Progressive Breakfast

Bill Scher — Wed, 23 May 2012 07:46:57 -0400

MORNING MESSAGE: 10 Reasons To Be Suspicious About Wall Street's Facebook Fiasco

OurFuture.org's Richard Eskow: "Three of Wall Street biggest and best-known financial institutions handled the Facebook IPO, so why were people immediately suspicious when the stock soared and then promptly tanked? Easy answer: Because three of Wall Street biggest and best-known financial institutions handled the Facebook IPO ... Here are ten reasons why it makes sense to be suspicious of the Facebook IPO, starting with the fact that any overview of the three institutions which handled it might best be described as 'rounding up the usual suspects.'"

More Evidence Wall Street Needs Supervision

Morgan Stanley facing regulatory scrutiny after Facebook IPO. Bloomberg: "William F. Galvin, Massachusetts’ secretary of the commonwealth, said his securities division subpoenaed Morgan Stanley over talks between Scott Devitt, the research analyst, and the firm’s institutional investors about Facebook’s revenue. Those communications also may be 'a matter of regulatory concern' to the Financial Industry Regulatory Authority, the industry-funded brokerage watchdog, and the U.S. Securities and Exchange Commission, Finra Chief Executive Officer Richard Ketchum said yesterday in an e-mail."

SEC digging in to JPMorgan Chase. Bloomberg: "U.S. Securities and Exchange Commission Chairman Mary Schapiro said the agency is 'very focused' on determining whether JPMorgan Chase & Co. (JPM) appropriately disclosed changes it made during the first quarter to a complex risk calculation ... When JPMorgan reported earnings on April 13, it said the division’s [value at risk] was $67 million when it was actually $129 million, according to a presentation on the company’s website that day and company disclosures since then."

Jamie Dimon expected to face Congress soon. Politico: "A date hasn’t been set for Dimon’s appearance — it’s supposed to come after Tuesday’s hearing and another one scheduled for June 6 — but already, the administration is promising to stretch the pending investigations beyond JPMorgan and use the findings to shape how Dodd-Frank is interpreted."

No evidence that big banks help the economy, notes NYT's Eduardo Porter: "The economics suggest that big banks are less efficient at credit creation than smaller ones. And there is no evidence that the simpler financial system we had from the 1940s through the 1970s restrained growth. In fact, for all its innovation, the financial industry of today is less efficient than it was in the age of the railway, according to research by Thomas Philippon at New York University. That is, it charges the rest of society more for financial intermediation than it did 130 years ago. Considering the evidence, regulators could at the very least remove the taxpayer subsidy that has paved the road for banks to become so big."

Romney's Job Was Not To Create Jobs

VP Biden keeps focus on Bain. W. Post quotes: "Your job as president is to promote the common good ... making money for your investors, as Romney did very well, is not the president’s job. The president has a different job."

Former private equity executive Steven Rattner reminds that Romney was not a job creator, in NYT oped: "...don’t confuse a leveraged buyout with job creation. Under Mr. Romney’s leadership, Bain Capital engaged in the less attractive practice of putting more debt on seemingly successful investments in order to take dividends out. In at least four instances of Bain Capital investments during Romney’s tenure, these 'recapped' companies, of which two were featured in the Obama ads, subsequently went bankrupt, costing thousands their jobs ... Aware of private equity’s reputation, Mr. Romney still trots around the country erroneously calling himself a 'venture capitalist.'"

Former Reagan aide David Stockman concurs. Political Wire quotes: "I don't think that Mitt Romney can legitimately say that he learned anything about how to create jobs in the [leveraged buyout] business. The LBO business is about how to strip cash out of old, long-in-the-tooth companies and how to make short-term profits...All the jobs that he talks about came from Staples. That was a very early venture stage deal. That, you know they got out of long before it got to its current size."

Economy looks better in swing states. Bloomberg: "The unemployment rates in a majority of the 2012 battleground states are lower than the national average as those economies improve ... Five of the Bush-turned-Obama states had lower unemployment rates in April than the 8.1 percent national average, and in three of the states joblessness had dropped below 7 percent."

Austerity Breeds Recession Fears In US and Europe

Abrupt spending cuts and tax increases could cause 2013 recession, says CBO. NYT: "The economy could relapse into a recession if President Obama and Congress remain at an impasse and allow several big tax increases and spending cuts to take effect at the start of 2013 ... In the first half of 2013, the economy would contract at an annual rate of 1.3 percent, the report concluded, instead of growing by a similar rate. Slow growth would resume in the second half ... It suggested a combination of higher deficits in the short term with adoption of tax and spending policies meant to gradually reduce annual deficits later in the decade."

Europe on path to recession, warns OECD. McClatchy: "The Organization for Economic Cooperation and Development, the Paris-based statistical arm of wealthy nations, issued an outlook that projects that the economy of the entire eurozone will contract 0.1 percent this year. It also predicted that next year’s growth would be just 0.9 percent. The OECD’s projections added to the sense of urgency surrounding what was billed as an informal dinner among European leaders in Brussels to discuss ways to stimulate growth."

Reid slams GOP "extremism" for delaying budget deal. Politico: "Senate Majority Leader Harry Reid says a tax deal is 'impossible' before the elections, and here's why: 'Republicans' blind adherence to tea party extremism.' ... Reid said the GOP must accept higher taxes on those earning more than $1 million and corporations, and drop its leading Medicare overhaul proposal, in order to reach a consensus with his party."

Republican "tax reform" is just another tax cut for the rich. EPI's Andrew Fieldhouse: "...conservatives falsely equate a 'simpler' tax code with cutting and consolidating tax brackets, which would confer big tax cuts to upper-income households in the top tax brackets ... Boehner’s implied objectives of revenue and distributional neutrality—which guided the Tax Reform Act of 1986—are now wholly inappropriate benchmarks, as they would lock-in the past decade’s unaffordable and regressive Bush-era tax cuts and exacerbate Gilded-Age levels of income inequality."

Breakfast Sides

WH renews push for clean energy tax credits. The Hill: "President Obama will ramp up his call for extension of the production tax credit in a speech at an Iowa turbine blade maker on Thursday ... 'This year it was a banner year for wind production, but without an extension of the production tax credit, we concede job losses up to 37,000,' [White House energy aide Heather] Zichal said. The administration is also pushing for another round of a stimulus-law program that provided $2.3 billion in tax credits for manufacturing green-energy-related equipment, an initiative commonly known as the 48C program..."

Some health care improvements will last no matter what Supreme Court does. NYT: ".. Dr. Richard J. Gilfillan, director of the federal Center for Medicare and Medicaid Innovation [said] private insurers are embracing ideas that Congress authorized for Medicare, like coordinating care, rewarding providers who deliver superior care and penalizing those who subject patients to needless risks ... other changes in the delivery and financing of health care were gaining momentum. These include paying a fixed amount to doctors and hospitals for a bundle of services, rather than a separate fee for each service; designating a 'medical home' with a primary care doctor to coordinate services for each patient; and imposing financial penalties on hospitals with large numbers of patients who are readmitted within a few weeks after they are discharged."

10 Reasons To be Suspicious About Wall Street's Facebook Fiasco

Richard Eskow — Tue, 22 May 2012 21:31:35 -0400

Three of Wall Street biggest and best-known financial institutions handled the Facebook IPO, so why were people immediately suspicious when the stock soared and then promptly tanked? Easy answer: Because three of Wall Street biggest and best-known financial institutions handled the Facebook IPO.

Each of them - Morgan Stanley, Goldman Sachs, and JPMorgan Chase - has a history of exactly the kinds of unethical and/or illegal behavior that might, just might, explain what happened with Facebook.

Mark Gongloff offers a good overview of Mr. Zuckerberg's Wild Ride, in which a stock that was offered at an IPO price of $38 soared to $45 and then plunged to its current (as of this writing) price of $31. A lot of people lost money - which means a lot of people made money, too.

Zuckerberg promptly sold his 30.2 million shares, netting a quick billion dollars and change. That tells you what he thinks of this investment.

Here are ten reasons why it makes sense to be suspicious of the Facebook IPO, starting with the fact that any overview of the three institutions which handled it might best be described as "rounding up the usual suspects":

1. Morgan Stanley has a history - and a culture - of tricking their own clients into making lousy investments.

It was Morgan Stanley's brokers who, in one notorious account, loved to brag "I ripped his face off!" after convincing one of the firm's own clients to buy a stock that the firm knew was lousy. (See Frank Portnoy's account in Fiasco.)

CNBC reports that "Morgan Stanley may have spent billions of dollars to support the (Facebook) stock price by buying shares in the market." This kind of market manipulation is common. They do these things to create an artificial sense of momentum when the market is turning against an offering. Investors don't know they're doing it at the time, of course. In this case, Morgan Stanley could have spend a billion dollars or more manipulating the stock price.

Now Morgan Stanley's being investigated by the SEC and the Commonwealth of Massachusetts, after reports indicated that its analysts were withholding crucial (and negative) information about the stock offering and at the same time sharing it with their own favored clients. That's a no-no.

2. JPMorgan Chase has a long rap sheet. What's another bust?

JPMorgan Chase is currently in the public time-out box for its botched derivatives trades in London - about which which it appears to have deceived its own investors (when it failed to tell anyone that the new, improved "risk model" it rolled out was not being used to analyze this London unit.)

When CEO Jamie Dimon said that laws may have been violated in that case, was he expecting people to be surprised? JPM has a long history as a corporate lawbreaker during Dimon's tenure. It paid millions to settle a long list of violations that includes illegally cheating veterans coming home from Iraq - or still risking their lives there. It gave up nearly three quarters of a billion dollars to settle charges of bribing public officials in Jefferson County, Alabama. (Jefferson County is bankrupt. JPM's executives are doing just fine.)

And JPMorgan Chase just gave up billions more to settle charges stemming from its rampant foreclosure fraud, which involve mass perjury and forgery conducted by a group of inexperienced youngsters that JPM employees called "the Burger King kids."

The JPM rap sheet's got a lot more offenses on it, but that should give you the general idea. Dimon loves to affect an air of respectability. But his outfit ain't the PTA, if you catch my drift.

