Reparations For The 99%

 

Seven years after the housing crisis, which led to the financial crisis, which led to the recession, it may be time to review what happened to the people, the government, and the financial industry (banks, mortgage lenders, and investment firms).

 

I have found that three questions are most useful in trying to understand major events like the financial crisis. Who pays? Who benefits? And, is it fair? Using these questions on the 2008 crisis, it becomes obvious that the 99% has been short-changed.

 

The People and Government Paid:

 

Lost interest income:

 

It has been estimated that between August 2007 and September 2013, holders of savings accounts lost nearly $1.2 trillion in interest income due to the Federal Reserve’s policy of near-zero interest rates. (1)

 

Lost wage income:

 

In 2013, the Government Accountability Office (GAO) (2) estimated an increase in unemployment from 5% in 2008, to a peak of about 10% in 2010, declining to about 8% in 2012. The average increase in unemployment due to the crisis was about 3% per year over the five years measured.

 

Total nonfarm employment in January 2008 was about 138 million. (3) The 3% increase in unemployment amounts to an extra 4 million people unemployed each year during the recession. Taking a conservative estimate of average wages during this period of $25,000, this amounts to about $100 billion/year in lost wages, or about $500 billion between 2008 and 2012.

 

For comparison, a 2009 independent estimate by the Center for Economic and Policy Research (4) projected lost wages over the same period at over $1 trillion. So, it is safe to say that the crisis cost workers between $1/2 and 1 trillion in lost income from 2008-2012.

 

Lost home equity:

 

The same 2013 GAO report (5) also noted that ”...households collectively lost about $9.1 trillion (in constant 2011 dollars) in national home equity between 2005 and 2011, in part because of the decline in home prices.” While home values have substantially recovered by now, the losses spanned nearly a decade, affecting family wealth across the country. Many homes remain “under water,” worth less than their mortgages.

 

Direct foreclosure losses:

 

“Too big to fail,” did not apply to homeowners. Both Clinton and Obama called for a one year moratorium on foreclosures during the election campaign. After the election, silence in the White House. Silence in Congress. No moratorium on foreclosures. No significant helping hand for homeowners.

 

Estimates of the number of homes foreclosed range from 5-15 million, since 2008. It is difficult to find reports on how much individual homeowners lost in the crisis. Losses include their equity in a home, plus mortgage and legal fees. If I assume 10 million foreclosures, and that the average loss per home was around $20,000 (a very conservative estimate), then over $200 billion was lost nation-wide. Other estimates range up to $1 trillion, but sources for these are few, and hard to locate and evaluate.

 

The Financial Industry Received a Bailout: (6)

 

The total net U.S. bailout outlays were $3.3 trillion, plus a total of $16.9 trillion in guarantees.

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Details of the Net Bailout Outlays: (6)

 

The infamous Troubled Asset Relief Program (TARP) spent nearly $900 billion in bailouts of the “too big to fail.” Even though it eventually recovered about $700 billion, the public perception remains that this program saved the financial industry, while giving nothing to the people who suffered from the crisis.

 

The Treasury spent about $500 billion, most of it in purchases of industry financial instruments.

 

The Federal Reserve spent a net of about $2.6 trillion, again most of it in purchases of financial instruments.

 

The Treasury guaranteed about $4 trillion, most of it to back money market mutual funds.

 

The Federal Reserve guaranteed about $2 trillion, most of it for commercial instruments.

 

The Federal Deposit Insurance Corporation guaranteed about 2.5 trillion, in temporary liquidity guarantees.

 

Other government programs guaranteed about $7.6 trillion, most of it for Fannie Mae, Freddie Mac, and the Federal Home Loan Bank.

 

This bears repeating: the total net U.S. government bailout outlays were $3.3 trillion, plus a total of $16.9 trillion in guarantees. These funds bailed out and backed the banks, mortgage lenders and investment firms which marketed and profited from the shaky securities which created the housing crisis.

 

So, we know who benefitted during the crisis: the financial industry. “Too big to fail,” cost us a great deal. A simple question: does the world really need Goldman Sachs? Instead, why not a little capitalist “creative destruction,” with new companies replacing the failed financial industry?

 

The government’s policy of individual accountability vs corporate impunity just might explain the fury of Occupy Wall Street and the Tea Party, as well as many millions of people around the country.

 

Summary:

 

Let’s summarize the core of this history in the following table of direct costs:

 

  THE DIRECT COSTS OF THE 2008 HOUSING/FINANCIAL CRISIS

 

The people ..............................................Lost at least $ 1.9 trillion

The government.....................................Paid at least $ 3.3 trillion

The financial industry........................... Received at least $ 3.3 trillion

 

The third question, “Is this fair?”

 

The obvious answer is “NO!” But now we have to ask another question: what can be done to rebalance the costs and benefits among the key parties?

