Three signs that the fiscal cliff deal is malarkey

Remember the beleaguered middle class? Our political leaders don’t seem to.

Reeling from the fiscal cliff fiasco and hurtling toward the debt ceiling debacle, Washington has forgotten all of its election-year promises to focus on the best way to create jobs and enhance economic security for the 99 percent.

One of the most amazing aspects of the whole fiscal cliff/debt ceiling fiasco is the continuing ability of the political and media class to manufacture phony economic crises while ignoring the concerns that affect the majority of Americans every day.

High unemployment and rising health and elder care costs? Gnawing uncertainty about the future? Declining wages and disappearing pensions? Income inequality?

We haven’t heard much about them since Election Day.

Meanwhile our media elite cover every micro-twitch of the Washington insiders as they pose and posture their way through the debate, while smothering in ridicule anybody who dares question the prevailing deficit hysteria.

One piece of wisdom did surface briefly masquerading as a whacko proposal – having the government create a trillion-dollar platinum coin. Though this scheme was nixed by the Treasury, it did have the virtue of pointing up an important fact usually ignored in mainstream bloviating about the deficit – the government is not a family. The U.S. government can create money and does, except recently it’s been printing money only to hand it over to big banks with no strings attached, rather than using it to pay down the deficit, create jobs or fix bridges.

And how about that dramatic last-minute deal that averted the fiscal cliff? To paraphrase Vice-President Joe Biden (when he was dismissing Paul Ryan’s dismal budget plan), the whole thing is a load of malarkey.

Except this time Biden and his boss, President Obama weren’t blasting it, they were touting it as a great achievement.

If you’re not familiar with the term, Miriam-Webster defines malarkey as “insincere or foolish talk.”

The first tipoff that the deal constitutes malarkey is the whole dispute over whether it actually reduces the deficit at all.

The Congressional Budget Office contends the deal will increase the deficit nearly $4 trillion over 10 years, while the president, using a different starting for his calculation, argues that it will raise $620 billion over that time period. If you’re confused, you should be. The difference is not trivial, and makes the whole process stink. As the New York said, “How do you agree on what needs to be done going forward if you can’t agree where you are?”

When it comes to deficits, I’m from the Dick Cheney school. The former vice-president, in a rare moment of candor, said: “Deficits don’t matter.”

Except when politicians want to beat their opponents over the heads with them. Most recently, the deficit soared not primarily because of out of control government spending, but because the economy went in the toilet, and the government came to the rescue of our fellow citizens with jobless benefits, food stamps and stimulus spending.

Of course, Cheney was also trying to help out his boss, President George W. Bush, who   wanted to give rich people a mammoth tax break and put two wars on the government’s tab, thereby running up the deficit.

What he meant was that Republicans don’t care about deficits when the money goes to support spending they like – like military contracts. What they oppose is spending money on social programs that they would just as soon dismantle.

The second sign that the recent fiscal cliff deal is malarkey is what the politicians did to the payroll tax cut, which was enacted in 2010 and put more than $1,000 a year back into the bank accounts of average Americans.

In spite of all President Obama’s promises not to increase the economic burdens already weighing down the middle class, our leaders allowed this relatively small but significant tax cut to expire. As a result, 125 million Americans who couldn’t afford to hire lobbyists saw their paychecks decrease in January. Since the payroll tax helps pay for Social Security, some applauded the demise of the payroll tax cut.

But the end of the payroll tax cut is just the latest example of our leaders solving budget problems on the backs of those who can afford it least.

In addition, the president had insisted, going in to the fiscal cliff negotiations, that he would get $50 billion in new stimulus money in the deal. But those funds never materialized.

The third red flag buried in the fiscal cliff deal is an item that neither of the parties mentioned in their press conferences announcing it. But it’s the surest way to tell that the fiscal cliff and debt ceiling, which are supposed to be about this massive crisis, are just the latest chapter in Washington business as usual: major corporations using the cover of a manufactured crisis to get their hands on more goodies.