3. Goldman Sachs is ... well, it's Goldman Sachs.

In one of its many notorious deals, ABACUS, Goldman Sachs lied to prospective investors about mortgage-backed securities. While it was telling investors that these securities were well-chosen and reliable, it was hiding the fact that they were actually being selected by an investor who was famous for betting against them.

Goldman recently settled a $22 million lawsuit for illegally sharing confidential information with its preferred clients, which is a form of insider trading, using internal meetings called "huddles."

That's a lot like the conduct that's being investigated at Morgan Stanley, and the questions it raises is the same one: Was this IPO designed to fail? Barring that, did insiders only tell a few favorites once they knew it would fail, so that they could all get rich betting against the suckers who didn't know any better?

Who's huddling who in the Facebook deal?

4. Goldman Sachs already tried to evade the law for Facebook once before.

If at first you don't succeed ...

At the time we asked, "Which Is More 'Gangsta,' (rapper) 50 Cent's Twitter Stock Pitch or Goldman's Facebook Deal?" We stand by our original conclusion: Sorry, Fitty.

Lloyd Blankfein's entourage tried to avoid SEC regulations that say a privately held company can't have more than 500 investors by defining many thousands of unrelated investors as a single group. They demanded a minimum $2 million investment - there ain't no sucker like a rich sucker - and pitched the deal in language that would embarrass a Nigerian email scammer:

"When you have a chance I wanted to find a time to discuss a highly confidential and time sensitive investment opportunity ... If you agree not to use information that we reveal to you ... I will be able to disclose the name of the company and provide you with more information..."

They should've started the pitch letter with the words "Dearest Beloved, My late husband the oil minister ..." As Nomi Prins noted at the time, the plan was to artificially inflate the value of these illegally-traded shares and then ""pawn off the overpriced goods on the clients."

They tried to run that little number back in 2010 but failed. Did they finally succeed this time?

5. There's no such thing as a free market.

Thanks to deregulation, our "free markets" ain't free - in fact, they're less free than at any time in modern history.

Nevertheless the anti-regulatory crowd insists on describing what we have today as a "free market," instead of what it really is: a financial funhouse where investors don't know until it's too late which pop-up vampire is a cardboard cutout and which one's really going suck their blood. "Ripped his face off" indeed.

That's not market economics, it's a horror show.

6. Facebook's a shaky investment anyway.

Think about it: With all the money they have at their disposal, Zuckerberg and his team still can't design a user interface that doesn't frustrate, aggravate, and infuriate millions of people every day. Sure, people use it - because everybody else does. But that was true of MySpace, too, until something better came along. Facebook has a mind-boggling number of users, and they spend an equally mind-boggling amount of time on it every day. But even Mafia Wars come to an end sometime.

What's more, the stock they're peddling isn't much to write home about. Their voting rights are highly diluted, so that the stock owned by Zuckerberg and other preferred holders has ten times as much voting power as everybody else's. Zuckerberg owns 18 percent of Facebook's shares, but has absolute control of the company with 57 percent of the votes.

When something's as overhyped as Facebook stock, it's caveat emptor time. You're throwing yourself at Zuckerberg's mercy, hoping he does better with the company than he has designing Facebook's account management features. (Tried changing your privacy levels lately?)

But if he mismanages your money you'll just have to bend over and get poked.

7. Mark Zuckerburg doesn't give a rat's you-know-what about investors or IPOs.

"A million dollars isn't cool," says Justin Timberlake as Sean Parker in that movie about Zuckerberg and Facebook. "A billion dollars is cool." It was a cool week for Zuckerberg, who just made another billion, but he doesn't think much of investors. Stephen Gandel lays out all the ways it shows, starting with the fact that Zuckerberg didn't want to take the company public and keeps reminding everybody about it. SEC rules - the same rules Goldman tried to evade last year - forced him into it.

Zuckerberg also kept blowing off investors at scheduled meetings. Frankly, that's a refreshing change from all the CEOs I've known who kowtow to them (and often game the numbers to impress them). But it doesn't exactly strengthen one's confidence that this offering was designed with the best interests of investors in mind.

And while CNN's Gandel concludes that Zuckerberg doesn't care about making more money, I'm not so sure. He's sure made a lot in the last few days. For its part, Goldman's already shown that it's willing to trade on insider information to help high-value clients - clients like Meg Whitman. They called it "spinning," and it involved rewarding executives who gave them a lot of corporate business (which uses their investors' money, not their own) shares in IPOs they're underwriting.

Whitman was forced to resign from its board and pay a multimillion-dollar fine after the story became public. If they'd "spin" for a piece of eBay's investment action, what motions would they go through for Facebook's?

8. These three players have a huge collective presence on Nasdaq.

Morgan Stanley and Goldman Sachs are almost always in the top ten in reported trade volume on NASDAQ, where Facebook was offered. And JPMorgan Chase provides financial backing to many of these deals. Together they represent a huge chunk of NASDAQ (and New York Stock Exchange) transactions. They control a lot of the trading flow and they're sitting on a lot of data.

That means they can manipulate the market in all sorts of ways. And they can leverage other people's money and make it work ... for them.

So while we're at it, remind me again: Why do we allow so few companies to dominate our financial market? It's called an "oligopoly," and it's bad. It's especially bad when they become too big to fail and can pretty much do whatever they want, knowing we'll rescue them again if - make that when - they screw up again.

9. There was a lot of automated trading of Facebook shares.

The roller-coaster ride for Facebook's stock also appears to involve very high volumes of electronic robo-trading, which always raises suspicions. That could just be a sign that the computer programs which now dominate our stock market (and which cry out for a financial transactions tax) didn't like the transaction. If so, they're smarter than most humans.

Or it could mean that these three firms, which together play a dominant role on Nasdaq, pulled a fast one of some kind. Somebody needs to analyze those 'flash' trades and find out.

10. Because they can.

Hey, these three underwriters can do whatever they want - and they know it.

Until some bankers get indicted - which doesn't seem likely anytime soon, given the glacial pace of the Administration's much-hyped (but now apparently forgotten) mortgage fraud task force - they can break any law or rule they want to break. What's the worst that could happen to them? If they get caught they'll negotiation another gigantic fine and let the shareholders (including working people's pension funds and 401ks) pick up the tab while they collect their bonuses and head off to the Hamptons.

So, until the Administration shows us some Wall Street indictments, the usual suspects will keep committing the usual offenses over and over. The Justice Department needs to get serious about investigating Wall Street fraud. And more states should join Massachusetts in investigating this deal.

This one goes to 11 ...

Do we know that's what happened with the Facebook IPO? No - and we won't know without a proper investigation. But we do know that the Facebook plunge reflects a classic scenario for shady traders who make money hyping a stock while secretly betting against it.

And we know that all three of these institutions are perfectly capable of doing it. They have the means, they have the motive, and - until our government does something about it - they have the opportunity.

So get on with it, Washington. You better update your status on those fraud investigations before it's too late.

On Wednesday, Fight For A Fair Transportation Bill

Isaiah J. Poole — Tue, 22 May 2012 15:11:17 -0400

It's about time for us to break into the closed-door negotiations in Congress over a surface transportation bill.

The Leadership Conference on Civil and Human Rights is asking people on Wednesday to call their members of Congress to support "transportation equity" in the transportation bill, which will fund highway and public transportation projects for the next two years. The Leadership Conference has in mind some specific concerns affecting urban and low-income populations, but everyone concerned about making the economy work again for working-class and middle-class people has a reason to make their voice heard. This bill is too important to be left to the lobbyists who have access to the members and staffers huddled in a House-Senate conference committee.

The Leadership Conference is specifically concerned about protecting language in the Senate version of the bill that would require the federal government to continue technical assistance programs and studies related to public transportation and its accessibility to low-income people and people of color. The importance of public transportation, of course, transcends race and class—the more people use public transportation, the less clogged and the less polluted our roads are, and the less fuel we're consuming.

And just this week, the American Public Transportation Association released a report that estimated that riders would be making an additional 200 million new trips on buses and rail systems this year as gas prices fluctuate. That reports cites evidence that many riders who start taking buses or rail when gas prices spike keep on doing so when gas prices fall, as they are now.

House Republicans, however, almost got away with ditching dedicated federal funding for public transportation altogether. (Federal assistance is used for capital expenses; operating expenses are covered by a combination of fares and state and local subsidies.) They backed off in the wake of complaints from state- and local-level Republicans, but conservative ideological disdain for federal public transportation support remains on the record.

Another critical concern in the Leadership Conference call to action is preserving "community involvement in local transportation planning and decision making." The transportation bill passed by House Republicans removes the speed humps and stop signs from transportation project reviews that today allow communities to mitigate the adverse environmental or economic effects of these projects. The House bill puts strict, short limits on even multibillion-dollar projects, constraining the ability of citizens to investigate and build a case against a transportation plan that would harm a particular community or ecosystem in its path.

In the name of allegedly reducing the costs of environmental reviews, House conservatives would allow overzealous transportation projects and greedy lobbyists to steamroll communities, imposing high costs on the safety and well-being of affected people and communities. The nation's landscape is already littered with transportation projects done wrong, without thought to how a highway route would destroy the economic viability of a community or the ecological balance of a wilderness area. Fixing this damage after the fact is extraordinarily costly, if it happens at all. Yet the House bill won't allow careful consideration of the effects of highway and transit projects before they are built.

It's important to say to members of Congress that it's worth a few extra dollars and a few extra weeks to consider the long-term concerns of the public whose taxes are paying for these projects and the people who will have to live with the consequences.

There are two more reasons to call or write your member of Congress on Wednesday about the transportation bill.

First, tell them to take the Keystone XL pipeline out of the bill. Today's report from the National Resources Defense Council that the Keystone pipeline would actually increase gasoline prices is just one more reason to push back against the right-wing insistence that this pipeline be jammed down our collective throats. Conservatives have been consistently telling falsehoods about the Keystone XL pipeline: It will not create a significant number of jobs. It will not increase domestic gasoline supplies. It will not decrease prices.

Second, this bill is likely to be the most significant action the Congress will take before the election to keep the economy buoyed and produce jobs. And we need to be putting people to work now. Even though this bill is meager, it is still essential. And we cannot allow small-minded, small-government conservatives to get in the way.