 

The financial industry should pay back at least some of the huge costs it imposed on the country. It is time for reparations. As a starting point for the discussion, here is a modest proposal: retrieve $4 trillion from the financial industry, returning $2 trillion to the people and $2 trillion to the government.

 

I would structure this payback as a 40 year loan, amortized as a 4% mortgage repayment. On this basis, the annual repayment to the treasury would be about $200 billion. The industry would have to figure out how to generate this payback, but a surcharge on financial transactions would be an easy starting point.

 

The government can handle collecting $2 trillion in reparations over 40 years, but what would work for the people? I would have the Treasury just write the checks, and use the industry repayments to recover the money. Payments to the people would be made within the next year.

 

About $1 trillion would go to those who suffered foreclosures since 2007, at least partly restoring their lost equity. The second $1 trillion would go as checks to nearly every adult in the country, an average of about $5,000 per person.

 

A Presidential Commission could work out the details, in a short time. One guideline: protect small and medium banks and mortgage companies from large assessments. Another guideline: use the industry’s records to determine the foreclosure reparations, with little individual paperwork. A third guideline: tilt the individual checks toward those who lost jobs in the recession. A fourth guideline: no reparations for those making over $250,000/year.

 

The financial industry has to be held accountable for the impact of the crisis. Reparations for the 99% could go a long way toward restoring a sense of fairness to the people. Why not get going? Now.

 

 

1  Mario Belotti (Professor) and Maria Farley (Research Assistant), University of Santa Clara, [http://www.mercurynews.com/opinion/ci_25513299/fed-policies-income-inequality-has-been-one-results?source=rss]

2  GAO, “Financial Crisis Losses and Potential Impacts of the Dodd-Frank Act, Page 18, Figure 3 [http://gao.gov/assets/660/651322.pdf]

3  Bureau of Labor Statistics data

4  Center for Economic and Policy Research, [http://www.cepr.net/documents/publications/wage-deficit-2009-12.pdf]

5  GAO, http://gao.gov/assets/660/651322.pdf, Page 21

6  Christopher Chantrill, http://usfederalbailout.com/program_details

 

30 July 2015

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Published on the Huffington Post

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The TiPPing Point?

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The secrecy around the negotiations over the Trans-Pacific Partnership (TPP) is the issue that won’t go away. Absent public information on what is being discussed, opponents of the secret process hint of terrible things to come if the TPP is approved, while the Administration asserts that negotiations can’t be held in public. Really, Mr. President? This is a trade agreement, not national security secrets. Have we forgotten that a vigorous democracy depends upon vigorous public debate? Or, is this too old-fashioned a sentiment?

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Let’s get specific for a moment. One of the provisions of the TPP is alleged to be a corporate-nation dispute resolution process. Sounds boring and bureaucratic. However, this provision appears to create the right of corporations to sue nations for damages, if the nation’s laws or regulations reduce their profit. This could include suing over environmental, health and safety protections, as well as regulation of corporate behavior. Is putting corporate profit over national sovereignty a good idea?

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Some questions for the President:

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o Does this corporate-nation dispute resolution provision exist in the current draft of the TPP?

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o Does the U.S. support this provision?

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o If so, why is it in the best interests of the U.S.?

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Absent public disclosure and public debate, this provision alone would appear to justify a “NO” vote on the TPP.

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Time to answer the questions, Mr. President.

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25 May 2015

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Published on the Huffington Post

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The Myth Of High Corporate Taxes

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Facts are not in fashion right now. Argument by anecdote, by attack, by fear, by anger, and by falsehoods, all are preferable to dry facts which might, just might, fail to support the case. One example is the myth of high corporate taxes, and the corresponding call for lower corporate tax rates.

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The facts are presented in a neat table from the Office of Management and Budget, in the Fiscal Year 2013 Budget Historical Tables, Table 2.1, entitled “Receipts by Source: 1934-2017.”

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Looking at the total tax receipts from individuals and corporations, I have charted the percentages of this total for each source, from 1946-2011. Take a look at this chart. It shows that the percentage of the total from individual income taxes increased from about 60 percent in the late ‘40s/early ‘50s to over 80 percent in recent years. Correspondingly, the percentage of the total from corporate income taxes decreased from about 40 percent to under 20 percent.

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Let’s state it clearly: the individual income tax contributes over 80 percent and the corporate income tax under 20 percent of combined receipts from these two sources. The tax burden has shifted quite dramatically from corporations to individuals.

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Could it be that the legions of corporate lobbyists succeeded in carving out thousands of tax favors over the years? Could it be that those who lobby for people are outnumbered and outinfluenced by the corporations? The numbers reflect the many tax code changes of the decades. The facts are clear. Corporations have reduced their share of the combined tax burden by 50 percent from 1946 through 2011.

