Too Big To Jail: Thousands Protest Around Nation Against “Settlement” Proposed by Obama and AG’s


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Protesters Demonstrating in Front of Foreclosure Fraud Settlement Meeting in Chicago

By: David Dayen,

Protesters have gathered outside a meeting taking place in Chicago today between officials with the Obama Administration and some state Attorneys General or members of their staff, aimed at reaching agreement on a low-ball settlement with leading banks over foreclosure fraud.  The proposed settlement would give homeowners a pittance in exchange for a broad release of liability from prosecution for the banks.

About eighty members of various community and faith groups in Illinois, including national groups like, National People’s Action and The New Bottom Line, have gathered outside the Chicago O’Hare Hilton Hotel. They are holding a press conference there and protesting the proposed settlement. Later in the day, the protesters plan to visit the local offices of Illinois AG Lisa Madigan, who is on the executive committee which negotiated the settlement, and the Obama for America 2012 campaign headquarters.

The protesters object to the low dollar value of the settlement, estimated at $20-$25 billion, when there is currently $700 billion worth of negative equity – money owed on mortgages less than the value of the home – in America. They also object to the fact that there has been no meaningful investigation into the depths of foreclosure fraud by the Department of Justice or any federal regulator. Further, they oppose a broad release of civil and/or criminal liability for the banks for their conduct at all levels of the housing market. [EDITOR’S NOTE: SOMEHOW THE $700 BILLION FIGURE HAS BEEN ACCEPTED. I did the math. The figure is ten times that at $7 trillion].

The proposed deal will get circulated to the banks today. Many of the holdout AG offices did not send a representative to the Chicago meeting. But they have the information on the settlement, and for a variety of reasons the events of the next 24 hours are seen as consequential. There are even rumors, according to Rep. Brad Miller (D-NC), of an announcement on the settlement appearing in tomorrow’s State of the Union Address. “They have not said anything to us on the State of the Union, but there’s a sense that they may do something,” added Sen. Sherrod Brown (D-OH), an opponent of the settlement on a conference call today.

Miller ticked off a number of unknowns surrounding the settlement. “What investigation has there actually been? What claims are being released?” Miller Asked. “Where did this $20 billion number come from for damages? What mortgages does this apply to? Does it apply to securitized mortgages that the banks don’t really own? Will they be able to pass on the losses for their own misconduct? Which homeowners get relief? If it’s just a dollar figure that the banks have to hit, will they pick the most expensive houses for relief and increase resentment against those who get the breaks in America?”

Brown, Miller and the coalition arguing for a “fair settlement” want a thorough investigation, with the inclusion of the Consumer Financial Protection Bureau (at this point not a part of this settlement). “It’s hard to know what a meaningful settlement would look like when we don’t have full disclosure,” Brown said. “Instead of a thorough investigation and criminal prosecutions, we’re talking about not much more than a slap on the wrist. The banks are not just too big to fail, they’re too big to jail.”

Justin Ruben of, a key coalition partner, cited new polling showing that found that 70% of Americans believe the banks have not been investigated enough on their foreclosure practices, and that 60% of those polls would be less likely to support the President for re-election if he gave the banks a sweetheart deal. By contrast, the President would gain support if he announced a real investigation into Wall Street’s practices. MoveOn has forwarded a petition asking for an investigation, and has acquired over 360,000 signatures.



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Show up today at noon at Cesar Chavez Plaza, 201 W. Washington St., for what could be the first day of a prolonged assembly, following the path of ongoing Occupy demonstrations in New York and other cities.

“The only thing that the protesters agree with Wall Street is on the word “enough.” They have had enough of this double-talk and they want their fair share of the pie that Wall Street created with the peoples’ savings, their pension plans, their homes and everything else of value that is now a basis for charging interest and making a profit in exchanging paper. A real GDP comprised not of “financial services” (trading paper back and forth between the same parties) but rather in performing real work, which is what the 99% do every day, is the only path to recovery. The people know it and they are going to demand it. Whether they get it or not, depends upon whether you show up at the events near you.” Neil Garfield

Protests Against Banks Rise in Number and Intensity in Major Cities Around the Globe

EDITOR’S REPORT: From Rome, Berlin, London, Frankfurt to Sydney, Australia and dozens of other countries in Asia, Europe, and across North America protesters are taking to the streets – a feat of improbable dimensions considering the ease of sitting back and using email, twitter and other social media. The message is the same — we want our lives back, now. The past bailouts of the banks started a fire of angst amongst people of all ages, employment, wealth and political stripes. The current focus on saving the banks instead of the people has thrown fuel on a fire that was raging in the hearts of all people whose lives have been dismantled by the workings of the Banks.

