutionalist” basement of the academic economics curriculum.
For example, the press keeps on parroting the Washington mantra that Asians “save” too much, causing them to lend their money to America. But the “Asians” saving these dollars are the central banks. Individuals and companies save in yuan and yen, not dollars. It is not these domestic savings that China and Japan have placed in U.S. Treasury securities to the tune of $3 trillion. It is America’s own spending – the trillions of dollars its payments deficit is pumping abroad, in excess of foreign demand for U.S. exports and purchases of U.S. companies, stocks and real estate. This payments deficit is not the result of U.S. consumers maxing out on their credit cards. What is being downplayed is that military spending in most years since the Korean War (1951) that has underlain the U.S. balance-of-payments deficit. Now that foreign countries are starting to push back, this trend cannot continue much longer.
Inasmuch as China’s central bank is now the largest holder of U.S. Government and other dollar securities, it has become the main subsidizer of the U.S. balance-of-payments deficit – and also the domestic U.S. federal budget deficit. Half of the federal budget’s discretionary spending is military in character. This places China in the uncomfortable position of being the largest financier of U.S. military adventurism, including U.S. attempts to encircle China and Russia militarily to block their development as economic rivals during the past fifty years. That is not what China intended, but it is the effect of global dollar hegemony.
Another trend that cannot continue is “the miracle of compound interest.” It is called a “miracle” because it seems too good to be true, and it is – it cannot really go on for long. Heavily leveraged debts go bad in the end, because they accrue interest charges faster than an economy’s ability to pay. Basing national policy on dreams of paying the interest by borrowing money against steadily inflating asset prices has been a nightmare for homebuyers and consumers, as well as for companies targeted by financial raiders who use debt leverage to strip assets for themselves. This policy is now being applied to public infrastructure into the hands of absentee owners, who will themselves buy these assets on credit and build the resulting interest charges into the new service prices they collect, in addition to being allowed to treat these charges as a tax-deductible expense. This is how banking lobbyists have shaped the tax system in a way that steers new absentee investment into debt rather than equity financing.
The irresponsible cheerleaders applauding a Bubble Economy as “wealth creation” (to use one of Alan Greenspan’s favorite phrases) would like us, their audience, to believe that they knew that there was a problem all along, but simply could not restrain the economy’s “irrational exuberance” and “animal spirits.” The idea is to blame the victims – homeowners forced into debt to afford access to housing, pension-fund savers forced to consign their wage set-asides to money managers at the large Wall Street firms, and companies seeking to stave off corporate raiders by taking “poison pills” in the form of debts large enough to block their being taken over. One looks in vain for an honest acknowledgement of how the financial sector has turned into a Mafia-style gang more akin to post-Soviet kleptocrat insiders than to Schumpeterian innovators.
The cursorily reformist gaggle of post-Bubble tomes assumes that we have reached “the end of history” as far as financial problems are concerned. What is missing is a critique of the big picture – how Wall Street’s collaboration in financializing the public domain has inaugurated a neo-feudal tollbooth economy while privatizing the government itself, headed by the Treasury and Federal Reserve. Left untouched is the story how industrial capitalism has succumbed to an insatiable and unsustainable finance capitalism, whose newest “final stage” seems to be a zero-sum game of casino capitalism based on derivative swaps and kindred hedge fund gambling innovations.
What has been lost are the Progressive Era’s two great reforms. First, minimization of the economy’s free lunch of unearned income (e.g., monopolistic privilege and privatization of the public domain in contrast to one’s own labor and enterprise) by taxing absentee property rent and asset-price (“capital”) gains, keeping natural monopolies in the public domain, and anti-trust regulation. The aim of progressive economic justice was to prevent exploitation – e.g., charging more than the technologically necessary costs of production and reasonable profits warranted. Progressive Era reforms had a fortuitous byproduct: Minimization of the free lunch enabled economies such as the United States to out-compete others that didn’t embrace progressive fiscal and financial policy, creating a Leviathan that has now fallen to its knees.