As reported by Matt Stoller, the deal contains eight separate giveaways to individual businesses or industries, including Goldman-Sachs, Hollywood movie studios, NASCAR, coal mine operators and asparagus growers.

Of particular interest was the extension of the tax exempt financing of something called Liberty Zone in New York, funds which were supposed to be designated to help business in the city recover from 9/11. But rather than going to small businesses, big corporations like Goldman-Sachs got the breaks. Goldman-Sachs has gotten $1.6 billion in tax-empt bonds to help defray the costs of building? its new $2.1 billion headquarters.

So while the politicians have been posturing in public vowing to protect the middle-crisis and wringing their hands over the dire state of the government’s finances, they’ve been working overtime in private doling out expensive favors to their corporate donors.

The biggest threat to our future is not the deficit, not by a long shot. The far greater danger remains the largely unchecked and hidden power of corporations to control our government.

The Battle for Obama's Soul

We know which Barack Obama won reelection Tuesday night.

The question is: which one woke up and went to work Wednesday morning?

Was it the passive Obama who, after winning a stirring, historic victory in 2008, allowed the insurgent tea party to inaccurately redefine his affordable health care plan as a government takeover?

Was it the conciliatory Obama who chose not to use his considerable rhetorical skills to rally the country against intransigent Republicans and Wall Street CEOs who opposed even the most modest attempts to use government to rein in Wall Street excess?

Was it the detached Obama of the first presidential debate October 3 who bizarrely said that he and the Republican candidate Mitt Romney agreed in their approach to Social Security?

Or was it the other Obama, the one whose 2012 campaign struck early and often against Mitt Romney, branding him as an out of touch plutocrat, while defining the president as the staunch defender of the threatened middle class?
As Mark Weisbrot of the Center For Economic and Polcy Research points out, Obama and his team carefully shaped a populist message for the 2012 campaign that was much more specific than the 2008 message of hope and change, and it was tailored specifically to win blue-collar votes in the swing states that decided the election.

Will the president continue to embrace that message or abandon it now that he’s won the election?

Which is just another way of saying that the fight for President Obama’s soul continues.

The current battlefield is the drama over the $7 trillion fiscal cliff and the “grand bargain.” As portrayed in the media, if Congress and the president can’t come up with a combination of budget cuts and revenue to cut the budget, Congress has agreed to impose a set of draconian budget cuts.

At the heart of the dispute is the continuation of the Bush cuts and the payroll tax holiday, the extension of unemployment benefits, and a variety of defense and other cuts. Some congressional leaders from both parties are pushing for a “grand bargain” to avoid the cliff – and they want to include cuts to Social Security, Medicaid and Medicare.

President Obama may have wavered on protecting Social Security, but Harry Reid, the Democratic Senate majority leader and 28 other senators have not. They’ve signed a pledge to avoid cuts to Social Security as part of any deficit reduction package.

Which makes complete sense since Social Security doesn’t add a single dime to the deficit.

Have your senators signed the pledge? If they have, call them and thank them, and suggest they add Medicare and Medicaid. If they haven’t, urge them to sign. The more senators that sign the pledge, the better it will be for our president’s soul.

 

 

Behind Romney's battleship plan, an ill wind blows

If Mitt Romney’s high-finance cronies had more money invested in horses and bayonets, would  the Republican presidential candidate be insisting that our national security depended on them?

As it is, Romney is championing a vast and costly expansion in the number of the Navy’s big battleships, from which one of his top foreign policy advisers could make a healthy profit.

That would be John Lehman, CEO of J.F. Lehman & Company, an investment firm that specializes in acquiring “middle market companies in the defense, aerospace and maritime industries and the technologies that originate from them.”

