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Category Archives: Economic News

Moyers & Company Program Series On Crony Capitalism ~ How Wall Street and Washington Got Together And Stacked The Deck Against The Rest Of Us.

‘Crony Capitalism’ – A description of capitalist society as being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.

All text via http://billmoyers.com/

Moyers & Company 101: On Winner Take All Politics – Full Show

In its premiere episode, Moyers & Company dives into one of the most important and controversial issues of our time: How Washington and Big Business colluded to make the super-rich richer and turn their backs on the rest of us.

Bill’s guests – Jacob Hacker and Paul Pierson, authors of Winner-Take-All Politics: How Washington Made the Rich Richer — And Turned Its Back on the Middle Class, argue that America’s vast inequality is no accident, but in fact has been politically engineered.

How, in a nation as wealthy as America, can the economy simply stop working for people at large, while super-serving those at the very top? Through exhaustive research and analysis, the political scientists Hacker and Pierson — whom Bill regards as the “Sherlock Holmes and Dr. Watson” of economics — detail important truths behind a 30-year economic assault against the middle class.

Who’s the culprit? “American politics did it– far more than we would have believed when we started this research,” Hacker explains. “What government has done and not done, and the politics that produced it, is really at the heart of the rise of an economy that has showered huge riches on the very, very, very well off.”

Bill considers their book the best he’s seen detailing “how politicians rewrote the rules to create a winner-take-all economy that favors the 1% over everyone else, putting our once and future middle class in peril.”

The show includes an essay on how Occupy Wall Street reflects a widespread belief that politics no longer works for ordinary people, including footage we took at the OWS rally from October – December 2011.

Moyers & Company Show 102: On Crony Capitalism – Full Show

This weekend, continuing its sharp multi-episode focus on the intersection of money and politics, Moyers & Company explores the tight connection between Wall Street and the White House with David Stockman – yes, that David Stockman — former budget director for President Reagan.

Now a businessman who says he was “taken to the woodshed” for telling the truth about the administration’s tax policies, Stockman speaks candidly with Bill Moyers about how money dominates politics, distorting free markets and endangering democracy. “As a result,” Stockman says, “we have neither capitalism nor democracy. We have crony capitalism.”

Stockman shares details on how the courtship of politics and high finance have turned our economy into a private club that rewards the super-rich and corporations, leaving average Americans wondering how it could happen and who’s really in charge.

“We now have an entitled class of Wall Street financiers and of corporate CEOs who believe the government is there to do… whatever it takes in order to keep the game going and their stock price moving upward,” Stockman tells Moyers.

Also on the show, Moyers talks with Pulitzer Prize-winning New York Times reporter and columnist Gretchen Morgenson on how money and political clout enable industries to escape regulation and enrich executives at the top.

Moyers & Company Show 103: How power and influence helped big banks rewrite the rules of our economy. – Full Show

Big banks are rewriting the rules of our economy to the exclusive benefit of their own bottom line. But how did our political and financial class shift the benefits of the economy to the very top, while saddling us with greater debt and tearing new holes in the safety net? Bill Moyers talks with former Citigroup Chairman John Reed and former Senator Byron Dorgan to explore a momentous instance: how the late-90’s merger of Citicorp and Travelers Group – and a friendly Presidential pen — brought down the Glass-Steagall Act, a crucial firewall between banks and investment firms which had protected consumers from financial calamity since the aftermath of the Great Depression. In effect, says Moyers, they “put the watchdog to sleep.”

There’s no clearer example of the collusion between government and corporate finance than the Citicorp-Travelers merger, which — thanks to the removal of Glass-Steagall — enabled the formation of the financial behemoth known as Citigroup. But even behemoths are vulnerable; when the meltdown hit, the bank cut more than 50,000 jobs, and the taxpayers shelled out more than $45 billion to save it.

Senator Dorgan tells Moyers, “If you were to rank big mistakes in the history of this country, that was one of the bigger ones because it has set back this country in a very significant way.”
Now, John Reed regrets his role in the affair, and says lifting the Glass-Steagall protections was a mistake. Given the 2008 meltdown, he’s surprised Wall Street still has so much power over Washington lawmakers.

“I’m quite surprised the political establishment would listen to groups that have been so discredited,” Reed tells Moyers. “It wasn’t that there was one or two or institutions that, you know, got carried away and did stupid things. It was, we all did…. And then the whole system came down.”