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Is this fair? Perhaps it is time to talk about a firm alternative minimum tax for corporations. Such an AMT would override the many special interest provisions in the tax code.

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Think about it the next time someone complains about high corporate taxes...

 

9 January 2013

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Published on the Huffington Post

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The Debt, The Deficit And Jobs: What Obama Should Say But Won’t

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They say that a politician who tells the truth exists only in stories. And if he did exist, then his reward would be to lose his job. Well, I would rather be a one-term success than a two-term failure. I want to tell you the truth, even if it turns out to be hard on all of us.

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The first truth is that this whole debate about the annual deficit and the national debt has been a fraud. Neither Democrats, nor Republicans, nor I, have been serious about eliminating deficits or about reducing the national debt. Every plan, and I mean even the House Tea Party plans, guarantees more deficits and another $10 trillion or more added to the debt in the next 10 years.

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Why is this so? Because with an annual deficit of $1.5 trillion or so, the celebrated August deal to save over $3 trillion in 10 years means only $300-plus billion in savings each year, creating over $1 trillion in new debt, or $10 trillion more in 10 years. Simple arithmetic. Simple facts. No one is talking seriously about balancing our budget. No one.

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Of course, this assumes a deficit baseline of $1.5 trillion each year. We all want to reduce the baseline budget, but is it smart to guarantee how much budget discipline we will have over a 10-year period? It’s safer to assume a worst-case deficit than an optimistic one.

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If we can’t afford a $14-trillion debt right now, as some say, does it make sense to create a $24-trillion debt in 10 years? Well, of course we can afford the current debt, and we probably could handle another $10 trillion, but who wants to go deeper in debt when we have so much to do to revive the economy and to put people back to work?

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Why is it so hard to balance the budget? We have been borrowing instead of paying our way. We have been building a burden for our children and grandchildren instead of taking responsibility for our debts. We have been running up the national credit card bills and making the minimum interest payments. You know where that leads: to personal and national disaster.

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How did this happen? First, we passed the Bush tax cuts, expecting them to create jobs and stimulate the economy. But they didn’t work. The Bush tax cuts created few jobs and never paid for themselves. Those who call for more tax cuts need to look at the reality since 2000 and admit that calling for more tax cuts is a political statement with no regard for the consequences. Cutting alone is not an economic program. So, if we continue the Bush tax cuts, they will add over $400 billion a year to the debt, or $4 trillion over 10 years, wiping out the savings recently agreed to.

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The truth is, we can’t afford the Bush tax cuts. I propose that we accept reality and phase them out. Doing this gradually, over the next four years, will not harm the economy and will eliminate this drain on our finances. It’s the first step toward managing money responsibly.

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I am not talking about just raising taxes on the rich. I am talking about all the Bush tax cuts. All of us need to contribute to paying our way. This is what patriots do when the country needs it. While every taxpayer will pay a little more, the burden of eliminating the Bush tax cuts will fall more on those who earn more, as it should.

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The second major factor that expanded our deficits was the vast expansion of national security after 9/11. In 2001, our defense budget was the biggest in the world by far, but it was under $300 billion a year. Can you believe it? It is now over $700 billion a year, not even counting homeland security costs. None of this expansion has been paid for: it has been financed by borrowing. Instead of buying war bonds, as in World War II, we have asked future generations to pay for our defense. This is both selfish and irresponsible. We need to pay our own way for defense and homeland security. We need to reduce the defense budget by a lot more than anyone has proposed. At a core defense budget of $400 billion a year, we still would be spending more than the rest of the world.

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But how can we cut the defense budget by so much? First, we will end our occupations of Iraq and Afghanistan as soon as we can, and then help those countries rebuild. Next, we will bring home more of our troops from around the world. Do we need so many troops in Europe? Do we really need more than 800 military bases around the world? Doesn’t that look like an overextended Roman Empire, even if our motives are pure? Other nations are right to be concerned about our military presence near their gates.

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I am directing that 400 overseas bases close in the next four years. In addition, we will stop our military expansion into Africa. That long-suffering continent needs our aid more than our arms. We also will bring home half of our troops from Europe, and half of our troops in South Korea. Overall, half of our military personnel will be brought home in four years. The savings will be great.

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We also have to fight harder to eliminate unnecessary and expensive weapons systems. For everyone who suggests that bases and weapons systems provide jobs and support the economy, we will ask if those jobs contribute to our long-term economic health. Or, do they take away from investing in our schools, infrastructure, alternative energy, fundamental research or, most important, jobs in the civilian sector? We can and must have guns, but when faced with a real choice between guns and butter, we will choose butter. Fear will not drive us to waste money. Fear will not drive us to sacrifice our people for a few corporate giants. We will choose wisely and spend what we have to spend on defense, not what some want us to spend.