He’s also a former secretary of the Navy during the Reagan administration, a member of the 9/11  Commission and a stalwart Republican who also advised John McCain’s losing presidential bid.  Lehman has been advocating for more big ships since his days in the Reagan administration – and as Wired magazine reported, he’s put himself in a good spot to profit from an increase in military shipbuilding. “He has profited hugely from the Navy’s slow growth in recent years — raising the prospect that he could make even more if Romney takes his advice on expanding the fleet."

And now he’s being mentioned as a possible secretary of defense in a Romney administration.

But Lehman’s history makes him a particularly dubious character to place anywhere near taxpayers’ money, especially as Romney insists he will preside over a huge increase in spending on defense – including Lehman’s pet project to increase the number of battleships. (Under Obama, the Navy plans to build an additional 15 warships by 2019, bringing the fleet to 300, at a cost of between $17 and $22 billion a year. Under the more ambitious Romney/Lehman plan, the fleet would grow to more than 350 ships by 2022.)

During the Reagan administration, Lehman was an acknowledged master of the Washington insider political game. But his management style at Navy was blamed for a massive corruption scandal involving military officials and big defense contractors.

Prosecutors dubbed their investigation, which began after Lehman returned to private life in 1987, “Operation Ill Wind.”  More than 50 government officials, corporate heads, consultants and military contractors were convicted.

But Knight-Ridder, citing a congressman and a former defense official, reported in 1988, “The autocratic management of former Navy secretary John F. Lehman Jr. created an environment ripe for the type of abuses uncovered by the Justice Department's probe into Pentagon contract bribery.”

Lawrence Korb, an assistant secretary for defense at the beginning of the Reagan administration, said: "The Navy, when I was in the Defense Department looking at it from the inside, and when I was outside, was a bureaucracy run amok. It was making its own procurement rules in many cases which were different from the Defense Department."

One of those who went to prison was a close associate of Lehman’s, Melvyn Paisley, who Lehman brought in as a top Navy Department official. Paisley pleaded guilty to accepting hundreds of thousands in bribes and served four years in prison and paid a $500,000 fine. Lehman was never charged with any wrongdoing, but according to media reports, he was suspected of improperly tipping off Paisley to the investigation.

Ill Wind investigators also discovered that when Lehman joined the administration, he had sold a lucrative defense consulting business from which he was earning $180,000 a year – but not before securing a guarantee from Boeing Corp., a major defense contractor, that it would use the consulting business. Knight Ridder reported that while Justice Department officials said Lehman’s actions violated no law, they constituted an ethical breach that would have required his dismissal had they been discovered while he was still Navy secretary.

The latest escapade in which Lehman surfaced was his company’s investment in the   government-backed construction of a superferry to carry passengers between several Hawaiian islands.

As detailed in Wired and the New York Times, the superferry ultimately was a failure for civilian travel, even with the encouragement of  $136 million in government loans. But it boosted the fortunes of a shipyard Lehman owns, along with the prospects that the Superferry would catch the eye of another very wealthy customer – the Defense Department.

Ryan Sibley, of the government watchdog group Sunlight Foundation told Wired that “Lehman’s involvement with the Superferry shows that he is no stranger to using personal connections to influence costly decisions.”

 

In austerity fight, deceptions have just begun

Only time will tell how much of a boost Republican challenger Mitt Romney will get from his debate win over President Obama.

The president seemed flatfooted and unprepared to respond to Romney’s shift toward the center, even though Romney’s campaign had suggested that’s exactly what they would do  - use the Etch-a-Sketch to pivot away from the extreme right toward a more moderate stance during the general election campaign.

The debate felt like a replay of the scenario that has played out so often over the past four years: aggressive Republicans concealing their real motives and putting passive Democrats on the defensive.

Romney was acting every bit the CEO in charge, telling the customers what he thought they wanted to hear to make the sale; in this case, that his deficit reduction scheme wouldn’t favor the wealthy and damage the middle-class.