Gingrich and Booker: Dragged Into a Conversation They Can't Hold

Terrance Heath — Tue, 22 May 2012 14:58:05 -0400

This strange political season gets stranger by the day. The things I'm hearing and seeing from Newt Gingrich and Cory Booker today reminded me of a song from one of the last (and, in my opinion, underrated) albums by Culture Club; my favorite band from my 80's youth. The lyric that comes to mind is from the band's 1984 single, "Mistake No. 3," when Boy George sings of people getting "dragged into a conversation they can't hold."

It's been 28 years, and I still can't figure out what that song's about. But, it's not hard to figure out that, despite coming at Mitt Romney's Bain Capital history from opposite sides, Newt Gingrich and Booker let themselves get dragged into conversations they can't hold.

What got me humming that old Culture Club tune again was Newt's advice to the Obama campaign, not to make the same "mistake" he made when he went after Romney's Bain history.

During an appearance on CNN's "Piers Morgan Tonight," the former House Speaker and GOP presidential candidate discussed the political fallout from Newark mayor Cory Booker's comments on Sunday's "Meet The Press." During that interview, Booker characterized Obama's attacks on Romney's business record as "nauseating," but later walked back his remarks and asserted that criticism of Romney's time at Bain is fair game.

"Booker is telling the truth about how the American people feel," Gingrich, who backed Romney after ending his own presidential bid earlier this month, said on Monday.

Speaking somewhat candidly about his own campaign's failures, Gingrich said he was "surprised" that Obama had taken the Bain Capital route after witnessing the backlash that met the former speaker when he went down a similar path.

"We found out when we got in a fight with Mitt Romney over this that it didn't work," he said. "People understand free enterprise. People realize that sometimes you succeed, sometimes you fail, but they refuse to take a one-sided view of it."

As we used to say down south, "Well, bless his heart."

Like a stopped clock, even Newt Gingrich can be right now and then. (Like when he nailed Paul Ryan's plan for Medicare and the so-called "super committee.") But in this case, Newt's dead wrong about what he got wrong.

The "backlash" Newt experienced was not because of "how the American people feel" about private equity. A Pew Research Center survey conducted in January of this year showed that economic inequality is a major concern for most Americans; 66% believe their are "strong" or "very strong" conflicts between rich and poor. The findings on public perceptions of the wealthy showed that Americans were almost equally split on their perceptions of the wealthy, with plurality (46%) believing that the rich are wealthy because “are wealthy mainly because they know the right people or were born into wealthy families,” as opposed to their own hard work, ambition or education" (43%).

The backlash Newt experienced, and that caused him to try to take it all back, came from conservatives who were furious that Newt was damaging their "inevitable" front runner before the primaries were anywhere near over, and outraged that Newt stirred up a perfect storm that threatened to drag the GOP itself into a conversation it couldn't hold.

The problem for Newt and the rest of the Republicans is that they can't blame the fact that more Americans see economic inequality as a problem at president Obama's feet. The Occupy movement can be credited with pushing the issue to the forefront of our national politics, but that happened largely because of economic conditions that add up to three decades of stagnant wages and increased costs of living for middle- and working-class Americans, just barely covered by cheap credit that allowed families to simulate increased living standards, until the economic crisis brought the whole house of cards tumbling down.

That's what makes it "impossible" for Republicans to talk about the kind economic inequality that Bain and other vulture capital firms leave in their wake, as a part of just doing business.

Newt has, basically, created the perfect storm for Republicans going into the South Carolina primaries, with Mitt Romney — the Man from Bain, who still smells like a Wall Street boardroom, and probably now looks more than ever to South Carolina primary voters "like the guy who laid you off." Newt has forced the Republicans into a conversation they can't hold, and aren't even remotely prepared for.

The funny part is that Newt every thought they could avoid it, and that Republicans still think they can avoid it.

Cory Booker's mistake was, oddly enough, both different from and similar to Gingrich's mistake.

Both ran afoul of their parties when they strayed too far off message; Newt with his Bain attacks, and Booker with his Bain defense. Newt elevated what turned out to be a relevant topic that neither he nor his party was truly prepared to address. Booker, on the other hand, turned about and dismissed as "crap" the very same issue, which his president and his party are presently addressing.

Both, handed their opposition material tailor-made for scathing attacks. The Obama campaign now has its own Bain ads. Republicans have launched an "I Stand With Cory" web campaign.

Both tried to "walk it back." Gingrich later backed down from his Bain attacks, and asked everyone to stop talking bout economic inequality. Faced with his own backlash, Booker took to YouTube to and Rachel Maddow's show, to attempt to repair some damage. Apparently, it suddenly dawned on him that Romney's Bain experience is fair game, since Romney's touted his financial sector resume as his main qualification for the presidency.

Booker's problem is he laid bare a problem that a number of his fellow Democrats share. In Booker's case, the conflict is partly between his relationship with the Obama campaign, and his own relationship with private equity. Ambition factors in, too. Folks back in Newark weren't terribly surprised at Booker's defense of private equity, given that "he's someone whose been courting big money ever since he first ran for office."

Wall Street money helped fuel Booker's rise in New Jersey politics, and if rumors of Booker's ambitions to hold national office are true he'll need even more Wall Street money. That makes him no different than a lot of Democrats, including the President.

But, as I pointed out this morning, if Gingrich and Booker got themselves dragged into a conversation they cant hold, President Obama is carrying the conservation (with an assist from Vice President Biden).

… [T]he reason this is relevant to the campaign is because my opponent, Governor Romney, his main calling card for why he thinks he should be President is his business expertise. He is not going out there touting his experience in Massachusetts. He is saying, I’m a business guy and I know how to fix it, and this is his business.

And when you’re President, as opposed to the head of a private equity firm, then your job is not simply to maximize profits. Your job is to figure out how everybody in the country has a fair shot. Your job is to think about those workers who got laid off and how are we paying for their retraining. Your job is to think about how those communities can start creating new clusters so that they can attract new businesses. Your job as President is to think about how do we set up a equitable tax system so that everybody is paying their fair share that allows us then to invest in science and technology and infrastructure, all of which are going to help us grow.

And so, if your main argument for how to grow the economy is I knew how to make a lot of money for investors, then you’re missing what this job is about. It doesn’t mean you weren’t good at private equity, but that’s not what my job is as President. My job is to take into account everybody, not just some. My job is to make sure that the country is growing not just now, but 10 years from now and 20 years from now.

So to repeat, this is not a distraction. This is what this campaign is going to be about -- is what is a strategy for us to move this country forward in a way where everybody can succeed? And that means I’ve got to think about those workers in that video just as much as I’m thinking about folks who have been much more successful.

Gingrich tried to start the conversation, and Booker tried to steer it in a different direction. Mitt Romney doesn't want to talk about it, or much else for that matter. Probably no one in national politics can have this conservation, with out stepping neck-deep into their own conflicts of interest. (That's probably why not many elected officials will "go there." On the map of American politics, that area is clearly labeled "Here Be Dragons.")

But it's a conversation America desperately needs to have. Here's President Obama can lead that conversation. It sounds like he's at least moving in the right direction.

American Manufacturers Ask President To Address Currency In Trade Agreements

Dave Johnson — Tue, 22 May 2012 14:34:24 -0400

A number of groups representing American manufacturing companies and industries have asked the Obama administration for clear language that bans currency manipulation to be included in any new trade bills.

A coalition of trade groups today sent a joint letter to U.S. Treasury Secretary Timothy Geithner and U.S. Trade Representative Ron Kirk urging them to include rules governing currency manipulation as a key point of any future trade agreements. They want this to start with the Trans-Pacific Partnership (TPP) that is currently being negotiated.

Signers of the letter include: Alliance for American Manufacturing (AAM), American Automotive Policy Council (AAPC), American Fiber Manufacturers Association (AFMA), American Iron and Steel Institute (AISI), American Mold Builders Association (AMBA), Association for Manufacturing Technology (AMT), Information Technology and Innovation Foundation (ITIF), Motor & Equipment Manufacturers Association (MEMA), National Council of Textile Organizations (NCTO), and Steel Manufacturers Association (SMA).

The letter:

May 22, 2012

Secretary Timothy Geithner Ambassador Ron Kirk
Department of the Treasury Office of the U.S. Trade Representative
1500 Pennsylvania Avenue, NW 600 17th Street NW
Washington, D.C. 20220 Washington, DC 20508

Dear Secretary Geithner and Ambassador Kirk:

As the United States continues to pursue new free trade agreements, it will be critical to address with equal vigor the trade-distorting effects of both tariff and non-tariff measures. Currency manipulation to gain an unfair competitive advantage is among the most trade-distorting practices utilized today as some countries seek to support their exports and curb imports through the deliberate and willful weakening of their currencies. To this end, we strongly recommend that the United States government pursue, as a leading priority, inclusion of strong currency disciplines in all future U.S. free trade agreements, including the Trans-Pacific Partnership (TPP) agreement.

Currency is the medium in which trade occurs, and exchange rates can be as important a determinant of trade outcomes as the qualities of the goods or services themselves. In the context of a free trade agreement, currency manipulation can negate the trade liberalizing effects of tariff reductions.

It is already settled U.S. policy to oppose the competitive devaluation of currency to promote exports and employment. At a recent G-20 meeting, the United States sought a commitment from other governments “to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency.”

Prohibitions on competitive devaluation of currency also feature in the basic instruments of both the International Monetary Fund (IMF) and the World Trade Organization (WTO). The IMF Articles of Agreement prohibit currency manipulation that is designed to achieve competitive advantage (Art. IV.1(iii)), and the General Agreement on Tariffs and Trade (GATT) prohibits countries from frustrating the intent of WTO provisions by undertaking exchange rate action (Art. XV(4)).

By including provisions prohibiting currency manipulation in future free trade agreements –including the TPP agreement – the United States will help achieve its goal of securing a model high-standard 21st century agreement, further its G-20 agenda, and bolster the IMF and the WTO mandates. Moreover, the inclusion of such provisions in our free trade agreements will help to foster multilateral consensus against the use of currency manipulation to gain an unfair competitive advantage.

Creating a level playing field for U.S business to access markets abroad will be fundamental to achieving America's goal of doubling exports by 2014. Addressing currency manipulation in future U.S. free trade agreements will go a long way to supporting this objective.

