Category Archives: Current Affairs

People are People

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Never, ever underestimate the effect of basic human emotions. Want to understand why people continually make decisions that, if looked at objectively, are pretty stupid?  Simply remember that people are always capable of doing things that are illogical because they are possessed of emotions and those emotions are far more powerful than any logic.

Keep that in mind as you read this piece in the Economist that explores why poor people are less likely than you'd expect to be in favor of increasing taxes on the wealthy.  Several socioeconomic factors are explored, but the one I found most interesting is the propensity of people to care more about not being lowest on the totem pole than about the actual amount of money they have.  From the article:

Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don’t like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the “income distribution” that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.

In keeping with the notion of “last-place aversion”, the people who were a spot away from the bottom were the most likely to give the money to the person above them: rewarding the “rich” but ensuring that someone remained poorer than themselves. Those not at risk of becoming the poorest did not seem to mind falling a notch in the distribution of income nearly as much. This idea is backed up by survey data from America collected by Pew, a polling company: those who earned just a bit more than the minimum wage were the most resistant to increasing it.

Poverty may be miserable. But being able to feel a bit better-off than someone else makes it a bit more bearable.

To put it simply Joe the Plumber is much more likely to fight higher taxes on Larry the Lawyer if he thinks the result will be Ernie the Electrician moving from the bottom rung to the same or higher rung on society's ladder.  Of course there are many more reasons why someone would be opposed to higher taxes on the wealthy, but I don't think you can discount the import of peoples' fear, greed or jealousy.

Replace Lawyer with Banker

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Want to double your stable of jokes without having to learn any new jokes?  Just take every lawyer joke you've ever heard and replace "lawyer" with "banker."  I'm not sure bankers ever enjoyed a "warm and fuzzy" perception with the general public, but I believe the economic calamity they helped usher in has reduced them in the public eye to some kind of hybrid of an ambulance chasing lawyer and a serial killer. Think I'm exaggerating?  Well watch the video below and tell me it doesn't strike a chord.

BTW, the video was first posted at Fec's place and in the comments you'll find what Lex identified as the quote of the day: "Reasonable people tend to agree that the benefits of an apocalypse are overrated." 

Independence

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I've never belonged to a political party and although I understand why belonging to political parties is attractive to some folks I just can't see affiliating myself with a group that I know I'm going to disagree with on a healthy percentage of issues.  Let's just say that in my lifetime I've been profoundly disappointed by both of the major political parties in America and amused/frightened by all of the fringe parties I've come across.

On the other hand I'm scared crapless of a no-party system.  Can you imagine how hard it would be to get anything done without the parties?  They do provide a structure for negotiations; people who are philosophically aligned on a majority of issues agreeing to negotiate through a representative with another group that is likewise made up of people who are generally in agreement on most issues.  So yes, I guess I'm a bit of a hypocrite because I do appreciate what the party structure provides but I'll be damned if I'm going to be a member of a party.

Today's news brings two stories that I think highlight the pros and cons of our party systems.  Here in North Carolina the General Assembly just voted to override the Governor's veto of a controversial abortion bill.  One member of the Senate Republican caucus originally voted against the bill before it was vetoed by the Governor, but when the override vote came along he abstained, which in effect enabled the override.  Here's what Doug Clark wrote in the Greensboro News & Record:

"He said the Senate Republican caucus made this abortion vote a 'caucus issue,' a vote where members would face sanctions if they voted out of line with other Republicans. Such sanctions could range from everything from being tossed out of the caucus or losing committee chairmanship to facing party-sponsored opposition in a primary."

Bingham yielded. He didn't vote yes or no, but simply took a walk. Without his opposition, the Republicans captured the necessary number of votes of "those present" to override the veto…

This kind of bullying — and it goes on in both parties — clearly is effective, but it wouldn't be if enough legislators would stand up for what they truly think is right. If the rank-and-file break ranks, the power of the leaders erodes.

Good legislators have backbone, and good legislation is not likely to be achieved by the threat of discipline.