The contrast between CEO Romney talking to voters (customers) and CEO Romney talking to his big contributors (his board of directors) at a private fundraiser in Boca Raton, Fla. in May couldn’t have been starker. In what he thought were private remarks that have now blown up, Romney, you recall, dismissed the 47 percent of the country that supports Obama as self-pitying moochers who need to be taken care by the government.

We know that all politicians say one thing in public and another in private.  That’s not a shock. But what’s striking is just how much contempt CEO Romney expressed for nearly half the voters when he was talking to the people who will hold real power in his administration: his board of directors.

Most CEOs wouldn’t let such feelings slip, even in private. But just as Romney told the Denver audience what he thought it wanted to hear at the debate, so too he was telling his contributors what he thought would please them.

Because make no mistake, plenty of the big money is preparing to work with whoever gets elected in November to launch a major offensive against Social Security and Medicare as well as to end tax breaks that favor the middle class, such as the mortgage interest tax break, under the guise of backing a new grand bargain to balance the budget.

For example, billionaire hedge fund executive Pete Peterson, who has also spent $458 million of his own money to push an austerity agenda, is now backing a bipartisan group known as Campaign to Fix the Debt. Ryan Grim at Huffington Post reports that the initiative has raised $30 million so far, including $5 million from a single unnamed donor.

The operation has hired 25 to 30 staffers, with plans to double, Grim reports. Along with a paid-media campaign, aims to influence press coverage in 40 states with locally focused teams.

This “bipartisan” initiative is just the latest attempt by Wall Street and its allies to pass the costs of the government deficits created by the financial crisis on to the middle class and those who can least afford it.  Though President Obama has said he won’t let these programs be cut in a way that hurts the most vulnerable, to keep that promise he’ll have to grow backbone that was missing Monday night – and through much of his first term.

 

Three Major Issues The Presidential Candidates Are Ignoring

 

 What if they held an election but didn’t discuss the most important economic issues?

That’s what’s happening here in 2012.

Yes, taxes and the deficit are significant. But there are even more crucial issues that will determine whether the country continues to slide into wider income inequality and destroys what’s left of the middle class.

And these three crucial issues have been barely mentioned during a campaign obsessed with who pays what in taxes and who doesn’t.

Dean Baker, of the Center on Economic Policy Research, neatly summed up several of the left-out issues recently.

On one of the most critical economic issues, the so-called free trade pacts such as NAFTA and the more recent Korean trade agreement, both parties agree: they favor them.

The media cooperates in keeping this issue off the table by repeating the misleading claims of proponents of the agreements while omitting or marginalizing critics.

“Free trade” is really the big lie of our economy and our politics. As the critics point out, these agreements should be accurately labeled “corporate rights agreements” since they are much more concerned with that issue than with trade. Not only do they result in lower wages in the U.S. and devastated small farming in other countries, these agreements allow corporations to challenge environmental and labor protections in special courts in which the public has no voice.

Both parties crank up the rhetoric to promote the notion that the  “free trade” is the road to economic prosperity for everybody. But as Baker points out, the reality of “free trade” is far grimmer for those that work for wages to earn a living because it puts “downward pressure on the wages of manufacturing workers by putting them in direct competition with low-wage workers in the developing world.”

The absence of any discussion of these agreements in the political debate exposes a major fraud on the part of both parties. While the Democrats tout themselves as the party of the little guy, their support for “free trade” shows how closely they hew to the corporate agenda on issues that matter most. For the Republicans, their support for “free trade” agreements which, in the real world, prop up some corporations while punishing others shows they’re less interested in picking economic winners and losers than their free market rhetoric lets on.

And there’s a huge trade deal being secretly negotiated right now, the Trans-Pacific Partnership (TPP), which I previously wrote about here, calling it a Free Trade Frankenstein. Others have called it “NAFTA on steroids.” As with other trade negotiations, the public has been kept out while the corporate lobbyists have full access.