The Banks are fighting back but their guns are empty when it comes to the moral and practical choices in front of us. People are angry and fearful and they are right. As pointed out by Joe Nocera in his opinion piece this morning in the New York Times, the parallels with the 1930’s are too close for comfort. And the idea that government or Bankers can convince us to have “confidence” is proof that confidence has left the room. We have lost confidence in our economic system, and in our political system which is hostage to the financial giants that control far too much in ways that raise barriers to competition for people to assemble, bargain or negotiate collectively from strength or even demand fairness.

The only thing left is for people to take to the streets, something that has been predicted here for years along with many other writers on blogs, newspapers and magazines. As the movement grows, the weak responses from Wall Street and those who seem bent on voting against their own interests, are finally being answered — power is in the people. Government retains power only so long as people let it.

It is comforting to know that the relatively unknown organizers who started this protest on Wall Street could make such a difference. They know the power that comes from people assembling to petition for grievances. And they understand the need for discipline,patience and persistence. They understand that the message must be allowed to mature and grow before it becomes a list of demands, and that the size of the response to demands for reform will be directly correlated with the size of the protest. To grow the numbers and present a credible threat to those who would continue to exercise power at the expense of ordinarily people, they are using their formidable powers and talents using the experience of community organizing and promoting causes that we all can agree are right.

Of course the banks will claim anarchy, drugs, sex and other criminal behavior to prevent others from joining this movement. But the flash quality of this uprising obviously drowns out those narratives that only a few weeks ago were the theme of reporting and opinions. These are people who are working, who want to work and who want to work in jobs for a fair wage that will support their families. For the last thirty years, the mantra of a thriving economy has hidden the fact that practically nobody was seeing the benefit without going into an impossible amount of debt.

Wall Street used the pension money of the people to flood the market with cheap money which in turn fueled a spending spree by consumers who were not learned in the exotic consequences of fool-hardy commerce. We allowed the credit industry to rise accounting for nearly half of all of U.S. Gross Domestic Product — tripling from 16% to 48% in the span of only 30 years. Most people don’t understand GDP much less what goes into computing it — which is governed by mostly political decisions (a fact pointed out 50 years ago by Ludwig von Mises, in his Theory of Money and Credit).

The rise of “financial services” is merely a reflection of the fact that we have allowed Banks to insert themselves into everything we do and every financial decision we make. That the beneficiaries of this policy were the principals, traders and managers on Wall Street is easily apparent now — because median wages for everyone else stagnated in real dollar terms and went down when you include the new costs, taxes, and expenses of just living. The main new costs were credit and medical care — fueled by Banks funding those costs with the savings and pensions of the same people who are demanding the benefit from their forced “investment.” Instead of controlling costs by putting Banks and their emissaries as intermediaries between services and the consumption of those services, it merely added many layers of corporate bureaucracy and many layers of profit for those intermediaries — essentially creating a private tax with no apparent benefit to the country or to the people.

The way the Banks did it is with the issuance of “private currency” nominal derivatives carrying a notional value of more than $600 trillion, which is more than 12 times all the real money in the world. People are taking to the streets because they understand that there is not enough money in the world, literally, to pay for the Banks excesses, that there is no way to recover without taking power away from the Banks and those who serve the Banks in the corridors of power, — and mostly because they refuse to be passive partners in a system that takes their own money and uses it against them.

The foreclosure crisis is a symptom of the larger problem of excess Bank power and excess wealth siphoned away from the people of the planet. With unstoppable greed, they have jettisoned the self restraint that they said was sufficient to avoid this type of crisis, thus convincing the public and the regulatory agencies and the government law-makers that outside regulation was not needed. It was enough they said to have the threat of outside regulation and enough to rely on self-imposed restraint to avoid collapse.

The only thing that the protesters agree with Wall Street is on the word “enough.” They have had enough of this double-talk and they want their fair share of the pie they created with their savings, their pension plans, their homes and everything else of value that is now a basis for charging interest and making a profit in exchanging paper. A real GDP comprised not of “financial services” (trading paper back and forth between the same parties) but rather in performing real work, which is what the 99% do every day, is the only path to recovery. The people know it and they are going to demand it. Whether they get it or not, depends upon whether you show up at the events near you.

Protesters Take to Streets; Clashes in Rome


ROME — In dozens of cities around the world on Saturday, people took to the streets, clutching placards and chanting slogans as part of a planned day of protests against the financial system.

In Rome, a protest thick with tension spread over several miles.  Protesters set fire to at least one building and clashed violently with the police, who responded with water cannons and tear gas.