The second Progressive Era reform was to steer the financial sector so as to fund capital formation. Industrial credit was best achieved in Germany and Central Europe in the decades prior to World War I. But the Allied victory led to the dominance of Anglo-American banking practice based on loans against property or income streams already in place. Because of this, today’s bank credit has become decoupled from capital formation, taking the form mainly of mortgage credit (80%), and loans secured by corporate stock (for mergers, acquisitions and corporate raids) as well as for speculation. The effect is to spur asset-price inflation on credit, in ways that benefit the few at the expense of the economy at large.
The consequences of debt-leveraged asset-price inflation are clearest in the post-Soviet “Baltic syndrome,” to which Britain’s economy is now succumbing. Debts are run up in foreign currency (real estate mortgages, tax-avoidance funds and flight capital), without exports having any prospect of covering their carrying charges as far as the eye can see. The result is a debt trap – chronic austerity for the domestic market, causing lower capital investment and living standards without hope of recovery.
These problems illustrate the extent to which the world economy as a whole has pursued the wrong course since World War I. This long detour has been facilitated by the failure of socialism to provide a viable alternative. Although Russia’s bureaucratic Stalinism got rid of the post-feudal free lunch of land rent, monopoly rent, interest and financial or property-price gains, its bureaucratic overhead overpowered the economy in the end and Russia fell. Ideology aside, the question is whether the Anglo-American brand of finance capitalism will follow suit from its own internal contradictions.
The flaws in the U.S. economy are tragic because they are so intractable, embedded as they are in the very core of post-feudal Western economies. This is what Greek tragedy is all about: A tragic flaw that dooms the hero from the outset. The main flaw embedded in our own economy is rising debt in excess of the ability to pay, which is part of a larger flaw – the financial free lunch that property and financial claims extract in excess of corresponding costs as measured in labor effort and an equitably shared tax burden (the classical theory of economic rent). Like land seizure and insider privatization deals, such wealth increasingly is inherited, stolen or obtained through political corruption. Adding insult to injury, wealth and revenue extracted via today’s finance capitalism avoids taxation, thereby receiving an actual fiscal subsidy as compared to tangible industrial investment and operating profit. Yet academics and the popular media treat these core flaws as “exogenous,” that is, outside the realm of economic analysis.
Unfortunately for us – and for reformers trying to rescue our post-Bubble economy – the history of economic thought has been suppressed to give the impression that today’s stripped-down, largely trivialized junk economics is the apex of Western social history. One would not realize from the present discussion that for the past few centuries a different canon of logic existed. Classical economists distinguished between earned income (wages and profits) and unearned income (land rent, monopoly rent and interest). The effect was to distinguish between wealth earned through capital and enterprise that reflects labor effort, and unearned wealth from appropriation of land and other natural resources, monopoly privileges (including banking and money management) and inflationary asset-price “capital” gains. But even the Progressive Era did not go much beyond seeking to purify industrial capitalism from the carry-overs of feudalism: land rent and monopoly rent stemming from military conquest, and financial exploitation by banks and (in America) Wall Street as the “mother of trusts.”
What makes today’s Bubble different from previous ones is that instead of being organized by governments as a stratagem to dispose of their public debt by creating or privatizing monopolies to sell off for payment in government bonds, the United States and other nations today are going deeply into debt simply to pay bankers for bad loans. The economy is being sacrificed to reward finance instead of remaining viable by subordinating and channeling finance to promote economic growth via an affordable economy-wide cost structure. Interest-bearing debt weighs down the economy, causing debt deflation by diverting saving into debt payments instead of capital investment. Under this condition “saving” is not the solution to today’s economic shrinkage; it is part of the problem. In contrast to the personal hoarding of Keynes’s day, the problem is that the financial sector is now using its extractive power as creditor instead of wiping out the economy’s bad-debt overhang in the historically normal way, by a wave of bankruptcies.