We look forward to working closely with you and your staff over the coming months to incorporate a new standard for the treatment of currency manipulation in the TPP free trade agreement.

Sincerely,

Alliance for American Manufacturing (AAM)
American Automotive Policy Council (AAPC)
American Fiber Manufacturers Association (AFMA)
American Iron and Steel Institute (AISI)
American Mold Builders Association (AMBA)
Association for Manufacturing Technology (AMT)
Information Technology and Innovation Foundation (ITIF)
Motor & Equipment Manufacturers Association (MEMA)
National Council of Textile Organizations (NCTO)
Steel Manufacturers Association (SMA)
CC: Michael Froman, Deputy Assistant to the President & Deputy National Security Advisor for
International Economic Affairs.

The Irresponsibility Of John Boehner

Stan Collender — Tue, 22 May 2012 11:50:18 -0400

Originally published at Capital Gains and Games.

Like most federal budget watchers, I assumed that the extremely negative political reaction to the federal government shutdowns in 1995 and 1996 meant that tactic wasn’t likely to be threatened again, let alone actually used. That changed last year when a shutdown became the favored approach for many on Capitol Hill.

Although the timetable obviously was much more compressed, I thought much the same thing last summer after the extreme negative reaction to the fight over raising the federal debt ceiling also made that look less likely to happen again in the future. Despite the statements made by Senate Minority Leader Mitch McConnell (Ky.) and other Republicans that using the increase in the federal government’s borrowing limit as leverage to win policy changes was now the new standard operating procedure, the downside was so great that the threat seemed to be mere words.

I was sure that was the case because, unlike the situation in 1995 and 1996, the negative response to the 2011 debt ceiling increase debacle was more than political.

Yes, it was a political nightmare: The approval rating for Congress and the White House fell during and immediately after the battle. But the negative reaction was also material because it resulted in the downgrading of U.S. debt by one of the three major rating agencies.

The downgrade occurred not just because of a concern about the government’s capacity to pay the debt, which wasn’t really questioned but because of what Standard & Poor’s said was the growing inability of the U.S. political system to deal with its fiscal problems. The result was a significant hit to the government’s financial reputation. Most analysts I’ve spoken with are convinced that, were it not for the economic woes in Europe, U.S. interest rates would be much higher as a result.

It seemed so clear that not using the debt ceiling as a weapon had become the minimum price elected officials would have to pay to prevent another possible downgrade that I thought there was no way it would happen again.

That’s why the first major activity by a senior elected official on this topic since then — Speaker John Boehner’s (R-Ohio) choreographed events last week in which he repeatedly said he would prevent the debt ceiling increase that will be needed at the end of 2012 or the start of 2013 from happening unless he got what he wanted — was so exceptionally irresponsible.

I’m using the word “irresponsible” very deliberately.

Boehner is more than just a Member of Congress. As Speaker, he is next in line to the presidency after the vice president and the most powerful person in the House. That magnifies the importance of everything he says. Every Boehner pronouncement about an international issue, for example, is closely monitored around the world. Although the executive branch takes the lead in foreign policy, what the Speaker says typically generates an immediate response and, therefore, he usually treads carefully in this area.

I wish the same were true about what the Speaker does in connection with the federal budget. The Constitution gives Congress specific fiscal policy responsibilities — that makes what this or any Speaker says something that makes headlines and is taken very seriously.

Coming on the heels of last year’s downgrade, the very public way Boehner repeatedly issued his debt ceiling threat made it the equivalent of alerting S&P and the other rating agencies that little had changed since last summer. It also was an invitation to again downgrade U.S. debt.

To make matters worse, Boehner’s statements about the debt ceiling might encourage the agencies not to wait until the debate actually occurs to reconsider their ratings. His statements could provide them with all the evidence they need to justify a new review of the situation now. There’s no word for that other than irresponsible.

Boehner’s threat also was irresponsible because the immediate spending cuts he said were the only way he would allow a debt ceiling increase to be considered is the wrong fiscal policy for the current economic situation. At a time when businesses and consumers are still not spending and most state and local governments are continuing to cut back, the federal government is the only major gross domestic product component enhancing growth and creating jobs. Given the current slow recovery, the large spending cuts Boehner is demanding could push the economy back into recession.

It’s not hard to understand the political motivations behind Boehner taking the position he took on the debt ceiling. He needs the support of the House GOP caucus to remain Speaker. All indications are that, as has been the case since the 2010 election, House Republicans are not in a compromising mood on anything having to do with the federal budget.

Threatening another cliffhanger battle as he did last week doesn’t provide the leadership Boehner said was needed to deal with this. Instead of simply complaining that the president had “lost his” courage when it came to the budget, Boehner should have displayed some of his own.

Instead of following his caucus and doing the political equivalent of tying the debt ceiling increase to the track with a train barreling down, the Speaker should have been developing a way to avoid the downgrade and further erosion of confidence in the U.S. political system that, because of his action, is now more likely to happen.

Workers of the World Unite — with Shareholders

Leo Gerard — Tue, 22 May 2012 09:49:44 -0400

At Citigroup, shareholders had their say on CEO pay -- and they yelled, "No damn way!"

Concerted action by shareholders, workers and public interest groups compelled corporate change in several other cases this spring as well.

At least three CEOs resigned. Executives truncated one shareholder meeting to 12 minutes. And across America and Europe, CEOs lamented the end of automatic approval for excessive executive compensation.

A wave of corporate change is rising because the rabble and the stockholders share an interest: decent corporate governance. To shareholders, decent means more long-term corporate vision providing reasonable returns and fewer risky, quick-profit schemes benefiting only executives. To workers, the unemployed, community and environmental groups, decent means operating corporations in the best interest of the nation, including treating workers with dignity and refraining from polluting. Together, the rabble and the shareholders wield power.

They'll be exercising it inside and outside the ExxonMobil shareholder meeting next week. Some activist stockholders will seek approval of resolutions calling for the corporation to form a task force on climate change and to reduce greenhouse emissions.

Other activist shareholders, including my union, the United Steelworkers, will seek approval of a resolution calling for Rex Tillerson to give up either his CEO title or his chairmanship of the board of directors. Because corporate boards oversee executives, many experts believe holding both positions is a conflict of interest. The board, for example, determines executive pay. The ExxonMobil board gave its chairman, who also happens to the CEO, a big fat pay increase last year -- a jump from $29 million to $34.9 million.

Corporate governance and pay and the environment are important issues as well to those who will be demonstrating outside the shareholder meeting May 30 in Dallas. They are from the 99% Power coalition that includes workers, retirees, job seekers, families fighting foreclosure, students burdened by debt, immigrants and environmentalists. The coalition's goal is to demonstrate at more shareholder meetings than ever in American history to make corporations more accountable to their communities, workers and shareholders.

Steelworkers and Occupy Dallas activists worked with the 99% Power coalition to organize the protest outside the ExxonMobil meeting. USW-represented refinery and clerical workers will protest ExxonMobil's greedy and dangerous corporate behavior. This corporation, which last year gave its CEO a 20 percent pay increase, has refused for two years to approve much smaller raises for its all-female clerical staff at Baytown.

In addition, ExxonMobil, among the most profitable corporations in the world, is denying safety measures to workers the Baton Rouge refinery -- measures that it has agreed to implement at four other facilities. This refusal comes just two years after an explosion at a Tesoro refinery killed seven workers and seven years after a massive blast at BP's Texas City refinery killed 15 and injured 170.

Steelworkers have joined the 99% Power coalition in demonstrating at the Wells Fargo, Tesoro and Compass Minerals shareholder meetings and will be at Chevron next week too.

The protesters don't always get what they want. But they've succeeded in rattling some CEOs. At Tesoro, when executives realized workers who are also shareholders were in the audience, they broke tradition and refused to take questions. Then they ended the meeting in record time, just 12 minutes.

In Britain this spring, shareholder revolts against outrageous executive pay prompted the resignations of the CEOs at insurer Aviva, pharmaceutical maker AstraZeneca and publisher Trinity Mirror. At Aviva, a proposed pay raise for the CEO angered shareholders of the poorly performing company.

That's what happened at Citigroup, too. Shareholders balked when the board of directors recommended a pay increase for the CEO despite Citi racking up the worst stock price performance among large banks over a decade.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed two years ago, provided shareholders and the 99% Power coalition with new tools. One is say-on-pay, which gives shareholders the right to vote on executive compensation packages every three years. The other is the pay gap ratio requirement, which the Securities and Exchange Commission (SEC) has failed to enforce. When the SEC does, corporations will have to determine the pay gap between an average worker and the CEO.

Neither of these protections is binding. The Citi board of directors can disregard the shareholder vote against the CEO pay package. But it probably won't because that would be ignoring the sentiments of the majority of the company's owners.

Last year, the first year for the say-on-pay votes under the new law, shareholders at three dozen companies opposed executive pay packages. That's about 2 percent of the 2,300 votes taken, but it was higher than in other countries and higher than expected. This year, with shareholders and community activists organized, more "no" votes are expected.

The pay ratio will give shareholders and workers important information. Overall, in 1980, CEO compensation averaged 42 times typical worker pay. Workers at that time received a larger share of the benefits from the companies that their labor helped to succeed. Now, CEOs make 325 times what workers do, meaning the amount workers share in success is much smaller.

Apparently, that's the kind of information CEOs don't want workers and shareholders to have since they've lobbied furiously -- and successfully -- to prevent individual corporations from having to report their pay ratios.

In the wake of Wall Street recklessness that caused economic collapse in 2008, Congress gave shareholders and citizens Dodd-Frank to help them constrain self-dealing corporate executives. The 99% Coalition and shareholders are working with those tools even as Republicans vow to take them away by repealing Dodd-Frank.

Progressive Breakfast

Bill Scher — Tue, 22 May 2012 07:53:53 -0400

Each morning, Bill Scher and Terrance Heath serve up what progressives need to effect change on the kitchen-table issues families face: jobs, health care, green energy, financial reform, affordable education and retirement security.

