Charles Blow has another outstanding op-ed column in Saturday's NY Times, entitled: "The Pirates of Capitol Hill." I'll get to it in a moment, but I wanted to review his commentary under the light of some of the most current economic news I've read about all things financial over the past 48 hours; and, I'll attempt to provide some contextual history which dovetails with this new information, since it brings us full circle, back to a few of my most recents posts, as well.
Let's start with the most recent economic story, first...
Over the past couple of hours, courtesy of Zero Hedge, we've just learned that Goldman Sachs' economic pundit-in-chief Jan Hatzius has issued a rather major downgrade in his forecast for "real GDP" for 2011--which is coming on the heels of multiple downgrades regarding same over the past couple of weeks--from an original 3.5% to 1.75%, "annualized," tonight. Hatzius points to ongoing increases in consumer spending and a related drop in the retail price of oil as being the two most likely factors that could turn this latest doward projection around. But, a forecast of 1.75% "real GDP" and/or a projected 2.25% annual G.D.P. for 2011 are both quite abysmal, in terms of how that translates into job growth for the year: little or nothing. Putting it succinctly it's: treading water.
...Going forward, our forecasted reacceleration in spending growth still looks possible, but will require a fortuitous combination of circumstances—a modest further pickup in the labor market, gasoline price relief, and a benign asset price environment that encourages consumers to gradually reduce saving.
With most of the news on first-quarter growth now in, the GDP “bean count” looks even softer than it did a couple of weeks ago. The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories. Consequently, we are downgrading our real GDP growth forecast to 1¾% (annualized), from 2½% previously (and from 3½% not too long ago).
Other indicators still point to solid activity in Q1, but markets have become increasingly concerned about growth in the remainder of the year as well. Growth-sensitive equities have suffered in recent days, and some forecasters have taken down their expectations for growth later in the year. A key reason for concern is the sharp rise in gasoline prices so far in 2011, which has the American public—and policymakers—on edge. Retail pump prices are approaching their peak levels in the summer of 2008 (Exhibit 1). The extra cost of about 70 cents per gallon, relative to prices at the end of 2010, is siphoning off household income at a run rate equivalent to $100 billion per year—income that otherwise could have been spent on other goods and services.
Despite these higher fuel costs, consumer spending looks to have grown at a 2½% pace in real terms in Q1, and—given strength towards the end of the quarter—is headed for a stronger pace in Q2. Solid growth in consumer spending will be essential if the US economy is to post above-trend growth for the remainder of 2011, as we continue to expect. But will households have enough “fuel” from income growth to sustain such an expansion, especially with fiscal and monetary stimulus reaching their peak?
Adding insult to injury, we were informed on Friday that weekly unemployment claims are now back up over 400,000; and, the U.S. Producer Price Index (PPI) is moving up higher than the consensus forecast, at least at the moment.
...Elsewhere, PPI printed at 0.7% on expectations of 1.0%, down from 1.6% previously. PPI ex food and energy came at 0.3%, up from 0.2% previously, which also was the expectation for the March number. As El-Erian [diarist's note: this is a reference to Mohamed El-Erian, the CEO of the largest bond fund in the world, PIMCO] says on CNBC: "People may be surprised by the rate at which the core goes up." As for headline prices dropping, looks like once again nobody at the BLS actually bought food or filled up their car in the past month: the 0.7% headline number was the lowest since November 2010.
I'll leave commentary on the ongoing, downward trajectory of our housing market and the current realities of U.S. income inequality, poverty and other inconvenient facts concerning similar economic truths for Charles Blow to fill in the blanks. (And, I'll return to much of the above info, afterwards.)
The Pirates of Capitol Hill
By CHARLES M. BLOW
New York Times
April 16, 2011
Corporations are roaring. Wall Street is rolling in cash. C.E.O. bonuses are going gangbusters. It’s a really good time to be rich!
If you’re poor, not so much. The pall of the recession is suffocating. The unemployment rate is still unbearably high.
The Census Bureau reported in September that the poverty rate for 2009 was 14.3 percent, higher than it has been since 1994, and the number of uninsured reached a record high. And the Department of Agriculture has reported record “prevalence of food insecurity.”
So in a civil society, which of these groups should be expected to sacrifice a bit for the benefit of the other and the overall health and prosperity of the nation at a time of great uncertainty? The poor, of course. At least that seems to be the Republican answer.