I agree that legislators should always vote their conscience, but I also think that when you commit to a party you're committing to upholding the party's position and it would be difficult to turn the party for support on a bill you're sponsoring if you don't support the party's position on other bills. I'm not saying it's right, but I think that's one of the problems inherent to political party membership.

The other news item is the increasingly frantic debate in Congress about raising the debt ceiling.  The news du jour is that the Republican Speaker of the House can't get his party unified behind a Republican proposal in the House.  It seems that members of the conservative Tea Party segment of the Republican party, a group that swept into the House in last year's mid-term election, are refusing to budge from their own philosophical ground and are refusing to play ball with the Republican party leadership.  In other words they want to vote their conscience and they're being beaten up by the party bosses for it:

A frustrated House Speaker John Boehner had a blunt message Wednesday for his cavalier Tea Party colleagues: "Get your ass in line" behind the GOP's debt ceiling plan…

Boehner believes Senate Democrats will cave if Republicans in the House can rally behind his nearly $1 trillion proposal to raise the nation's debt limit ahead of an Aug. 2 deadline, when the Treasury will run out of money to pay all its bills.

So "get your ass in line," Boehner demanded.

His spanking of rank-and-file Republicans came after it looked like an all-out war was erupting within the House GOP, which has nearly 100 Tea Party fiscal hawks.

Many Tea Party-backed conservatives insist Boehner's debt plan is too soft.

The infighting has forced Boehner to postpone a vote on his proposal until Thursday.

When you think about it from the individual legislators' perspective they're damned if they do and damned if they don't.  Defy the party bosses and vote their conscience?  Well you're gonna be skewered by the party and risk losing their backing when you need it.  Toe the party line even if you don't agree with it on a particular issue? You risk being seen as a party hack who's more loyal to the party than the country (or state or county) and you could lose favor back home.  That, in a nutshell, is why I could never see myself belonging to a party.  Heck, even as a rank and file member I'd spend all my time defending why I was not with the party on particular issues and, even worse from my perspective, the minute people see that "D" or "R" next to my name they're going to assume I agree with the party's position on any given issue. I can't stand the thought of being labeled like that.  

This is Breathtaking – Not in the Good Way

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The GAO has released its report about the actions of the Fed during the economic crisis and I have to tell you that I think even the most cynical of us will be blown away by some of the findings, or at least some of the numbers.  I don't care who you are – $16 trillion is a LOT of money.  From a press release by Sen. Bernie Sanders:

Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said.

The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse.  In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed.  Moreover, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds.  One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.

I haven't read the whole GAO report, but just browsing through it I found this nugget of "holy s***!" in Appendix III: Assistance to American International Group, Inc. found on page 162 of the report:

The AIG RCF and SBF have closed and were fully repaid and FRBNY expects full repayment on amounts outstanding on its loans to Maiden Lane II LLC and Maiden Lane III LLC. The Federal Reserve Board authorized changes to the borrowing limit and other terms for the AIG RCF over time, and AIG fully repaid amounts outstanding from the AIG RCF in January 2011. AIG’s borrowing under the AIG SBF peaked at $20.6 billion before the AIG SBF was fully repaid in connection with the creation of Maiden Lane II LLC in December 2008. As of June 29, 2011, $8.6 billion and $12.3 billion in principal and accrued interest remained outstanding on FRBNY’s senior loans to Maiden Lane II LLC and Maiden Lane III LLC, respectively. As discussed below, FRBNY recently began to hold auctions to sell parts of the Maiden Lane II LLC portfolio. According to FRBNY staff, the AIG life insurance securitization option was abandoned for a number of reasons, including that it would have required FRBNY to manage a long-term exposure to life insurance businesses with which it had little experience… 

While AIG has repaid its direct assistance provided by FRBNY, FRBNY’s loans to Maiden Lane II LLC and Maiden Lane III LLC remain outstanding and Treasury continues to have significant equity exposure. We have issued several reports that provide additional background on the federal government’s assistance to AIG.