How Wall Street and Washington got together and stacked the deck against the rest of us.

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Wall Street crosses the [meaningless] 11,000 mark today!!

Wall Street crosses the [meaningless] 11,000 mark today!! Of course there is a small part of me that would like to point out that despite the [somewhat anemic] rosy data, the ebullience of Wall Street’s rally is [still] out of step with the slow pace of the recovery. Unemployment is still startlingly high, the housing market is still stumbling despite significant government support, and that very support is expected to be withdrawn in the near future, and there are even indications that stock prices are about 30% overvalued. But I wouldn’t want to piddle on their parade. It’s a great day for Wall Street…

CommodityOnline

 
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Posted by on April 13, 2010 in Economic News, Financial

 

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Bank of America To Cap Overdraft Fees

Bank of America Corp. said Tuesday it will cap the fees it charges customers for overdrawing their accounts, backpedaling on the hikes the company imposed just this year.

BofA_Logo Starting Oct. 19, Bank of America no longer will charge overdraft fees when a customer’s account is overdrawn by less than $10 in one day. A $35 fee will still be levied however if the account isn’t brought into balance within five days.

The Charlotte, N.C.-based bank also will limit to four the number of times an overdraft fee can be charged on an account per day. Just this year, the bank had raised that cap from five to 10. It also raised the fee this year for the first overdraft in a 12-month period to $35 from $25 – a hike that still stands.

Citigroup has a similar policy in place.

But you might want to hold your applause for the moment: overdraft fees are an important source of revenue for banking institutions, which earned $36.7 billion in 2008 for service charges on deposits even as U.S. banks got massive infusions of taxpayer-funded aid. It is therefore doubtful that the banks will let this relaxation of fee confiscation pass without attempts to make up for this profit shortfall in other areas.

Hold Your Applause for Bank of America’s Overdraft Announcement via The Atlantic:

First, Bank of America isn’t doing this by choice: the Federal Reserve had already ruled that on July 1 banks must ask customers to opt-in in order to charge overdraft fees on debit and ATM transactions. So it’s really just following the law. Indeed, BofA’s changes aren’t taking effect until the summer — as the new rule dictates.

Second, these millions of dollars in lost overdraft revenue will hardly just be shrugged off by bank executives. Banks’ response to last spring’s new credit card regulations demonstrated this fact well, as they began increasing interest rates to make up lost profits. There are two ways they could make up for the revenue lost without overdrafts: increase fees elsewhere or cut costs accordingly.

 
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Posted by on March 10, 2010 in Economic News, Money

 

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Gas Pricing Needs to be set at $7 a Gallon? Possibly…

SINDYA N. BHANOO of the New York Times blog, DotEarth, writes in Fuel Taxes Must Rise, Harvard Researchers Say, that in order to meet the Obama administration’s targets for cutting greenhouse gas emissions, the cost of driving must increase.

This, writes Bhanoo, is according to a forthcoming report by researchers at Harvard’s Belfer Center for Science and International Affairs: "Analysis of Policies to Reduce Oil Consumption and Greenhouse-Gas Emissions from the US Transportation Sector."

To reduce carbon dioxide emissions in the transportation sector 14 percent from 2005 levels by 2020, Americans may have to experience a sobering reality: gas at $7 a gallon. And that increase in price will come in the form of a tax.

In the modeling, it turned out that issuing tax credits could backfire, while taxes on fuel proved beneficial.

“Tax credits don’t address how much people use their cars,” said Ross Morrow, one of the report’s authors. “In reverse, they can make people drive more.”

Researchers said that vehicle miles traveled will increase by more than 30 percent between 2010 and 2030 unless policymakers increase fuel taxes.

Abstract: "Analysis of Policies to Reduce Oil Consumption and Greenhouse-Gas Emissions from the US Transportation Sector."