The only TPP issue on which the president and his challenger disagree is who could whip out his pen faster and sign the TPP once the secret negotiations are concluded.

The second major economic issue left out of this election is the deeply unpopular 2008 bailout of the financial sector and corporate America, including the $700 billion Troubled Asset Relief Program and the $16 trillion in cheap or free loans the Federal Reserve provided to corporate America in the wake of the financial collapse.

All this financial assistance was provided with little public debate and without any conditions imposed on the recipients.

The Obama administration dismisses all questions about the bailout by insisting that all the TARP money has been paid back. Case closed, the administration contends.

But could a different kind of bailout, one which imposed specific conditions on banks and corporations, helped more struggling Americans than the one we got, which propped up bank and corporate executives? Why did those portions of TARP that were targeted at ordinary Americans facing foreclosure fail so badly?

And how does this bailout, which picked winners and losers, jibe with the Republicans’ free market rhetoric? What about a belated bailout for the rest of us? Plenty of fodder for tough questions for the president and his challenger, if anybody cared to ask.

The third issue is one that the two parties have disagreed on: increasing the minimum wage.

As a candidate in 2008, President Obama promised to raise the federal minimum wage from $7.25 an hour to $9.50 by 2011 but has taken no action to do so. For his part, Republican challenger Mitt Romney has said he favors tying the minimum wage to inflation, until the right wing of his party objected.

According to a recent paper by the Economic Policy Institute, phasing in the $9.80 minimum wage would raise the wages for 28 million workers, who would earn an additional $40 billion during the phase-in, while gross domestic product would increase by $25 billion and 100,000 new jobs would be created.

We need a robust debate on these issues in the remaining weeks of the presidential campaign that challenges the president and Mr. Romney on where they stand and what actions they’ll take, not just a stale rehash of the same old arguments on taxes. But we won’t get that debate unless we demand it.

 

Reality-based tax breaks

By now you’ve heard the bitter, widespread debate over whether giving the wealthiest Americans fat tax breaks will ever create jobs.

But everybody agrees on one thing – we shouldn’t just give rich people tax breaks so they can have even more money to do whatever they like with.

Don’t we?

That’s why I was intrigued by this proposal that would tie tax breaks to the actual creation of jobs.

The proposal was floated by Benjamin Barber, a Democratic theorist writing on Huffington Post.

Barber suggests a system of vouchers to make sure they’re creating jobs with their tax breaks.

“Conservatives should certainly welcome the principle of vouchers, which they have been proffering for a long time to the poor for education, groceries and housing – and now, courtesy of Mr. [Paul] Ryan, for Medicare too,” Barber writes, referring to the Republican vice-presidential candidate’s proposal to have the government give future Medicare recipients cash to buy insurance instead of health care. “The premise has been that a voucher prevents "irresponsible behavior" by those being helped, like buying drugs instead of groceries or a golf caddy instead of private schooling for the kids. It's a way to prevent the poor from getting all that "free stuff" Mitt Romney thinks they are always conniving to acquire.

Basically, it’s so simple I’d be surprised if someone hasn’t suggested it before: If you create real jobs, you get a tax break. No job creation, no tax breaks.

While Barber appears to suggest granting the tax cuts first and taking them away if the tax break doesn’t lead to jobs, I’d flip it: base the tax cut on hard proof that the jobs have been created.

Proponents of this latest version of the trickle-down theory should have no problem with the wealthy actually having to prove they’re creating real jobs to earn their tax breaks.

Because nobody wants to give away money for nothing, right?

I think the proposal could be refined to link the quality and number of jobs to the size of the tax cut.

For example, buy a yacht: no tax cut. Enjoy your yacht.

But prove you created a significant number of high-wage jobs with health care benefits and pensions, get a bigger tax cut.

Extending the logic of Barber’s idea, if you outsource jobs, shouldn’t your taxes increase?