Today, the financial sector is translating its affluence (at taxpayer expense), into the political power that threatens to pry yet more public infrastructure away from state and local communities and from the public domain at the national level, Thatcher- and Blair-style. It will be sold off to absentee rentier buyers-on-credit to pay off public debt (while cutting taxes on wealth yet further). No one remembers the cry for what Keynes called “euthanasia of the rentier.” We have entered the most oppressive rentier epoch since feudal European times. Instead of providing basic infrastructure services at cost or subsidized rates to lower the national cost structure and thus make it more affordable – and internationally competitive – the economy is being turned into a collection of tollbooths. How disheartening that this year’s transitory wave of post-Bubble books fails to place the financialization of the U.S. and global economies in this long-term context.
http://themancommon.blogspot.com/2009/05/bogus-solutions-to-financial-crisis.html
Fallen Banker w/ ties to CitiGroup Behind Brazilian Massace
Click on title above for full report;
http://fraudulenttransactions.blogspot.com/2009/05/fallen-banker-with-ties-to-citigroup.html
http://fraudulenttransactions.blogspot.com/2009/05/fallen-banker-with-ties-to-citigroup.html
Special Interest a Conflict of Interest? Hoblock says "no," lobbies for Catskill OTB
May 26, 2009 at 11:36 am by Jordan Carleo-Evangelist, Staff writer
From Jim Odato’s column yesterday, this item about Michael Hoblock’s lobbying activities since he left the state Racing and Wagering Board in August:
Michael Hoblock’s career as a commissioner with the state Racing and Wagering Board ended in August 2008, so he’s under a two-year ban from lobbying the board. But he’s also permanently prohibited from lobbying on issues he personally participated in, ethics officials say. He is registered as a lobbyist for Catskill OTB Corp. The $25,000 contract started in November 2008 and expires this coming November.
Hoblock said his reading of the law allows him to lobby the Legislature about OTB matters. But he did not seek guidance from the Commission on Public Integrity, which offers an Ethics Commission opinion the lifetime ban applies to agencies and the Legislature.
“It’s quite a roll of the dice,” said Blair Horner, legislative director of the New York Public Interest Research Group.
Hoblock, the former county executive and state senator in Albany County, is running for Colonie supervisor this year.
Posted in Albany County, Colonie |
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5 Comments »
Can you say… CREDIBILITY PROBLEM and LACK of JUDGEMENT PROBLEM? Where to begin… Seems like Hoblock is ethically-challenged. Must have been too many years working for the Pataki folks over at racing and wagering. Forgot this thing called ETHICS. Whose running his campaign? Let me guess… probably another Pataki-era lackey looking for work as his/her appointment to some board is ending shortly.
Comment by Dewey Oxburger — May 26th, 2009 @ 3:01 pm
Hoblock should follow the advice of (former Colonie Town
Supervisor) “if something has even the appearance of
impropriety it should be avoided”.
Comment by leftmyheartincolonie — May 26th, 2009 @ 3:02 pm
Oops — meant to include “former Colonie Town
Supervisor Fred Field” as making that statement
on impropriety
Comment by leftmyheartincolonie — May 26th, 2009 @ 3:04 pm
A LOBBYIST that violates STATE ETHICS LAWS. A lobbyist is bad enough…a criminal one is just icing on the cake. COLONIE DESERVES BETTER!!!!
Comment by stroswift — May 26th, 2009 @ 7:09 pm
Ok this is just to funny, I am sorry to say. Hoblock reads the law to say two months after overseeing the racing and WAGERING Board grabbing a $25,000 retainer seems like a smart way to go. Hmm lets quiz up some 5th grader and see if he can read the law better then the Supervisor wanna be.
This not good, maybe Harry should have read the law to him or better yet maybe it was Harry who got him the contract. Hey maybe not but we all know how this dance goes.