Even as the US debates an economy-wide CO2 cap-and-trade policy the transportation sector remains a significant oil security and climate change concern. Transportation alone consumes the majority of the US’s imported oil and produces a third of total US Greenhouse-Gas (GHG) emissions. This study examines different sector-specific policy scenarios for reducing GHG emissions and oil consumption in the US transportation sector under economy-wide CO2 prices. The 2009 version of the Energy Information Administration’s (EIA) National Energy Modeling System (NEMS), a general equilibrium model of US energy markets, enables quantitative estimates of the impact of economy-wide CO2 prices and various transportation-specific policy options. We analyze fuel taxes, continued increases in fuel economy standards, and purchase tax credits for new vehicle purchases, as well as the impacts of combining these policies. All policy scenarios modeled fail to meet the Obama administration’s goal of reducing GHG emissions 14% below 2005 levels by 2020. Purchase tax credits are expensive and ineffective at reducing emissions, while the largest reductions in GHG emissions result from increasing the cost of driving, thereby damping growth in vehicle miles traveled.

Source:

Morrow, W. Ross, Kelly Sims Gallagher, Gustavo Collantes, and Henry Lee. "Analysis of Policies to Reduce Oil Consumption and Greenhouse-Gas Emissions from the US Transportation Sector." Energy Policy 38, no. 3 (March 2010): 1305-1320.

SINDYA N. BHANOO, New York Times, DotEarth, Fuel Taxes Must Rise, Harvard Researchers Say

 

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Health Care Summit: So What Exactly Was Accomplished?

President Barack Obama discusses a point with House Speaker Nancy Pelosi (D-Calif.) during the health insurance reform legislation meeting at Blair House in Washington, D.C., Feb. 25, 2010. (Official White House Photo by Lawrence Jackson) Surprising perhaps no one, common ground was a scarce commodity at Thursday’s all-day health care summit in Washington. President Obama implored in his opening remarks, "Let’s talk about some areas where we disagree and see if we can bridge those gaps". But by the end of the session more than seven hours later, it was clearer than ever that the two parties have fundamentally — and irreconcilably — different views of how to go about fixing the nation’s health care system.

"We just can’t afford this," said House minority whip Eric Cantor, referring to the 2400 page, $125 billion a year healthcare plan, while John Boehner, the House Republican leader, called it "a new entitlement program that will bankrupt our country."

In contrast to the Democratic legislation, House Republicans have put forward a healthcare bill that does not set minimum national standards for health plans, does not require all Americans to buy coverage and does not provide subsidies to help them.

As a result, the bill is substantially less costly than the Democratic plans and does not include the tax hikes and Medicare cuts that Democrats are proposing to offset the cost of expanding coverage.

The GOP legislation, which many Republicans have touted as a more reasonable, incremental approach, would insure only 3 million additional people over the next decade compared with 30 million more in the Democratic legislation, the Congressional Budget Office has found.

"We’d love to have a five-page bill," Obama countered to the Republicans who arrived toting copies of the massive Senate-passed legislation. "It would save an awful lot of work. The reason we didn’t do it is because it turns out that baby steps don’t get you to the place where people need to go."

But the White House said the summit was not intended as a vehicle to start the healthcare debate all over again, and as such the Democratic leaders have apparently decided to go forward alone on health care, although it remains to be seen whether they will be able to muster enough of their own votes to get it done.

House Speaker Nancy Pelosi urged her colleagues to back a major overhaul of U.S. health care even if it threatens their political careers, a call to arms that underscores the issue’s massive role in this election year.

Lawmakers sometimes must enact policies that, even if unpopular at the moment, will help the public, Pelosi said in an interview being broadcast Sunday the ABC News program "This Week."

"We’re not here just to self-perpetuate our service in Congress," she said. "We’re here to do the job for the American people."

It took courage for Congress to pass Social Security and Medicare, which eventually became highly popular, she said, "and many of the same forces that were at work decades ago are at work again against this bill."

The procedural and political hurdles ahead are formidable, and with each new poll showing public confidence slipping away – even if for very disparate reasons – they know that time is not on their side.

Yet, they say, they believe that if they can pass the bill, they can sell it too. Once voters can look beyond the messy political process and deal making that it took to get this far, they may once again be able to focus on the actual substance of the legislation, which still enjoys broad support.

That will be a tough sell judging from the latest Gallup poll suggesting that if an agreement is Americans Tilt Against Democrats' Plans if Summit Fails - Gallup.com not reached, Americans by a 49% to 42% margin oppose rather than favor Congress passing a healthcare bill similar to the one proposed by President Obama and Democrats in the House and Senate. By a larger 52% to 39% margin, Americans also oppose the Democrats in the Senate using a reconciliation procedure to avoid a possible Republican filibuster and pass a bill by a simple majority vote.