MORNING MESSAGE: The Real Bain Debate

OurFuture.org's Terrance Heath: "'Do you want a president who watches an American factory shut down and says, "Well, that's capitalism?"', asks Michael Tomasky. It recasts Romney's answer to questions about bankruptcies, shutdowns, and layoffs Bain left in its wake as a Rumsfeldian 'stuff happens' response ... But stuff doesn't just happen. Stuff happens because other stuff happens ... We are, as E.J. Dionne writes, not in the middle of a national argument about capitalism versus 'socialism,' but a much needed discussion about what kind of capitalism we want ... What's the alternative to the 'vulture capitalism' practiced by firms like Bain Capital? ... It's components are just beginning to take shape, as more people envision a capitalism that better spreads the benefits of the 'productivity revolution,' that regulates the worst of capitalism's 'creative destruction,' and incorporates a safety net to catch those left behind by the market."

President: Bain Is "What This Campaign Is Going To Be About"

President explains the difference between running a private equity firm and running a nation: "I think my view of private equity is that it is set up to maximize profits. And that’s a healthy part of the free market ... there are times where they identify the capacity for the economy to create new jobs or new industries. But understand that their priority is to maximize profits. And that’s not always going to be good for communities or businesses or workers ... when you’re President, as opposed to the head of a private equity firm, then your job is not simply to maximize profits. Your job is to figure out how everybody in the country has a fair shot. Your job is to think about those workers who got laid off and how are we paying for their retraining. Your job is to think about how those communities can start creating new clusters so that they can attract new businesses. Your job as President is to think about how do we set up a equitable tax system so that everybody is paying their fair share that allows us then to invest in science and technology and infrastructure, all of which are going to help us grow. And so, if your main argument for how to grow the economy is, 'I knew how to make a lot of money for investors,' then you’re missing what this job is about."

Super PACs helping Romney gain on Obama. NYT: "President Obama’s once-commanding fund-raising advantage is declining as major Republican donors rally for Mitt Romney, conservative 'super PACs' far outpace their liberal counterparts and tax-exempt issue-advocacy groups swarm the political landscape ... Those figures do not account for all the money spent through tax-exempt issue-advocacy organizations that are not required to disclose their spending, like Americans for Prosperity, founded by the billionaire Koch brothers, who have reportedly pledged to steer at least $200 million to conservative advocacy groups by Election Day."

U.S. Chamber of Commerce pledges to keep donors secret. Politico: "The U.S. Chamber of Commerce is not backing down on its promise to engage in the most aggressive campaign operation in its 100 year history, despite a recent court decision that would require disclosure of secret donors behind issue ads ... [Tom] Donohue also promised that 'we will not have to disclose where our funding comes from.' ... It is expected the group will spend more than $50 million, although Donohue declined to discuss specific numbers."

Push To Toughen Volcker Rule

"Obama faces pressure on Volcker Rule" reports W. Post: "Although he introduced and supports the Volcker Rule, which bans banks from gambling with their own money, regulators have yet to finish writing the rule and haven’t determined whether [JPMorgan Chase's bad] trading would have violated the draft version of the rule that has been released ... the authors of the Volcker Rule called on Obama to speak out in favor of a tougher version of it ... [Sen. Carl] Levin said he understood that the White House and the Treasury have only limited ability to shape the new rules, given that they are being written by officials at banking regulatory agencies that by law are independent."

Top regulator pledges action to regulate similar high-risk trading. Bloomberg: "The types of derivative swaps said to have led to a loss of at least $2 billion at JPMorgan Chase & Co. (JPM) may be the first for which the U.S. Commodity Futures Trading Commission would require guarantees by clearinghouses under the Dodd-Frank Act, according to the CFTC chairman."

Breakfast Sides

German voters still in an austerity mood. W. Post: "... more Germans than ever are ready to say goodbye to Greece as a common partner in the euro currency ... Merkel is walking an increasingly tricky tightrope to connect German domestic priorities and international ones. Though she has been making quiet concessions to leaders who favor stimulus over cuts, she has opposed grander proposals to prop up struggling countries, measures that will be under discussion Wednesday at an emergency meeting of the euro zone’s leaders."

NLRB judge rules against Target for interfering with union election. NYT: "...the election ... sought to make the Valley Stream store the first unionized Target in the nation. Judge Davis found, among other things, that Target managers had barred employees from wearing union buttons and distributing fliers, had improperly threatened to discipline employees who discussed union matters and had unlawfully threatened to close the store if the workers voted to unionize ... the company [is] evaluating its next steps, which include appealing the judge’s ruling to the full five-person labor board in Washington."

Public money being diverted private religious schools. NYT: "Spreading at a time of deep cutbacks in public schools, the programs are operating in eight states and represent one of the fastest-growing components of the school choice movement. This school year alone, the programs redirected nearly $350 million that would have gone into public budgets to pay for private school scholarships for 129,000 students ... While the scholarship programs have helped many children whose parents would have to scrimp or work several jobs to send them to private schools, the money has also been used to attract star football players, expand the payrolls of the nonprofit scholarship groups and spread the theology of creationism ... Most of the private schools are religious. Nearly a quarter of the participating schools in Georgia require families to make a profession of religious faith, according to their Web sites. Many of those schools adhere to a fundamentalist brand of Christianity."

What the Bain Debate is Really About

Terrance Heath — Tue, 22 May 2012 01:25:29 -0400

The 2012 presidential election may go down as one of the strangest political seasons in recent memory, for the simple reason that the influence of the financial sector in politics, policy and the economy has caused Republicans to sound like Democrats and Democrat to sound like Republicans — usually with confounding results.

When Republicans sound like Democrats, like Newt Gingrich attacking Mitt Romney's record at Bain Capital, they tend to start arguments they can't win. When Democrats start sounding like Republicans, like Cory Booker defending Bain Capital, they tend forfeit arguments they could win. That's because, in both cases, the politicians are arguing about the wrong things, in order to avoid the real argument — the one America needs to have, and Americans need to win; the argument over what kind of economy we will have going forward.

Gringirch's attack on Romney's record confused many conservatives, who equated it with an attack on capitalism itself. Newark Mayor Cory Booker echoed the concerns of confused conservatives when he called the Obama campaigns ads attacking Romney's record at Bain Capital a "nauseating" attack on private equity, labeling them a distraction. "It's either going to be a small campaign about this crap or it's going to be a big campaign, in my opinion, about the issues that the American public cares about," Booker said.

What Booker, Democrats like him, and conservatives now lauding his diatribe ignore or don't realize is that the issues affecting voters don't come much bigger and don't get much more real than the kind of capitalism Bain represents.

Bain Capitalism

As Digby said, if Romney is going to run on his Bain Capital record and tout his private equity background as his main qualification for the presidency, then his track record at Bain is fair game. I summed up that track record in my original post about his brand of "vulture capitalism."

A former managing partner at Bain, in an interview with the Los Angeles Times, made it clear that job creation was never the point at Bain.

Bain managers said their mission was clear. "I never thought of what I do for a living as job creation," said Marc B. Walpow, a former managing partner at Bain who worked closely with Romney for nine years before forming his own firm. "The primary goal of private equity is to create wealth for your investors."

Under Romney's leadership, Bain certainly created wealth for its investors, no matter what happened to the companies it acquired or the the people worked for them. The Wall Street Journal's revealing look at Romney's time at Bain shows that 22% of the companies Bain invested on under Romney's watch either filed for bankruptcy, reorganized, or closed their doors — sometimes with substantial job losses. As Pat Garofalo pointed out, that's nearly one fourth of the companies Bain invested in.

Some failed so badly that Bain lost its investments. That didn't put a damper in returns, though. Bain produced about $2.5 billion in returns for its shareholders, out of just $1.1 billion invested. (Romney did alright, too. His campaign estimates his take during his term at Bain as anywhere from $190 million to $250 million. That's enough for a lot of $10,000 bets.)

The LA Times piece makes it clear that Bain and its investors profited, no matter what happened to the companies in its portfolio. According to the Wall Street Journal, 70% of Bain's returns came from just 10 deals. The LA Times article notes that "Four of the 10 companies Bain acquired declared bankruptcy within a few years, shedding thousands of jobs." Still, Bain profited in eight of those ten deals, including three of the four that went bankrupt.

That's the way "vulture capitalism" (as I like to call it) works. Bain and its shareholders profited in the end, no matter what else happened.

That's the part of the story that the Gingrich movie seems to tell: what else happened. We know what happened on Wall Street when Mitt Romney came to town. A few people — Mitt Romney included — made a lot of money. Now we know what else happened on Main Street when Mitt Romney came to town.

What happened to those companies and the people who worked for them begins to read like a casualty list: 1,700 jobs lost at Dade International, more than 700 jobs lost at GS Industries, 200 jobs lost at American Pad and Paper (Apmad). After a while, it's easy to forget that these numbers represent the lives of real people, whose job loss sent shock waves through their families and communities; people like Donny Box and Randy Johnson.

It's also easy to miss the point that this is just how the brand of "head I win, tails you lose" capitalism Bain practiced under Romney's leadership is suppose to work; as the Obama campaign illustrates in a new video and slideshow about how Bain made $100 million on its $5 million investment in Ampad, even while sending the company into bankruptcy and its 1,500 employees to the unemployment line. Bain Capital made profits no matter what happened the companies in its portfolio. Nearly one fourth of the companies Bain invested in during Romney's tenure either went bankrupt, reorganized, or simply shut down — often with significant layoffs. Seventy percent of Bain's profits came from just 10 deals, four of which resulted in bankruptcy.

"Extracting Value"

Romney's factually challenged, incredible shrinking claims of being a "job creator" at Bain notwithstanding, his former Bain colleague got it exactly right. Bain wasn't in the business of creating jobs, and Romney wasn't in the business of creating jobs. Bain's mission, and Romney's job as its chief, was simply to "create wealth" for its investors. Period.

Bain Capital and Mitt Romney were in the business of creating even more wealth for its already-wealthy investors. They were apparently very good at it, too. But the kind of wealth Bain and Romney worked to create isn't the kind of wealth that leads to more widely shared prosperity. It's not the kind of wealth that grows the economy, according to the CBO. Nor is it the kind of wealth that leads to job creation, according to Moody's Analytics, because it doesn't get put back into the economy to support existing jobs or spur job creation by boosting demand. The wealthy don't spend their tax cut windfalls, but save them and invest them in the stock market instead; putting their money to work making money, rather than putting their money to work keeping people working and putting people to work.