Under the guise of deficit reduction, the Republicans are proposing to not only make the Bush tax cuts for the wealthy permanent, but to reduce their taxes even more — cutting the top individual rate from 35 percent to 25 percent to “promote growth and job creation.” And they plan to pay for this by taking a buzz saw to programs that benefit the poor, elderly and otherwise vulnerable...
...
...This is open piracy for plutocrats. This is about reshaping the government and economy to benefit the wealthy and powerful at the expense of the poor and powerless...
Bold type is diarist's emphasis.
Blow continues on to reference a report from the Economic Policy Institute which was released on Thursday that tells us that the average tax rate for the top one percent of U.S. household actually dropped by approximately 20% from 1979 to 2007. Meanwhile, the average tax rate for all Americans decreased by a little over eight percent during the same time period. An even more glaring statistic here tells us that the tax rate on the top 400 households in the U.S. (where average annual income is just shy of a whopping $350 million) dropped by more than a third during the 15-year period between 1992 and 2007. And, it's now to the point where "...the tax rate for these supermillionaires is now less than the tax rate for average Americans."
The EPI report also demonstrates that, during this same 15-year period, the average household's income grew by 13% while the income of the top one percent of households in the U.S. increased 123%. More absurdly, the income for the top 400 households grew 399%.
Blow then references NYT economics editor Catherine Rampell, who noted last month in the paper's Economix blog that the top one percent of our country earns a fifth of the country's income and a third of all U.S. wealth.
His closing comment in today's Times...
More tax cuts would be gluttony in a time of starvation. That is not America. That is a nation about to be plundered, and a people laid to waste.
(If I have any quibble with Blow, it's that I'd remove the words, "about to be," from the last sentence.)
Now, as many of you may already know, it was Mr. El-Erian who first used the words, "The New Normal," a couple of years ago. But, if you click this link in the previous sentence, you'll read all about that and our "Two-Track Economy," as Simon Johnson referred to it in the Summer of 2009.
Over the past day, we are now hearing, courtesy of Bloomberg via Zero Hedge, about our two-track, or "dual, justice system," from none other than Phil Angelides, the chairman of the now-defunct Financial Crisis Inquiry Commission (FCIC).
Lisa Murphy of Bloomberg interviewed the chairman of the now defunct FCIC, Phil Angelides to discuss the findings presented yesterday by Carl Levin. The topic was the "greased pig" that is Wall Street. The conclusion is that America now has a dual justice system: "One for ordinary people and then one for people with money and enormous wealth and power." As for crime deterrents, considering that to this day not one person has gone to prison, even an idiot can foresee what Angelides has to say on this issue: "To the extent laws were broken, we need deterrents. If someone robs a 7-11, they took $500 and they were able to settle the next day for $50 and no admission of wrongdoing, they'd knock over that 7-11 again. And we've seen time after time where people and firms have made tens, one hundreds, billions of dollars. They've settled charges for pennies on the dollar. At Citigroup for example they represented that they had $13 billion of subprime mortgage exposure when they really had $55 billion. The penalty to the chief financial officer who made $19 million that year, 2007, was $100,000. Goldman was fined $500 million but the date they settled their stock moved up $2 billion. There's been no real consequence..."
...
...at some point, sooner or later, the American peasantry will snap...
...
Highlights from the Angelides interview:
...And we've seen time after time where people and firms have made tens, one hundreds, billions of dollars. They've settled charges for pennies on the dollar. At Citigroup for example they represented that they had $13 billion of subprime mortgage exposure when they really had $55 billion. The penalty to the chief financial officer who made $19 million that year, 2007, was $100,000. Goldman was fined $500 million but the date they settled their stock moved up $2 billion. There's been no real consequence.
Well I think there's two things here. Number one is it's up to the prosecutors to do thorough investigations. That's what we should expect. We don't want hangmen justice. We don't want vengeance, but we want thorough investigations. And if people crossed a line they ought to be prosecuted. But there were a lot of people who bellied up to the line and conducted themselves in a way without the highest standards of ethics or moral conduct that hurt the economy badly...
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...But what we're seeing is from the House of Representatives, the new Republican-controlled House of Representatives, efforts to cut the budget of the Securities and Exchange Commission, cut the budget of the Commodities Future Trading Commission, a real push back on reform in the wake of this devastation. And I think that is very dangerous.
