Ever since the current economic crisis began, it has seemed that five words sum up the central principle of United States financial policy: go easy on the bankers.
Those are the opening words of Go Easy on the Bankers, the powerful column in today'sNew York Times by Paul Krugman.
He pulls no punches.
He says things a lot of people have perhaps been thinking.
He applies it to the closing months of the Bush administration
when a huge lifeline for the banks was made available with few strings attached.
He applies it to the beginning of this administration
when President Obama reneged on his campaign pledge to “change our bankruptcy laws to make it easier for families to stay in their homes.”
And he reiterates with respect to the plan by state Attorneys General
to accept a very modest settlement from banks that engaged in abusive mortgage practices.
He does all that in his second paragraph.
But there is far more in this must read.
In case you are asking "why?", he not only mentions Wall Street as a source of campaign funding, but deconstructs the arguments offered by defenders of such actions that they benefited the economy as a whole, noting
The failure to seek real mortgage relief early in the Obama administration is one reason we still have 9 percent unemployment.
He then explores the scandals abuses within the mortgage industry, focusing on the robo-signing, and reminds us that 9 months after that scandal broke we still do not know its extent, because there has not been a serious investigation
because states, suffering from severe budget troubles, lack the resources for a full investigation — and federal officials, who do have the resources, have chosen not to use them.
Yet again we are seeing justification for not taking appropriate action against the banksters with the proposed settlement of only $30 billion - which I note might not even equal a penny on the dollar of the amount of the improperly processed mortgages or a dime of the potential profits to the banks - and
and assurances that the firms will adhere to better practices.
Let's stop here for a moment, before Krugman takes apart the arguments justifying this sweet deal.
Let's just focus on the the last block quote
assurances that the firms will adhere to better practices.
Does the IRS ever offer such a deal to an individual taxpayer? Do we, for taxes or other offenses, ever get to pay a nominal fine and promise that we will no longer break the law and get to go free? Maybe if we are among the wealthy and the powerful - Scooter Libby having his sentence commuted to time already served, for example. But not for the ordinary person.
Imagine that a young person of color has been shoplifting groceries to feed himself or pay for his drug habit. Will s/he get a deal anywhere near as generous? If not, do we really have a nation of laws, of equal justice before the law? Or is it that laws do not apply to the rich and powerful, as our Supreme Court seems to imply by empowering corporations as more influential than human persons when it comes to political speech?
Krugman offers pretty thorough argument about why the two justifications for this latest outrage - letting banks off the hook helps the housing market and and threatening the banks threaten the overall economy - are not true. I will let you read the extended part of his column that addresses this, merely noting his observation that the banks have already recovered and then some
in large part because everyone now knows that banks will be bailed out if they get in trouble.
Krugman believes the big drag on the economy is household debt, largely fueled by more than $5 trillion in mortgage debt accumulated during the housing bubble.
Here i want to interject a bit more. I am not a Nobel winning economist, and I greatly respect Krugman, who would have made far more sense in a major economic role such as Chair of the Council of Economic Advisors or Secretary of the Treasury or chief White House adviser than the likes of Geithner or Summers - but then, Linda Darling-Hammond would have been a far more sensible choice for Secretary of Education than Arne Duncan. The people Obama chose, both for economics and education, are an indication both of his personal predilections in those domains and his desire to please Wall Street apparently to have access to political contributions, or at least to minimize the tilt of such money towards Republicans.
I think there is more than just the mortgage crisis. Our economy has been greatly fueled in the past by consumer spending. Some of that was driven by borrowing against the equity in homes, and that certainly was part of the bubble. Also, people who bought more than they could afford on variable rate mortgages were in trouble when their interest rates went up.
But an equal impact is the loss of employment. Companies are still not increasing hiring, often sitting on huge amounts of money, if they are among the lucky. Other companies could not get money from banks even after the Federal government infused huge amounts of cash to keep liquidity in the economy. Perhaps the laws providing the funds were not drafted with enough rigor to require the banks to use that money, instead of, say, continuing to pay bonuses. Which is why the words in bold above - assurances that the firms will adhere to better practices. - are so relevant: the banks have already demonstrated that they will focus most on their own profits and bonuses rather than in doing what is best for the economy and the hundreds of millions of the rest of us.
Obviously, Krugman cannot cover every related issue in one column. What I have just written is NOT a criticism of this column.
Far from it. I think this column should be required reading for every Representative and Senator, as well as everyone in the administration.
Hell, perhaps if we required honest teaching of economics in our schools, the citizens would have screamed loudly before the sweetheart deals were given bankers and Wall Street in the past, and the current administration might be on point against a repeat of the mistakes of recent years.
Fat chance.
Krugman notes that serious mortgage relief would do far more to help the economy that then $30 billion in fines that would be collected in the proposed deal.
I remember a Congressman I know, a Blue Dog, who was trying to get traction for a proposal to recapitalize every mortgage for a primary residence at 4% fixed. The cost to the Treasury and taxpayers would have been far less that the bailouts we did give, far more people would have avoided foreclosure. Foreclosure has driven down the revenue of local governments - largely dependent upon property tax. The lack of cash has driven down the revenue of state governments, often dependent upon sales taxes. The Federal government, many states, and even a few cities have seen their revenue drop as personal income has dropped, particularly when we have lowered taxes on the few people whose income has increased, those at the top. Much of this could have been avoided if people's financial resources were not being sucked up by the problems coming from different aspects of the mortgage mess.
Krugman wants us to fix this. And in a time when we might be seeing Murdoch and company facing legal charges for their wrong doing, it is interesting to read Krugman's final paragraph:
So when officials tell you that we must rush to settle with the banks for the sake of the economy, don’t believe them. We should do this right, and hold bankers accountable for their actions.
hold bankders accountable for their actions - some of those actions were criminal. Are those responsible going to face any personal criminal liability? Should not some of them be barred from working in the financial sector? Or, like what happened at first in the phone hacking, are they going to be allowed to blame the wrong doing on lower level functionaries while those truly responsible walk away, bonuses and other financial benefits flowing from their previous wrongdoing staying in their control?
go easy on the bankers - Remember, both of the Chiefs of Staff for President Obama had worked in the financial sector.
I think it is past time to go hard on the bankers, to no longer accept their word or trust them, to put the fear of god in them so that they never again put the economy of the US - and of the world - at risk.
It is not just that the banks are too big to fail. We are operating as if they are too powerful to hold to account. And if that is true, please tell me how we are not already in fascism?