The success or failure of the companies in its portfolio were beside the point. When he's not claiming the mantle of "job creator," Romney casts himself and Bain as "fixers" who acquired "broken" companies and made them better —more efficient, and more profitable. But that wasn't the point at Bain. To some extent, Bain and Romney profited from practices that were more about extracting value from its acquisitions than "fixing" them. (The language about "extracting value" is even repeated in some of Bain's own material.)

That's what Bain Capitalism is about: "extracting value" with no investment in the fate of the companies in its portfolio, the people who work from them, or the communities that rely on them.

"What This Job Is All About"

Cory Booker called the debate over Bain Capital a "distraction" that threatened to make the election a "small campaign" about small ideas, instead of a "big campaign" about "the issues the American public cares about." In his remarks at yesterday's NATO summit, President Obama made the case for why Romney's record at Bain Capital is relevant to a "big campaign" about "issues the American public cares about." (And he managed it without even calling Booker a "jackass.")

… [T]he reason this is relevant to the campaign is because my opponent, Governor Romney, his main calling card for why he thinks he should be President is his business expertise. He is not going out there touting his experience in Massachusetts. He is saying, I’m a business guy and I know how to fix it, and this is his business.

And when you’re President, as opposed to the head of a private equity firm, then your job is not simply to maximize profits. Your job is to figure out how everybody in the country has a fair shot. Your job is to think about those workers who got laid off and how are we paying for their retraining. Your job is to think about how those communities can start creating new clusters so that they can attract new businesses. Your job as President is to think about how do we set up a equitable tax system so that everybody is paying their fair share that allows us then to invest in science and technology and infrastructure, all of which are going to help us grow.

And so, if your main argument for how to grow the economy is I knew how to make a lot of money for investors, then you’re missing what this job is about. It doesn’t mean you weren’t good at private equity, but that’s not what my job is as President. My job is to take into account everybody, not just some. My job is to make sure that the country is growing not just now, but 10 years from now and 20 years from now.

So to repeat, this is not a distraction. This is what this campaign is going to be about -- is what is a strategy for us to move this country forward in a way where everybody can succeed? And that means I’ve got to think about those workers in that video just as much as I’m thinking about folks who have been much more successful.

The president is off to a good start on taking the debate where it needs to from here; from the particulars of Romney's record at Bain Capital to what it represents, and the economic choices facing America. But, as I pointed out before, the business practices of companies like Bain mean profit for the investor class, and pain for the 99%. Now, president Obama needs to make it personal.

This is pretty good, but I think it's going to have to get a lot more forceful. Obama has this habit, which you learn as a writer over time is really unconvincing. He very often makes an assertion without illustrating it, without saying why. It leaves listeners confused because he hasn't really put meat behind the assertion.

But he is on the right track here. I don't think this is such a difficult needle to thread. In fact he could get a lot more emotional mileage out of this sort of thing. Like how? Like so:

"The people who lost their jobs because of Mitt Romney's creative destruction, those are precisely the people the president has to think about most. Those are the people who write the letters that I read every night before I go to bed. Those are the people who need my help the most of all. Mitt Romney and his fellow investors will mostly be just fine. I think about the other people. Governor Romney says, explicitly, has said many times, of lost jobs, that's capitalism, that's just the way it goes. Do you want a president who watches an American factory shut down and says, 'Well, that's capitalism?'"

Choosing Capitalism

"Do you want a president who watches an American factory shut down and says, 'Well, that's capitalism?'"

It recasts Romney's answer to questions about bankruptcies, shutdowns, and layoffs Bain left in its wake as a Rumsfeldian "stuff happens" response to the economic consequences of Bain's practices. Stuff doesn't just happen. Stuff happens because other stuff happens. The debate is basically about whether we should regulate some stuff in order to keep it from happening, and what we should do about the stuff that happens as a result.

We are, as E.J. Dionne writes, not in the middle of a national argument about capitalism versus "socialism," but a much needed discussion about what kind of capitalism we want.

The Bain conversation has already been instructive. Romney’s friends no less than his foes have had to face the fact that Bain’s purpose was never about job-creation. Its goal was to generate large returns to Bain’s partners and investors. It did that, which is why Romney is rich.

Romney wants to focus on the positive side of his business dealings that did create jobs. He wants to brag about the companies Bain helped bring to life, among them Staples, Sports Authority and Domino’s.

That’s fair enough. But having made an issue of Bain on the plus side, he also has to answer for the pain and suffering — or, as defenders of capitalism like to call it, the “creative destruction” — that some of Bain’s deals left in their wake.

This leads naturally to the question of how creative the destruction wrought by our current brand of capitalism actually is. Since the dawn of the leveraged buyout era three decades ago, many friends of capitalism have questioned whether loading companies with debt as part of these deals is good for companies and for the economy as a whole.

What's the alternative to the "vulture capitalism" practiced by firms like Bain Capital? What it's called varies, I've heard it called "Inclusive Capitalism" and "the New Economy movement." It's components are just beginning to take shape, as more people envision a capitalism that better spreads the benefits of the "productivity revolution," that regulates the worst of capitalism's "creative destruction," and incorporates a safety net to catch those left behind by the market.

This may be another debate in which President Obama could benefit from following Vice President Biden's lead.

Vice President Biden’s speech last week in Youngstown, Ohio, drew wide attention for its criticism of Romney as someone who just doesn’t “get it.” But when Biden moved beyond Romney, he offered an energetic broadside against the new world of finance, and he picked the right venue to make his case: a noble blue-collar town that has been battered by the winds of globalization and economic change.

“You know the difference between having an economy that makes things that the rest of the world wants, and having an economy that is based on financialization of every product,” Biden told his listeners. “You know the difference between an economy . . . that’s built on making things rather than on collateralized debt, creative credit-default swaps, financial instruments like subprime mortgages. That’s not how you build an economy.”

This campaign isn't just about Bain, or Mitt Romney's past. It's about our future. It's about the kind of new economy we want to build.

What Krugman Said Today, And He's At The Take Back The American Dream Conference Next Month

Dave Johnson — Mon, 21 May 2012 23:11:35 -0400

I attended a lunch gathering with economist and NY Times columnist Paul Krugman, who is speaking today in San Francisco about his new book. Paul Krugman will also be speaking at the Take Back The American Dream 2012 conference that takes place June 18-20 in Washington, DC. Please click through for details and registration information.

At today's lunch gathering Krugman explained that he calls our current economic circumstances a "depression" rather than a "recession." A recession is a temporary downturn. We have had a recession. A depression is an ongoing bad economy, with high unemployment, and no sign of how we will get out of it. Krugman says this is essentially the same kind of situation that John Maynard Keynes described in the 1930s: “a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse.”

The 1930s depression ended after WWII forced the government into a mode of massive spending. This was a huge stimulus to the economy and got its "engine" started again. The also brought a modernization of our manufacturing infrastructure, and following the war the returning military forces were sent to school by the government under the GI Bill. The resulting burst of growth reduced the debt-to-GDP ratio, meaning that while the debt did not drop, the size of the economy grew enough to make the debt a much lower factor in the bigger picture.

Krugman says that it actually would be simple to end this economic slowdown, and the obstacle to doing this is not economic it is political. All we have to do is hire people, and those people will stop collecting from the "safety net," will start spending again, and will start paying taxes again. As these people are paid, their spending will cause even more hiring. This "restarts the engine" of the economy. We can employ people to do badly-needed things like rebuild our infrastructure, as well as rehiring the teachers, police and other state & local public employees that have been laid off.

Asked if there is a downside to his prescription Krugman said that right now we are in a very special circumstance, with interest rates very, very low so there is really not much harm that this can do. The resulting growth will lower the impact of debt on the economy, and help to start paying it off.

Krugman's Book

Krugman is on a "book tour" promoting his new book, End This Depression Now!. From Krugman's web page for the book:

The Great Recession is more than four years old—and counting. Yet, as Paul Krugman points out in this powerful volley, "Nations rich in resources, talent, and knowledge—all the ingredients for prosperity and a decent standard of living for all—remain in a state of intense pain."

How bad have things gotten? How did we get stuck in what now can only be called a depression? And above all, how do we free ourselves? Krugman pursues these questions with his characteristic lucidity and insight. He has a powerful message for anyone who has suffered over these past four years—a quick, strong recovery is just one step away, if our leaders can find the "intellectual clarity and political will" to end this depression now.

Paul Krugman blogs here: The Conscience of a Liberal.

Krugman's regular New York Times column is here.

Please consider attending the Take Back The American Dream 2012 conference that takes place June 18-20 in Washington, D.C.

Budget Cuts Have Consequences: Ask Andrews Air Force Base

Stan Collender — Mon, 21 May 2012 15:33:00 -0400

Originally posted at Capital Gains and Games.

I can't tell you the number of focus groups I've watched and polls I read where the overwhelming opinion was that federal spending could be cut without any decrease in the quantity and quality of what the government does.

Hell...As I posted about in 2010, even the recommendation from the co-chairs of the Bowles-Simpson commission -- who definitely should have known better -- proposed a reduction in the number of federal employees and the number of consultants but, presumably based on the assumption that the government wouldn't have to stop doing anything it was already doing, didn't suggest any activity be eliminated.

That's why this story in The Washington Post from several days ago caught my eye. The Defense Department has decided that what since the 1950s has been an annual show for the public at Andrews Air Force Base (now officially Joint Base Andrews) in suburban Maryland will now be held every other year. The savings are projected to be $2.1 million a year.

I have no problem with this decision or the many others like it that no doubt will be made as federal discretionary spending continues to be squeezed. I have posted in the past about how, no matter how valuable it may be in some sense, the annual National Book Festival staged by the Library of Congress should not be held at all.

As my Beautiful and Talented Wife (The BTW) can tell you, I have often railed at similar federal activities (military color guards provided free of charge to pro sports teams are especially annoying) because of their cost. Yes...I take great pride in seeing the Blue Angels do maneuvers and have enjoyed military band concerts. But as a budget guy I see little reason to be paying for that rather than better armor and training for those actually doing the fighting.

Anyone want to bet how long it takes before someone on Capital Hill, most likely someone who claims to be a fiscal conservative, proposes to restore the funds so that this show continues to be held each year? My guess is that the decision will be reversed by October 1 when fiscal 2013 begins.

Et Tu, Cory Booker?