I think what this is saying is that all the direct assistance to AIG has been paid back, but some of the money that the Federal Reserve put into two special purpose vehicles (Maiden Lane II, LLC and Maiden Lane III, LLC) established to help AIG, about $8.6 billion in principal and $12.3 billion in accrued interest has not been repaid yet.  The Fed expects to start recouping the money soon, but it's kind of mind blowing that we're still on the hook for almost $21 billion for AIG alone.

(h/t to Ed Cone for the link)

Tough Times

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In case you missed the news, times are tough.  Ed posts a press release from Greensboro Urban Ministries. In part it says:

Over the past several months, Greensboro Urban Ministry’s Emergency Assistance Program has seen a dramatic rise in the demand for emergency financial assistance, particularly since the beginning of July when Guilford County Department of Social Services outsourced its county financial assistance program.  All of Greensboro Urban Ministry funding for emergency financial assistance comes from private sources such as local congregations, Duke Energy Foundation, Tannenbaum-Sternberger Foundation, other foundations, and concerned individuals.  No city, county, state, or federal funds are used.

In April, our Emergency Assistance Program provided $33,447 for 112 families needing help with rent, mortgage, or utility assistance; in May, $40,996 for 153 families; in June, $47,580 for 199 families.  So far this month through July 18, $19,745 for 86 families has been spent. 

Every morning this month long lines of people have lined up for services with food, clothing, and financial assistance.  Emergency assistance funding aims to help families over a short term crisis, but unfortunately, many of the people coming to us are in long term crisis with no income.  For these people, the solution is to find a living wage job.  Such jobs are in very short supply. 

If you polled all of the local food banks, shelters, job assistance agencies, etc. you'd hear a variation on GUM's story.  Over the last couple of weeks I've talked with the folks from Second Harvest during PTAA's Fill the Stands With Cans events and they've repeatedly said that they're incredibly busy these days and the demand for their services keeps increasing. 

Yes the economy seems to be improving slowly, but here in the Piedmont Triad jobs just aren't coming back at the rate they need to and the social safety nets are getting frayed. It really is very simple – until we get jobs we're going to keep hearing stories like these.

US Debt is Falling

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Here's an interesting blog post at Time.com that points out how overall US debt is falling:

The U.S.'s overall debt – which is government debt plus individual household debt plus corporate debt and bank debt – when compared to our GDP, which is how most economists look at these things, is actually much lower than many other developed nations. Overall, the U.S. and its citizens owe a little over $41 trillion. That, of course, is a lot of money. But when compared to the U.S. GDP, it's not a shockingly bad number. In fact, it's pretty good, when compared to other nations. The U.S.'s debt is equal to 275% of our GDP. That percentage for the United Kingdom is over 450%. Japan's overall debt-to-GDP is about the same as the U.K. Spain comes in at nearly 350%, and France's debt is above 300%. Our debt level is about the same as Germany, which everyone think is pulling off economic miracles these days. But more importantly than that, the U.S. appears to be the only developed country where the overall debt level is falling…

Of course, the reason our overall level of debt has been falling is because of individuals and not government. Government debt is continuing to rise. Private household debt has been falling, in large part because people have been losing those households, and the debt that goes with them. Consumers have also reigned in spending and are now saving at the highest level in years. And that is one of the reasons that the economic recovery has been slower than expected.

But Charles Roxburgh, who did the study for McKinsey, says his point, at a time when there has been a lot of focus on government debt, is that overall debt matters. Private debt – what individuals, banks and companies owe – can become public debt, as we have seen from the bailouts. So the fact that our private debt is falling is a positive in the government debt debate.

Read more: http://curiouscapitalist.blogs.time.com/2011/07/18/surprise-u-s-debt-is-falling/#ixzz1SZlZPQmN

“It’s as if Joseph Mengele was reborn as an economist”

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Found via Fec's The Perversity of Fiscal Austerity post:

The collective embrace of fiscal austerity has gone beyond perverse. It’s as if Josef Mengele was reborn as an economist, working on some weird new social experiment to inflict the maximum amount of damage on the maximum amount of people.

The piece at New Economic Perspectives from whence the preceding quote came is titled "It's Time to Panic II."