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Making these cuts will be hard, no question about it. And it will take several years to achieve all that we need. But, doing this will make us stronger economically, while preserving a strong core defense program.

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And until our defense cuts are achieved, we need to pay for our military, not borrow against the future. We need to pay for the past 10 years, as well. That is why I am proposing a national security surtax of from 2 percent on low income taxpayers up to 5 percent for the wealthiest. This will pay our way while we debate the future size and shape of the defense establishment.

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Are we done now? Unfortunately, phasing out the Bush tax cuts and paying for our defense will not be enough. Together, they account for just over half of the annual deficit. What about the rest?

Let me start with the corporations. Their tax payments as a share of total federal tax income have dropped from over 40 percent to under 20 percent. Think about that: individuals now carry nearly 80 percent of the tax load, while corporate tax cuts, breaks, and subsidies allow the corporate sector to pay half of what for many years was considered their fair share. This has to stop.

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We need to eliminate these tax breaks and subsidies, including for corporate agriculture. This is good economics, recovering $100 to $200 billion a year for the public. It also is good for business, leveling the playing field: corporate success should go to those who truly innovate and create good jobs, not to those with good tax lobbyists and tax lawyers. Every large corporation must be made to pay a minimum tax, not a zero tax. Getting government out of the way of the private sector must include this leveling of the playing field.

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Next, we have to come to grips with the health sector. Unless managed properly, health care costs will drag us down to road to bankruptcy. Here, too, we need to act as clear-eyed adults, building a better health care system without breaking the bank. It has to begin with us: we expect too much. We expect access to every possible medicine, every possible surgery, and all the care we need no matter what the cost. In short, we all expect the maximum possible health care.

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This is neither realistic nor affordable. We have to create a balanced health care system, not a maximum-for-all system. And here, hard decisions will have to be made, decisions we have been postponing for too long. For example, should we spend $100,000 a year for a cancer drug that may extend life three or four months? As individuals, we all would like more time. As a society, is it really the right choice, the proper allocation of limited resources? How should we balance the needs of the young and the working against those of the aged? We can’t have it all: again, we need to be adults and make the moral and responsible choices.

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Paying for health care procedure by procedure is a prescription for ever-escalating services. Obviously we should pay doctors a good salary, but we also need to remove the incentive for them to choose expensive procedures, or to open labs or clinics as sidelines. Thus, we should put doctors and other medical personnel on a salary and reduce their workloads, as well. This will be a major step toward controlling health care costs.

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The second step is to cut administrative costs, for both hospitals and clinics, and for the insurance industry. Our goal should be no more than 5 percent in administrative costs, rather than the 10 percent or more we see now.

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Hundreds of billions of dollars would be saved each year by these two steps. And, if these are not enough, we need to be willing to go further. We can and will continue to have a great health care system, but we can’t “have it all.”

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Third, we need to address the cost of the federal government. While I believe strongly in the importance and effectiveness of our federal work force, it is clear that it takes too long to fight to cut budgets and improve services one at a time. It is time to set priorities and force the needed change. I am calling for us to cut the federal work force by 10 percent over the next four years, and the federal contracting budget by 20 percent in the same time. These cuts will be across the board, for every agency, including defense. Every department and agency will be required to make proposals on where and how to cut back and will collect public input before final recommendations. Nothing sharpens the mind like having to make cuts, and we need these across-the-board cuts to make us sharper.

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Finally, we come to jobs. Our stimulus packages may have kept things from being worse, but job growth is unacceptably small. The banks and financial institutions we saved have hoarded cash instead of loaning it for new businesses and growth. Corporations with all-time high profits are not hiring our citizens but continue to outsource to other countries. So, once again, we have to stimulate the economy. This time the focus has to be on hiring people, not on planning or research. We need to get money into the hands of the strapped poor and middle class, and into the hands of the employable but unemployed. I am proposing a $3-trillion stimulus package, targeted at jobs. Infrastructure projects that are ready to go will get priority. Rehabilitating our schools and hospitals and roads and railways will get priority. Insulating our homes and offices will get priority. Energy-saving technology will get priority. This kind of stimulus will turn around the economy and pay for itself through economic growth.

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Many will say that all of this is too radical, too damaging, too impractical. I say that this is essential for the future of the country. Democrats, Republicans, Independents, all of us have to take our budget problems seriously and make the serious changes we need.

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But most important, we all need to have an economy of patriotism and shared sacrifice, as well as shared effort, to fix our financial situation. The time for slogans has passed. The time to join together is now. In crisis, patriots come together for the sake of the country. I call for all patriots to help us make the serious choices, the grown-up choices, that will bring us a brighter future.

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7 November 2011

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Published on Huffington Post