Digby — Mon, 21 May 2012 14:44:03 -0400

False equivalence of the day:

Appearing on NBC’s “Meet The Press” on Sunday, Newark Mayor and Obama bundler Cory Booker said he was “uncomfortable” with the Obama campaign’s attacks on Mitt Romney’s career with Bain Capital.

“It’s a distraction from the real issues,” Booker said, of both attacks on Bain and Rev. Jeremiah Wright. “It’s either gonna be a small campaign about this crap, or it’s gonna be a big campaign about the issues the American public cares about.”

“I’m not about to sit here and indict private equity,” Booker added. “If you look at the totality of Bain Capital’s record, they’ve done a lot to support businesses — to grow businesses. And this to me, I’m very uncomfortable.”

No, attacks on Bain are not the equivalent of attacks on Jeremiah Wright and no, it is not a distraction from the campaign, it is the campaign. Or it should be.

If Romney can't be criticized for his vulture capitalism and we can't "indict" private equity then what does he think this campaign should be about? The deficit? Some abstract notions of "jobs" and "the economy" without any reference to the fact that it was the financial sector and "private equity" that caused this situation in the first place? Sounds perfect. For Wall Street.

Sadly, this is exactly the kind of concern trolling that will make the Village declare that the Democrats are hitting below the belt by criticizing Bain Capital and the Dems will fall in line. Indeed, the fact that it's Cory Booker who's saying it today indicates that it's the Democrats themselves saying "stop us before we hurt the Masters of the Universe's feelings again."

Progressive Breakfast

Bill Scher — Mon, 21 May 2012 07:11:25 -0400

MORNING MESSAGE: After JPMorgan Chase, Break Up The Banks

OurFuture.org's Richard Eskow: "Even if we assume that JPM's current problems can be contained, we should realize that every loss of this kind has the potential to turn into a chain reaction. Each could become a cascading failure that threatens JPM or another megabank -- and which therefore threatens the entire financial system. The megabanks pose an existential threat to our economy." CLICK HERE to tell Congress, pass the SAFE Banking Act.

JPMorgan Chase Scandal Deepens

Key JP Morgan Chase official previously fired for risky bets. Bloomberg: "Irvin Goldman, who oversaw risks in the JPMorgan Chase & Co. (JPM) unit that suffered more than $2 billion in trading losses, was fired by another Wall Street firm in 2007 for money-losing bets that prompted a regulatory sanction at the firm, Cantor Fitzgerald LP..."

Paul Krugman explains JP Morgan to Mitt Romney, slowly: "[Said Romney,] 'This was a loss to shareholders and owners of JPMorgan and that’s the way America works.' ... [But] when banks take on too much risk they put the whole economy in jeopardy — unless they can count on being bailed out ... how is it possible that Mr. Romney doesn’t understand all of this?"

Will G8 Lead To Global Stimulus?

G8 signals "emerging consensus" on growth over austerity. AP: "'There's now an emerging consensus that more must be done to promote growth and job creation right now,' Obama proclaimed ... Yet there were no bold prescriptions at hand. Instead, leaders seemed intent on trying to inspire confidence by agreeing on a broad strategy no matter their differences. With all of them facing their own difficult political realities, they built some sovereign wiggle room into their pledge to take all necessary steps, saying 'the right measures are not the same for each of us.'"

Robert Kuttner gives the G8 a mixed review: "The good news: Austerity is finally on the defensive ... The bad news: The shift is mainly at the level of rhetoric and token policy changes. Nobody in the political mainstream is seriously proposing the kind of radical reform that would allow growth to occur ... the prospects for broader European recovery are still very bleak until the politics get a lot more radical."

Ryan Goes Orwellian

"We’re not even really cutting spending," says House Budget Chair Paul Ryan of the Republican budget, on NBC's Meet the Press.

"Paul Ryan Claims Romney Budget, Which Adds $10 Trillion To Debt, Will ‘Prevent A Debt Crisis’" reports ThinkProgress.

Supreme Court May Reconsider Citizens United

Montana pressuring Supreme Court to reconsider and reverse Citizens United. W. Post: "The Montana Supreme Court acknowledged a conflict when it voted 5 to 2 to uphold the state law, created by voters in 1912 to combat the power of the so-called Copper Kings who controlled state politics ... Those urging the court to grant a full hearing of the Montana case take aim at the most important finding of Citizens United. That was the declaration in Justice Anthony M. Kennedy’s majority opinion that 'we now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.' 'That cannot be so,' the new bipartisan team of Sens. John McCain (R-Ariz.) and Sheldon Whitehouse (D-R.I.) told the court."

Super PACs shift power away from candidates to donor. NYT: "Once wedded to the careers and aims of individual candidates, [political operatives] are now driven by the agendas of the big donors who finance outside spending ... there are no cranky candidates, no scheduling conflicts, no bitter strategy debates with rival advisers. There are only wealthy donors and the consultants vying to oblige them ... Super PACs offer advantages to the donors as well. Because they can give unlimited amounts to outside groups, they can have substantial influence without the hard work of raising money for a candidate..."

JPMorgan Chase: Break Up the Big Banks Now. Here's How.

Richard Eskow — Mon, 21 May 2012 00:33:33 -0400

When Jamie Dimon revealed that JPMorgan Chase had lost billions through risky and legally questionable trading, he said the losses would be about $2 billion and maybe more. Apparently it is more - a lot more. People in a position to know are saying the real figure is probably in the $5-7 billion range.

The JPMorgan Chase scandal - and yes, it is a scandal - shows us why we need to break up the big banks as quickly as possible.

But that won't happen unless we can get our hands around the real scope of the problem, which is probably far greater than we're being told. That means cutting through the enveloping shroud of jargon, euphemisms and double talk - "crap," if you will - that keeps us from seeing the situation as it really is.

Here's why we need to do it, and here's how.

Talk Talk

Two images come to mind when considering too-big-to-fail banks like JPMorgan Chase: The first is of the gigantic spaceships hovering over all of the world's cities in Independence Day, leaving the citizenry in shadows and the world in fear and uncertainty.

The second image is of an old New Yorker cartoon which shows a husband and wife chatting with guests over drinks and h'ors d'oeuvres while an enormous monster scowls in the corner. The caption reads: "We deal with it by not talking about it."

Most politicians are either talking about tighter regulations for too-big-to-fail banks, or about the virtues of self-regulation and the so-called "free markets." But the real problem isn't how to manage too-big-to-fail banks, which are inherently unmanageable. The real problem is that they exist, an everpresent menace that hovers over our economy while we go about our daily lives.

They deal with that problem by not talking about it.

Monster Mash

JPMorgan Chase is either our largest or second-largest bank, depending on when and how you ask the question. News stories often point out that it has $2 trillion in asset, which sounds impressive. But they usually fail to mention that it has liabilities of more than $2 trillion, too, leaving it roughly $183 billion in the black.

That ain't bad - but it's not much more net worth than you'll see sitting around the table when Mitt Romney's Super PAC friends get together for lunch.

And we can't trust those numbers. We now know that these risky London deals weren't accurately conveyed in last year's annual report. What else don't we know about JPM's liabilities?

All of our big banks were on the hook for hundreds of trillions of dollars in the run-up to the financial crisis of 2008. And now they're bigger than ever. How big? We don't know for sure - and that's a big part of the problem.

Our four largest banks have 95 percent of the total exposure to derivatives. Two years ago we analyzed the raw data and found that JPM alone held 44 percent of that risk - and JPM has grown since then.

Because they intend to keep right on growing. As Jamie Dimon promised shareholders, “I want to assure you that your company will be bigger and stronger and better a year from today.”

If that doesn't frighten you, you haven't been paying attention.

Bigger ≠ Better

Here's an example of what we mean when we say it's time to "cut the crap" when we talk about big banks:

Writers should no longer be allowed to tell us, even in passing, that "I agree we need large institutions" unless they tell us why we need them.

Jamie Dimon was leading the chorus of bankers saying that their large size leads to increased efficiency and economies of scale. Okay, Mr. Dimon: Where are they? Is the cost of borrowing cheaper at JPM than it is at community banks? Are ATM fees lower? Are loans easier to get?

"Economies of scale" work well for customers - when you're manufacturing toasters. But banks like JPM aren't in the toaster business. They're not even in the customer business anymore. Ordinary clients at the big banks are like cannon fodder in a colonial army: They're there to be used and discarded, not to be served or respected.

(John Reed's interview with Bill Moyers offers an enlightening glimpse into this shift in banking culture.)

So let's stop repeating the mantra that big institutions have anything to offer us - anything, that is, except moral hazard. We did fine without them for centuries, and we'll be better off once they're gone.

Gaming the Numbers

Here's something else that needs to stop: When a bank deceives its investors, reporters need to stop saying only that it "changed its risk model." That makes it sound arcane. What JPM really did was mislead everyone.

The bank told investors that they had begun assessing internal risk in a new and more effective way. But reports say that the unit which made these hazardous trades reported directly to Dimon, bypassing the bank's other executive and risk management channels. And despite what they told the public - include investors - the bank did not use its new risk model to assess these trades. They used an old model which dramatically understated the risk involved.

Listen, I know this kind of talk confuses some people, but if there's one thing I learned after working in risk management it's this: The more jargon you hear, the less trustworthy the source.

If reports are true, then Chase deceiving the public and it was deceiving investors. That's not "changing its risk model." It's lying. And it's very possibly fraud.

Byline Creep

And while we're in the crap-cutting business, here's something else that needs to stop:

Just because Jamie Dimon described the loss as "stupid" doesn't mean that you have to believe him, or use the same language.Listen, writers: He's the architect of this charade, not an observer.

If this disaster should tell you anything, it's to stop letting Jamie Dimon write your copy for you.

Something Stupid

Executives at Chase and the other big banks live in confidence that they'll reap the profits for risky betting and leave the losses to you. That may be many things - venal, selfish, greedy - but it's not stupid.

What's more, as long as nobody is indicted for Wall Street's ongoing criminality, they can keep breaking the law knowing they'll never pay the price for that either.

And if laws were broken in JPMorgan Chase's case, as Dimon himself acknowledges is possible, then these deals were only "stupid" the way any crime is stupid: It's only stupid if you get caught.

It Can Be Done. Here's How.