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Posted by on February 28, 2010 in Economic News, Health, Political

 

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How Do You Pump Up The Value Of Your Company In Difficult Times? You Socially Influence The Equity Analysts.

How do you pump up the value of your company in these difficult times? According to a new study of 1,300 corporate bosses, board directors and analysts, you socially influence the equity analysts.

Authors: James D. Westphal, Melissa E. Graebner

We examine how and when corporate leaders manage stakeholder impressions about board behavior.

Our theory and findings suggest that negative stock analyst appraisals prompt influential corporate leaders to increase externally-visible dimensions of board independence without actually increasing the board’s tendency to control management.

We also consider how relatively negative analyst appraisals may prompt CEOs to engage in verbal impression management in their interpersonal communications with analysts, whereby they attest to their board’s tendency to monitor and control management on behalf of shareholders.

We also find that these increases in formal board independence, in combination with verbal impression management toward analysts, result in more favorable subsequent analyst appraisals of the firm, despite a lack of effect on actual board control.

The Economist reports that chief executives commonly respond to negative appraisals from Wall Street by managing appearances, typically done by hiring directors who, although they may have no business ties to the company, are socially close to its top brass.

According to James Westphal, one of the study’s co-authors, some 45% of the members of nominating committees on the boards of large American firms have “friendship” ties to the boss—though this varies widely from company to company.

The tactic pays off with appreciably higher ratings. At firms that make a strenuous effort to persuade analysts that such board changes have boosted independence, and thus made management more accountable, the likelihood of a subsequent stock upgrade rises by 36%, the study concluded. The chance of a downgrade, meanwhile, falls by 45%.

Why do analysts swallow this self-interested narrative? Respondents acknowledged that social ties could undermine independence, but most said they do not have the time to look into such issues. It would help if companies disclosed such relationships in their standard company literature, suggests Mr Westphal. He thinks they should also list shared appointments—when the boss and a director sit together on another firm’s board.

Depressingly, these market-distorting shenanigans are part of a pattern. An earlier study found that public companies commonly enjoy lasting share-price gains from plans that please analysts, such as share buybacks and long-term incentive schemes for executives, even when they fail to follow through on announcements. Another concluded that the further a firm’s profits fall below consensus forecasts, the more favours its managers bestow on analysts—such as recommending them for jobs and even securing club memberships for them—and the lower the likelihood of a further downgrade. If investors rated analysts, those taken in by such blatant attempts at manipulation would surely earn a “sell”.

“A Matter of Appearances: How Corporate Leaders Manage the Impressions of Financial Analysts about the Conduct of their Boards”, by James Westphal and Melissa Graebner, Academy of Management Journal, February 2010

 
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Posted by on February 17, 2010 in Economic News

 

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Born Poor? Here’s $250,000 – Samuel Bowles, A Rethink In Economic Development,

Here’s a fascinating read on radical Santa Fe Institute economist Samuel Bowles, “Born Poor? Santa Fe Economist Samuel Bowles Says You Better Get Used To It,” written by Corey Pein of the Santa Fe Reporter.

Bowles heads the Behavioral Sciences Program at the Santa Fe Institute, which is home to dozens of big brains imported from all over the world.

Bowles posits that the state needs to completely rethink the way it does economic development.

“Bowles is a very well-educated guy with a real interesting background. He’s not of the ilk of most economists up in Santa Fe,” Kim Posich, executive director of the New Mexico Center on Law and Poverty, says. “His ideas are not always run-of-the-mill.”

Bowles, an empiricist, says his research doesn’t support the Chicago School efficient marketplace hypothesis. Instead, he argues that the wealth inequality created by strict market economics creates inefficiencies because society has to devote so much effort to stopping the poor from expropriating the rich. He calls this "guard labor" and says that one in four Americans is employed in that sector — labor that could otherwise be used to increase the nation’s wealth and progress.


The greater the inequalities in a society, the more guard labor it requires, Bowles finds. This holds true among US states, with relatively unequal states like New Mexico employing a greater share of guard labor than relatively egalitarian states like Wisconsin.

The problem, Bowles argues, is that too much guard labor sustains "illegitimate inequalities," creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time–perhaps starting their own businesses or helping to reduce the US trade deficit with China.

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Posted by on February 7, 2010 in Economic News

 

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