Barber has hit on an issue that extends beyond just tax cuts – government officials have been extending all kinds of subsidies to business owners for creating jobs without ever requiring proof that the business owners actually create the jobs, or requiring that the subsidies be returned if the jobs are destroyed.

The very notion that we’ve allowed these huge tax cuts for the wealthy without demanding proof that they lead to real, not just theoretical, job creation, suggests how far we’ve moved away from the sensible fact and data-based world into a realm based on wish fulfillment for the wealthy who dominate our politics. The notion that proponents of the tax cuts want to pay for their extension by eliminating tax breaks that help the middle class, like the home mortgage tax break, also suggest how far our political debate has gone astray. Barber’s proposal suggests a way to get it back from fantasyland.

 

 

 

 

 

Paul Ryan's battle for billionaires

Thanks to the Republican vice-presidential candidate, Paul Ryan, we’re going to be saved from a negative campaign. Now we’ll be elevated by a campaign about Big Ideas.

At least that’s the latest tripe being peddled by the Big Media, which has spent a lot of time drooling over the insane Ryan budget plan House Republicans passed before it died, only to be joyfully revived by Democrats who sought to pin in to the chests of their Republican opponents in Congressional races, then revived again by a befuddled Mitt Romney, who seems to want to cling to it (for his base) and distance himself from it (for everybody else).

According to the media, Ryan is a cheerful wonk who is the only one brave and bold enough to propose a plan to reduce the federal deficit. Never mind that the numbers don’t add up, or that his budget scheme involves a massive future reductions not only of Medicare but all government services except defense spending.

Ryan has become a top expert at capitalizing on legitimate skepticism about government and economic anxiety in the wake of the 2008 bailout and grafting those feelings on to the austerity agenda of the 1 percent – crushing all government regulation, reducing popular government services like parks and health care for the elderly, and privatizing Social Security while placing the burden of the nation’s fiscal problems on those least able to afford it and keeping tax rates low for the wealthiest Americans.

For our media elite, these are what pass for serious ideas. There’s little scrutiny beyond reporting Ryan’s rhetoric, in which he insists he’s out to save Medicare and merely facing a fiscal reality that others are afraid to confront.

You don’t have to dig very deep to find Ryan’s real motives, and who the winners will be if he wins his fight.

As usual in contemporary politics, the reality can be found in the money that has fueled Ryan’s rise. Among his top campaign contributors: Bank of America, Goldman Sachs, UBS bank and Wells-Fargo, along with corporate powerhouses like AT&T, Blue Cross-Blue Shield and Northwestern Mutual. He’s been closely associated with the billionaire Koch Brothers Americans For Prosperity.

Once you look into Ryan’s actual record, he looks a lot more like your garden-variety congressional hypocrite: preaching the free-market gospel while he votes for the 2008 no-questions-asked bank bailout, trashing the Obama administration stimulus package while making sure that his congressional district got its share of the spoils.

If the media were doing its job, Ryan would be dismissed for the craven con artist that he is, not lionized. Mitt Romney claims that he chose Ryan to balance out his own inexperience in Washington. But Ryan’s efforts to push through his budget scheme have failed miserably – except at making him a media darling.

If the media were doing its job, the headlines would be describing Ryan’s real, and embarrassingly modest, legislative record since he was elected to Congress in 1998. His first successful piece of legislation renamed his local post office in Janesville, Wisconsin for longtime Wisconsin Democratic congressman and former defense secretary Les Aspin in 2000. His other legislative achievement has been a bill to amend the IRS code to modify the taxation of arrow components. (Ryan uses bows and arrows for sport.)

Along with other fellow Republicans, he signed on to the Bush tax cuts, a partial-birth abortion ban and several efforts to increase sanctions against Iran.

Aside from that, he’s co-sponsored eight pieces of legislation issuing commemorative coins and five resolutions honoring Ronald Reagan.