We've been led to believe that it's politically and economically impossible to break up these banks. That's not true. How can the political climate be changed?

The first step is to push for better financial reporting, so that we see less of the mistakes described above. If people are better-informed about big banks, sentiment against them will run even stronger than it is right now.

Which gets us to the politics of big banks.

Democracy First

The common-sense SAFE Act introduced by Sen. Sherrod Brown and Rep. Keith Ellison would end the era of too big to fail. It's a smart first step toward ridding the world of these menaces to society.

Legislation should also be introduced to strengthen and expand antitrust laws so that they can rein in out-of-control banks like JPM.

True, the SAFE Act and antitrust banking bills are unlikely to pass under our corrupt political system. But every politician in Washington should be forced to vote "yes" or "no" on this bill before the elections and let the public know where they stand on this vital issue. That's the only way Americans can make an informed decision in November.

During the drafting of Dodd/Frank financial legislation we saw something important happen a number of times: If politicians were allowed to craft deals in private, those deals always benefited the big banks. But if they were forced to debate these issues publicly, we saw a much greater consensus against Wall Street.

Public debate: It's how democracy is supposed to work. It will help us break up the big banks.

Contraptions and Elegance

The Dodd/Frank bill's reforms, while anemic, are somewhat useful. It's madness to suggest repealing them, as Republicans are trying to do. But Dodd/Frank isn't useful at all unless agencies are staffed with regulators determined to do their jobs. The Administration's record has been lackluster (or worse) in that regard, while the Republicans have made it clear that they'll staff regulatory agencies with people determined not to do their jobs.

It doesn't help that when it comes to too-big-to-fail banks the current system of financial regulation is a rickety, complicated, Rube Goldberg-ish contraption designed to work around the massive danger that they pose to the economy.

Simple solutions are usually the best, and the simple solution to too big to fail banks is: Break them up.

That may not be politically feasible right now, but it's the job of a mobilized citizenry to change the political equation with public pressure whenever possible. That means keeping the issue on the front burner by inundating elected officials from the White House on down with emails and calls in support of the SAFE Act. (More here.)

Lead the Fed

The public needs to pres Congress about the Federal Reserve, too. The Fed is feeding the growth of the megabanks with free or very low-interest money, no strings attached. That gives megabanks the resources and the incentive to place that where it can maximize income in a stagnant, nearly consumerless economy. That tempts the banks into increasingly risky transactions and instruments like the ones that caused JPM's loss.

The Fed must also stop interfering with shareholder democracy, which cuts to the core of executive accountability. We should demand that Congress hold the Fed accountable for its actions in propping up too-big-to-fail banks.

That's not very likely to happen as long as the Federal Reserve, a creation of the United States government, is governed by boards that are dominated by bankers - bankers like Jamie Dimon. So the public must demand that Dimon step down, and that bankers are removed from Fed boards altogether.

Shine a Light

The public has the right to know about the banks it's been coddling, spoon-feeding low interest loans to, and protecting for years. It should demand a full and complete audit of these banks by trustworthy outsiders - if enough of them can still be found. Auditors can provide the banks with all the proprietary protections they rightfully deserve. But twe rescued them, and now we need to shine a light into their dark corners.

In addition to these general audits, we also need an immediate, extensive and transparent no-holds-barred review of the JPMorgan Chase debacle. Simon Johnson compares this event with the near-collision of two jet airliners, which would trigger an immediate investigation by the National Traffic Safety Board. It's an apt analogy, and an excellent idea.

And bank executives must be investigated, too - for criminal activity. That, and that alone, would discourage illegal risk-taking. It would also make them take their legal responsibilities under Sarbanes-Oxley much more seriously than they apparently do today, and would discourage them from routinely deceiving the public - which in many cases appears to cross the line into fraud.

Declare Independence

Our national and world economies are in grave danger as long as banks like JPMorgan Chase exist in their present form. They've already left our economy in ruins once. It's only a matter of time before they do it again.

Even if we assume that JPM's current problems can be contained, we should realize that every loss of this kind has the potential to turn into a chain reaction. Each could become a cascading failure that threatens JPM or another megabank -- and which therefore threatens the entire financial system.

The megabanks pose an existential threat to our economy. They hover over our economy, our political system, and our personal lives like a fleet of giant spaceships. They serve no useful social purpose, and they only exist because we allow them to exist.

it's time to declare our independence from their domination and demand that our elected officials help us in our fight for freedom. It's time to stop living in their menacing shadow and come out into the sunlight.

It's time to dedicate ourselves to breaking up JPMorgan Chase and the other too-big-to-fail banks, and to ensuring that they never threaten the world's economy again.

Facebook and Tahrir Square, Revisited

Sam Pizzigati — Sun, 20 May 2012 16:30:47 -0400

Facebook's initial public offering last week 'offered' the world another double dose of windfalls and greed. But Egypt's elections this week may bring an IPO of a different sort, the 'initial public offering' of an antidote to avarice.

Remember the heady days of the Arab spring? People in motion. Democracy breaking out all over. And right in the middle of everything . . . Facebook!

Activists in Cairo’s Tahrir Square, we marveled, were using Facebook and other social media tools to link and share and grow their movement. In a Facebook electronic age, anything suddenly seemed possible. A new world beckoned. A new world gloriously liberated from greed and corruption.

How’s that new world coming, over a year later? That depends where you look.

Over in Egypt, voters are going to the polls this week to start a two-round presidential election contest, the first presidential balloting since Tahrir Square first captured the world’s political imagination.

Egypt’s eventual future still remains hazy. But the nation's struggle for economic justice and democracy has kept moving forward over the last year. Egyptians are continuing to break new political ground, most particularly on the bold notion of a “maximum wage,” the idea that democracy and social decency both demand a limit on the income any one person can grab in a year.

The demand for a maximum wage in Egypt first surfaced in the militant labor protests that paved the way for last year’s uprising in Tahrir Square. This maximum wage demand has now gone mainstream. In the current presidential race, almost all the prime contenders are endorsing a “maximum wage” ethic.

The candidates, to be sure, do differ on the “maximum wage” specifics.

Aboul Fotouh, a liberal Islamist candidate, wants a maximum wage applied only to the public sector, and the Egyptian parliament is now putting the finishing touches on legislation that would do just that. The pending bill would set a public sector maximum at 35 times a public enterprise’s lowest wage, with an absolute income cap at the equivalent of just under $100,000 a year.

This public sector maximum would have a broad economic impact. In Egypt, the public sector covers nearly a quarter of the entire economy, not just government agencies but huge swatches of commercial and banking activity as well.

Activists from the Egyptian labor movement are calling for an even broader maximum wage. They’re urging a maximum applied to the entire economy, public and private sector alike, and former Arab League secretary general Amr Moussa, the presidential front-runner, appears to be backing that position.

In Egypt, the presidential campaigning suggests, a new world that pushes back against greed does still beckon.

On the other hand, here in the United States, the movers and shakers behind the Facebook phenomenon that meant so much for the initial Arab spring are shoving Americans in an entirely different direction.

These Facebook kingpins haven’t been challenging greed. They’ve been feting it, via an elaborately orchestrated initial public offering last week on Wall Street that dangled out to America’s investing class juicy new fantasies of over-the-top speculative windfalls.

In the days leading up to last week's Facebook IPO, investors buzzed with that old “irrational exuberance” of the 1990s dot-com bubble. Stocks typically trade at $14 of share price value for every $1 of profit. Facebook went to market asking over $100 for every $1 of profit.

And the market went along, in the process kindling get-rich fever and, on Friday, minting instant billionaires within Facebook’s inner circle.

One of those instant billionaires — Facebook co-founder Eduardo Saverin — took his money and ran. Saverin renounced his U.S. citizenship before the IPO. His move may enable him to avoid as much as $700 million in federal taxes.

The rest of the Facebook insider crew is staying put, at least for the moment, and doing its tax avoiding from the comfort of home.

Facebook’s top dog, Mark Zuckerberg, announced before Friday’s IPO that he would be exercising half the 120 million stock options he awarded himself in 2005. That decision cleared him a personal payday Friday around $2.3 billion.

The Facebook shares that Zuckerberg is still holding give him a net worth over $19 billion, and the 28-year-old seems to have no intention of sharing much of his new wealth with Uncle Sam.

The Wall Street Journal earlier this month detailed the tax code loophole — the “grantor-retained annuity trust” — that Zuckerberg and his fellow Facebook execs are likely using “to avoid at least $200 million of estate and gift taxes.”

Facebook is avoiding enormously more than this $200 million at the enterprise level, thanks to the U.S. tax code’s incredibly generous treatment of stock options. Facebook's exploitation of this option loophole, Citizens for Tax Justice calculates, will cost the federal and state governments about $6.4 billion.

How does this option loophole operate? Say Facebook hands out to execs a million options each to buy Facebook shares at $1 a share. These lucky option recipients later “exercise” their options and buy those shares at that $1 — and then turn around and sell them at $38, the Facebook going rate last Friday.

These option recipients will have to pay income tax on their $37-per-share profit. But Facebook — as an enterprise — can deduct that $37 off its corporate income tax. This deduction, of course, will fatten Facebook’s bottom line and pump up even further the value of the shares Facebook’s execs are holding.

The pushback against all this Facebook greed grabbing?

In Washington last week, two U.S. senators — Chuck Schumer from New York and Bob Casey from Pennsylvania — did propose legislation that would subject future wealthy citizenship renouncers like Eduardo Saverin to a 30 percent capital gains tax rate. But even the bill's supporters acknowledge that this legislation has no chance whatsoever of passage in the current Congress.

Legislation from Michigan senator Carl Levin that would strike down the much more significant stock option loophole faces an equally steep path to passage. New York’s Working Families Party, among other groups, is helping drive an effort to boost the Levin legislation.

Meanwhile, Fox Business News reported Friday that execs and investors who’ve “scored famously” from Facebook’s Wall Street debut have multi-million dollar mansions and $100,000 Porsches “flying off local shelves” in Silicon Valley.

America’s rich certainly do have cause to celebrate. But few people elsewhere in the world figure to be celebrating with them. For directions to a new world, they'll be better off looking toward Cairo.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Institute for Policy Studies. Read the current issue or sign up here to receive Too Much in your email inbox.