Bold type is diarist's emphasis.
AI noted in my diary on Thursday, as much as we might wish to applaud our President's speech on the budget from the other day--and as much as we might cheer on Senator Carl Levin, as he forwards evidence of fraud and perjury, concerning senior executives at firms such as Goldman-Sachs, over to the DoJ and the SEC--we cannot lose sight of the fact that, in Washington D.C., we're constantly dealing with a historically stacked deck in favor of the status quo.
As this post, below, from Reuters' blog on Friday reminds us, the effectiveness of any efforts put forth by organizations such as the Securities Exchange Commission (SEC) and the Consumer Finance Protection Bureau (CFPB) may be undermined in a New York minute in a cloakroom on Capitol Hill, simply by underfunding those organizations in the name of expediency to conclude a budget deal. Or, any deal.
Consumer cops: Why we need Mary Schapiro and Elizabeth Warren now
Reuters Blog
Apr 15, 2011 10:29 EDT
Two women are fending off a vicious man-handling of investor protection.
As Congress pettily wrangles over the debt limit and the next budget, Mary Schapiro and Elizabeth Warren are fighting to protect you against the ravages of Wall Street.
Wall Street and its Republican allies would like to make the Dodd-Frank financial reforms disappear. The money trust has been pouring millions into lobbying to eviscerate the budget of the Securities and Exchange Commission and blocking the formation of the Consumer Financial Protection Bureau.
Mary Schapiro, who chairs the SEC, said she can’t kick start the myriad pro-investor rules of Dodd-Frank without adequate funding. Republicans, lead by Budget Committee Chairman Paul Ryan, want to “starve the beast” in their fiscal year 2012 proposal.
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“We’re not going down without a fight,” says Warren, who is also a proponent of making the free market work for consumers in promoting accountability and competition.
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Warren and Schapiro are right. You don’t police banks and brokers by stifling oversight...
And, as promised, this brings us full circle tonight, to a very inconvenient reality, as you'll realize below, which may be summed up in two words: "What oversight?"
You see, all of this kabuki in Washington and all of this pain on Main Street--whether we're talking about Senator Levin referring criminal fraud and perjury charges against senior Goldman Sachs' executives over to the DoJ and the SEC for market manipulation and outright theft, or the recent speculator-driven spike in the price of oil--it's all happening right now because the very concept of regulatory oversight of the status quo is little more than a sham.
As I noted in my diary on July 29th, 2009, in the run-up to the market meltdown in 2008, even the CFTC acknowledged, thanks to Matt Taibbi's reporting at the time, that Wall Street speculators caused the great oil price spike of 2008.
So, here we are, almost three years later, and what do we have? On Wednesday, according to Barry Ritholtz over at the Big Picture blog and David Wilson at Bloomberg, it's freakin' Groundhog Day! Oil prices are being driven through the roof by...drumroll please...speculators!
Is anything being done about this? Well, some folks are making some noise, but don't hold your breath! Even though the top pundits at Goldman Sachs are now telling us that ongoing, rising oil prices might undermine what little recovery there is currently going on around Main Street, we are talking about Wall Street and big oil's clout, combined, on that one!
And, speaking of Goldman Sachs, as far as all of that criminal evidence is concerned relating to market manipulation, criminal fraud and perjury that Senator Levin's committee just referred to the SEC (if they're even going to get enough funding to pursue the matter properly) and the DoJ...do you honestly think that the real masterminds behind the greatest financial pillaging of a society in human history will even be singled out and formally acknowledged, let alone prosecuted?
Here's a clue: The real real answer is NOT just about a couple of collateralized debt obligations named Abacus and Magnetar. It's a story about lying to congress and investigators about one's debt exposure in the AIG deal. It's about manipulating the commodities sector and the credit default swaps marketplace. And, it's about having a formally-authorized get-out-of-jail-free card--at least if you're the U.S. Treasury Secretary--too.
As Phil Angelides said, just yesterday: "The conclusion is that America now has a dual justice system: 'One for ordinary people and then one for people with money and enormous wealth and power.'"
Yes, if you're going to support the ongoing pillaging of Main Street, then you simply must stand behind the ongoing development of a "Two-Track Economy;" and, you simply must have a "Two-Track Justice System" to "regulate" it all, too.
Get with the program, people!
For more answers to my last question, checkout the following links HERE, HERE and HERE.