There must have been some tough choices involved. Just who exactly should get a commemorative coin in their honor? Not just anybody, and you’re bound to make somebody mad. But it’s not exactly a profile of courage. How much courage does it take to do the bidding of the CEOs who keep you in office, against the retirees and the poor who can’t afford fat contributions and lobbyists?

 

 

 

 

 

Left, right and left out

On so many issues related to the state of our economic recovery, current notions of liberal and conservative don’t seem to apply.

For example, should we allow a real free market to work in our financial system?

Should we crack down hard on those Wall Street bankers who broke the law?

Should companies that want to foreclose on property have to follow the law?

If you’re in favor of real financial free market, tough law enforcement and following the law, are you conservative or liberal, left or right?

What you are is in the majority, and the most important political designation in the U.S. in 2012 – left out.

Your views are reflected only rarely in the political debate at all and never in the presidential debate. Sure, President Obama has repeatedly promised to get tough on Wall Street, most recently in the state of the union in January, but based on the results, those promises have little credibility. President Obama preaches for an activist role for government with the occasional populist flourish, but that impulse wilts if Republicans or campaign funders show the least resistance.

His opponent, Mitt Romney, considers any crackdown on Wall Street an affront to the beloved job creators to whom we should all be bowing down – even if they don’t actually use their wealth to create any decent jobs.

What we get instead of a real debate on how to get an economy that works for ordinary folks is a faux argument over the role of venture capitalist tycoons, between the candidate who used to be one and our president, who has relied on them a key source of campaign funding as much as Romney has.

What we get is the fiscal cliff drama about whether or not to shut down the government.

What we get is each side offering scary versions of what the other will do.

What we get are Mitt Romney’s assurances that if we just get the regulators out of the way, the wealthy job creators will get to work, regardless of whether anybody can afford to buy their products.

What we get is the president’s half-measures and handwringing. But it’s all political theater that doesn’t replace real jobs, real plans to revive housing and keep people in their homes and real accountability for bankers. It doesn’t replace a real debate about the role of big money in overshadowing those issues in our elections. Right now, both sides have left those out of their campaigns.

Politics is a team activity and our natural tendency is to root for our guy, downplay his flaws, and point out how much worse the other guy would be. But this election should not just be rooting for our team and beating the other guy. It should not be about rooting for our guy we’re so hyped up about how scary the other guy is.

It should be about who is willing to confront the big money, not bend to it.

It should be about who can really get people back to work, keep us in our homes, guide an economic recovery that’s not just for the wealthiest.

We should demand that we’re more than just a rooting section for our team, that our bread and butter concerns are not left out.

 

 

 

Tell Mitt: Don't run campaign on drug money

Imagine if U.S. politicians took financial contributions skimmed from the ill-gotten gains of bloody Mexican drug cartels and terrorists.

Imagine further that those who profited off the drug gangs used their murder-tinged cash to lobby the U.S. Congress.

You don’t have to strain yourself, this is not some sordid fantasy concocted by Hollywood to horrify and entertain you. This is the reality created by Wall Street’s finest and our leading politicians.

The latest sorry chapter in Wall Street’s waltz with the drug-dealers is laid out in a report by the Senate Permanent Committee on Investigations. Officials of the British too big to fail bank HSBC acknowledged that despite repeated warnings, they failed to stop drug and terror-tainted deposits from moving through the bank.

According to the report, HSBC, one of the world’s largest banks with a strong U.S. presence, “exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering controls.”

In 2007 and 2008, the Senate committee found, HSBC moved $7 billion in bulk cash from Mexican to its U.S. operations, even though authorities warned that the money was proceeds from drug sales.

HSBC was doing a thriving business with well-known cash exchange businesses used by the drug cartels known as casas de cambio, despite repeat warnings that they were fronts. Years after other banks had cut them off, HSBC continued to do business with the casas de cambio.