Nothing changes no matter how old the Rep Politician in Colonie is…
Comment by Govt by the people — May 26th, 2009 @ 11:03 pm
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From Jim Odato’s column yesterday, this item about Michael Hoblock’s lobbying activities since he left the state Racing and Wagering Board in August:
Michael Hoblock’s career as a commissioner with the state Racing and Wagering Board ended in August 2008, so he’s under a two-year ban from lobbying the board. But he’s also permanently prohibited from lobbying on issues he personally participated in, ethics officials say. He is registered as a lobbyist for Catskill OTB Corp. The $25,000 contract started in November 2008 and expires this coming November.
Hoblock said his reading of the law allows him to lobby the Legislature about OTB matters. But he did not seek guidance from the Commission on Public Integrity, which offers an Ethics Commission opinion the lifetime ban applies to agencies and the Legislature.
“It’s quite a roll of the dice,” said Blair Horner, legislative director of the New York Public Interest Research Group.
Hoblock, the former county executive and state senator in Albany County, is running for Colonie supervisor this year.
Posted in Albany County, Colonie |
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5 Comments »
Can you say… CREDIBILITY PROBLEM and LACK of JUDGEMENT PROBLEM? Where to begin… Seems like Hoblock is ethically-challenged. Must have been too many years working for the Pataki folks over at racing and wagering. Forgot this thing called ETHICS. Whose running his campaign? Let me guess… probably another Pataki-era lackey looking for work as his/her appointment to some board is ending shortly.
Comment by Dewey Oxburger — May 26th, 2009 @ 3:01 pm
Hoblock should follow the advice of (former Colonie Town
Supervisor) “if something has even the appearance of
impropriety it should be avoided”.
Comment by leftmyheartincolonie — May 26th, 2009 @ 3:02 pm
Oops — meant to include “former Colonie Town
Supervisor Fred Field” as making that statement
on impropriety
Comment by leftmyheartincolonie — May 26th, 2009 @ 3:04 pm
A LOBBYIST that violates STATE ETHICS LAWS. A lobbyist is bad enough…a criminal one is just icing on the cake. COLONIE DESERVES BETTER!!!!
Comment by stroswift — May 26th, 2009 @ 7:09 pm
Ok this is just to funny, I am sorry to say. Hoblock reads the law to say two months after overseeing the racing and WAGERING Board grabbing a $25,000 retainer seems like a smart way to go. Hmm lets quiz up some 5th grader and see if he can read the law better then the Supervisor wanna be.
This not good, maybe Harry should have read the law to him or better yet maybe it was Harry who got him the contract. Hey maybe not but we all know how this dance goes.
Nothing changes no matter how old the Rep Politician in Colonie is…
Comment by Govt by the people — May 26th, 2009 @ 11:03 pm
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Post a Comment
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Home sales fall 23% in April
The Business Review (Albany,NY)
Richard A. D'Errico
Home sales in the Albany, N.Y., region continued their downward slide in April although there are signs buyers are being drawn back into the real estate market.
Closed sales of new and existing homes and condos tumbled 23 percent during the month and the median price fell 3 percent to $180,000, compared to the same month a year earlier, according to preliminary figures released by the Greater Capital Association of Realtors.
The biggest drop in closed sales happened in Saratoga County, which has the highest prices of the six counties where most of the activity occurs. Sales plummeted 30 percent compared to April 2008, down to 138 closings during the month.
Year-over-year sales in April fell 27 percent in Rensselaer County, 23 percent in Montgomery County, 17 percent in Albany County and 11 percent in Schenectady County. Sales increased 13 percent in Schoharie County.
The results on a month-over-month basis were better. Compared to March, sales in the region were up 13 percent in April and the median sale price was up 1.5 percent.
When new homes are excluded from the total, sales of single-family homes in the Albany region fell 22 percent in April and the median sale price fell 3 percent, to $170,000, compared to the same month in 2008.
Nationally, sales of existing homes fell 3.5 percent in April and the median sale price fell 15.4 percent, to $170,200, compared to the same month a year earlier, according to the National Association of Realtors.
On a month-to-month basis, sales of existing homes nationally increased 2.9 percent in April, to a seasonally adjusted rate of 4.68 million units.