Mexican drug cartels weren’t the only ones taking advantage of HSBC’s lax controls. Middle East bankers with links to Al Queda also found HSBC a hospitable environment in which to conduct business.

You might think that the authorities would have roast HSBC officials on a spit.

Far from it: in 2008, regulators rewarded HSBC with $3.5 billion from taxpayers in a backdoor bailout, in payments funneled to the bank’s U.S. subsidiary through AIG.

Now HSBC’s bankers have been humiliated at a public hearing and the company’s shareholders may be forced to pay as much as $1 billion in fines.

Still, from the bankers’ perspectives, you would have to say money laundering and bailouts have been very, very good to them. Even after they pay the fine, they’d have more than enough to pay for the $125,000 they’ve given to congressional candidates so far this election cycle, and the $5,700 they’ve doled out to Mitt Romney. The left-over laundered money will also help defray the costs of the $900,000 worth of lobbying the bank has done this year.

I’m confident now that the full extent of HSBC’s misdeeds has become known, Romney and the other politicians will want to have nothing to do with this dirty money and will be clamoring to give it to charity.

But just in case it slips their minds in the rush of doing the people’s business, we should help them out. Mitt can provide a good example by being the first to get rid of the drug and terror money.

 

 

 

London calling – is anyone listening?

Here we go again.

The scandal over bank manipulation of a key interest rate is just the latest strong signal that bankers rigged the system to benefit themselves and screw everybody else.

Not that we need another signal.

The scandal stems from something called LIBOR – the London Interbank Offered Rate. It’s an integral part of the global banking system. LIBOR is supposed to reflect the interest rate at which banks loan money to each other. It’s also a benchmark rate for other transactions, everything from home mortgages and credit cards to complex derivatives.

That means that the cost of the mortgage loan is pegged to whatever LIBOR is. On a home mortgage loan, for example, the interest rate might be a few points above LIBOR. The Financial Times estimates that about $350 trillion worth of contracts are tied to LIBOR.

It turns out that British-based Barclays Bank was manipulating the rates to increase their own profits, and to disguise how the bank was performing­ – possibly with the collusion of their regulators. The conservative Economist calls it “the rotten heart of finance,” and cautions that it is about to go worldwide.

The scandal hit home in England first, causing Barclays’ Bank president to resign and pay a record fine, and regulators on both sides of the Atlantic promising to get to the bottom of it.

But there are strong suspicions that Barclays wasn’t alone, that other too big to fail banks might have also engaged in the same shenanigans. The Wall Street Journal reports that at least 16 banks are under investigation, in three criminal and 10 civil probes.

It’s bad enough that Barclay traders have been caught discussing the manipulation in emails, referring to the rate manipulation as “the fixings” and requesting a particular rate as casually as if they were ordering a double latte.

What’s worse, the Financial Times started raising questions about the LIBOR-rigging five years ago and the Wall Street Journal cast doubt on the banks’ LIBOR practices in May 2008. 2008. So any regulator or prosecutor with an iota of curiosity could have been digging into LIBOR since then.

As we already know, curiosity about bankers’ malfeasance has been a rare commodity among the officials who are supposed to be scrutinizing their bank behavior. Remember President Obama’s repeated promises to get tough on bankers, most recently in his State of the Union speech in January?

Don’t expect Mitt Romney to make an issue of it – at least 15 of Barclay’s most senior U.S.-based bankers have donated the maximum $2,500 contribution to his presidential campaign. The CEO who resigned, Bob Diamond, had been among the co-hosts for a London fundraiser when Romney goes to London for the Olympics. (Barclays’ political action committee has also contributed significant amounts of cash to Democrats, though not the president, over the years.)

The LIBOR scandal rips the curtains away from one of the nastiest Big Lies on both sides of the 2012 presidential campaign: the president’s line that his Dodd-Frank reform has fixed the financial system, and Romney’s pitch that regulation is the problem and that we should leave bankers alone to run their business as they see fit.