Since it takes two to three months for a sales contract to proceed to a closing, the April numbers generally represent activity in January and February, when many buyers were on the sidelines, concerned about the economy.
Many real estate agents have said they noticed an uptick in calls and attendance at open houses in March and April as first-time buyers were drawn back into the market by the low prices and a new, $8,000 federal tax credit. The warmer spring weather can also be a tonic for the winter blues.
Whether that increased activity translates into closed sales remains to be seen. GCAR Chief Executive Officer James Ader said the sales report that’s compiled in July and released in August will provide a good reading on how the spring market fared.
Ader also noted that first-time buyers who want to take advantage of the federal tax credit must close on their purchase by Nov. 30, which means they need to sign a sales contract two to three months earlier.
The change in median prices in April for the six counties where most GCAR sales occur were as follows:
Albany County: $196,000, up 2 percent
Rensselaer County: $170,800, down 2 percent
Saratoga County: $225,800, down 5 percent
Schenectady County: $159,000, up 10 percent
Schoharie County: $150,000, down 9 percent
Montgomery County: $123,300, up 26 percent
Bloggers Note: This drop in the Capital Districts home sales could be due in large part to the fact that NY has the highest taxes of all U.S. states, and is driving many to relocate their homes and businesses to other states.
http://www.bizjournals.com/albany/stories/2009/05/25/daily13.html
Richard A. D'Errico
Home sales in the Albany, N.Y., region continued their downward slide in April although there are signs buyers are being drawn back into the real estate market.
Closed sales of new and existing homes and condos tumbled 23 percent during the month and the median price fell 3 percent to $180,000, compared to the same month a year earlier, according to preliminary figures released by the Greater Capital Association of Realtors.
The biggest drop in closed sales happened in Saratoga County, which has the highest prices of the six counties where most of the activity occurs. Sales plummeted 30 percent compared to April 2008, down to 138 closings during the month.
Year-over-year sales in April fell 27 percent in Rensselaer County, 23 percent in Montgomery County, 17 percent in Albany County and 11 percent in Schenectady County. Sales increased 13 percent in Schoharie County.
The results on a month-over-month basis were better. Compared to March, sales in the region were up 13 percent in April and the median sale price was up 1.5 percent.
When new homes are excluded from the total, sales of single-family homes in the Albany region fell 22 percent in April and the median sale price fell 3 percent, to $170,000, compared to the same month in 2008.
Nationally, sales of existing homes fell 3.5 percent in April and the median sale price fell 15.4 percent, to $170,200, compared to the same month a year earlier, according to the National Association of Realtors.
On a month-to-month basis, sales of existing homes nationally increased 2.9 percent in April, to a seasonally adjusted rate of 4.68 million units.
Since it takes two to three months for a sales contract to proceed to a closing, the April numbers generally represent activity in January and February, when many buyers were on the sidelines, concerned about the economy.
Many real estate agents have said they noticed an uptick in calls and attendance at open houses in March and April as first-time buyers were drawn back into the market by the low prices and a new, $8,000 federal tax credit. The warmer spring weather can also be a tonic for the winter blues.
Whether that increased activity translates into closed sales remains to be seen. GCAR Chief Executive Officer James Ader said the sales report that’s compiled in July and released in August will provide a good reading on how the spring market fared.
Ader also noted that first-time buyers who want to take advantage of the federal tax credit must close on their purchase by Nov. 30, which means they need to sign a sales contract two to three months earlier.
The change in median prices in April for the six counties where most GCAR sales occur were as follows:
Albany County: $196,000, up 2 percent
Rensselaer County: $170,800, down 2 percent
Saratoga County: $225,800, down 5 percent
Schenectady County: $159,000, up 10 percent
Schoharie County: $150,000, down 9 percent
Montgomery County: $123,300, up 26 percent
Bloggers Note: This drop in the Capital Districts home sales could be due in large part to the fact that NY has the highest taxes of all U.S. states, and is driving many to relocate their homes and businesses to other states.
http://www.bizjournals.com/albany/stories/2009/05/25/daily13.html
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