In other European cities, including Berlin and London, the demonstrations were largely peaceful, with thousands of people marching past ancient monuments and many gathering in front of capitalist symbols like the European Central Bank in Frankfurt. Elsewhere, the turnout was more modest, but rallies of a few hundred people were held in several cities, including Sydney, Australia, Tokyo and Hong Kong. Protests were also held in New York and several other cities in the United States and Canada.

But just as the rallies in New York have represented a variety of messages — signs have been held in opposition to President Obama yards away from signs in support — so Saturday’s protests contained a grab bag of messages, opposing nuclear power, political corruption and the privatization of water.

Despite the difference in language, landscape and scale, the protests were united in frustration with the widening gap between the rich and the poor.

“I have no problem with capitalism. I have no problem with a market economy. But I find the way the financial system is functioning deeply unethical,” Herbert Haberl, 51, said in Berlin. “We shouldn’t bail out the banks. We should bail out the people.”

Another protester in Berlin, Katja Simke, 31, said that it was clear “that something has to be done.”

“This isn’t a single movement but a network of different groups,” said Ms. Simke, who was opposed to income inequality but also cared about climate change and atomic energy. “I’m really positively surprised by how well this came together.”

Saturday’s protests sprang from demonstrations in Spain in May and the “Occupy Wall Street” movement that began last month in New York. This weekend, the global show of force came as finance ministers and central bankers from the Group of 20 industrialized nations meet in Paris to discuss global economic issues, including ways to tackle Europe’s sovereign debt crisis

In London, where crowds assembled in front of St. Paul’s Cathedral, the ubiquitous emblems of the movement were in evidence. “Bankers Are the Real Looters” and “We Are the 99 Percent,” read several placards and flags. One demonstrator, dressed as Jesus Christ, held a sign that said “I Threw the Money Lenders Out for a Reason,” a reference to an episode from the Bible.

Brief clashes were reported in London, where police were out in force with dozens of riot vans, canine units and hundreds of officers. But the gathering was largely peaceful, with a picnic atmosphere and people streaming in and out of a nearby Starbucks.

The WikiLeaks founder Julian Assange made an appearance at the cathedral and was met by hundreds of cheering fans, and was virtually borne aloft to the church steps, where he called the movement “the culmination of a dream.”

In Rome, Saturday’s protests were as much about the growing dissatisfaction with the government of Prime Minister Silvio Berlusconi — who narrowly survived a vote of confidence on Friday — as they were was about global financial inequities.

“We’re upset because we don’t have prospects for the future,” Alessia Tridici, 18, said in Rome. “We’ll never see a pension. We’ll have to work until we die.”

In contrast, protests in Berlin remained peaceful and upbeat, with music and even a little dancing on a warm, sunny day.

“I like the carnival atmosphere,” said Juhani Seppovaara, 64, a photographer and writer originally from Finland now living in Berlin. “But for me there’s a little too much populism, very complicated matters reduced to one or two sentences.”

In Sydney, several hundred protesters carried signs with slogans including “We Are the 99%” and “Capitalism Is Killing our Economy.” The atmosphere was lively, with a brass band providing music in packed Art Deco-style public thoroughfares outside the headquarters of the Reserve Bank of Australia in the city’s financial district.

In central Tokyo, where periodic rallies against nuclear power have been held since the March accident at the Fukushima Daiichi Nuclear Power Plant, about 300 protesters marched with signs through busy streets and heavy traffic, chanting “We’re With Occupy Wall Street!” “Down With the Rich!” and “No More Nukes!”

Two young men held a banner that expressed a somewhat apologetic solidarity: “Radioactivity Has No Borders. To the World From Japan: Sorry!” Another held a sign that read simply, “Let’s Complain More.”

“Even timid Japanese are finally starting to push for change,” said Miku Ohkura, 24, a college student in Tokyo, who said she had already been to about a half dozen protests for various causes in the last few months. She said that apart from being opposed to nuclear power, younger people were angry at being made to bear the brunt of Japan’s economic woes, with many unemployed or too poor to start families. “We all have different messages, but we’re all alike in that we want society to become more equal,” she said.

In Hong Kong, about 200 people rallied at Exchange Square, an open area near the International Finance Center, in the heart of the city’s banking and commerce district. Various groups staged sit-ins, protesting issues including growing income disparity and a political system that some demonstrators said was undemocratic.

Thousands of people protested in Hong Kong in March, criticizing the government then for not doing enough to help the poor. A far larger crowd marched through downtown Hong Kong on July 1, the anniversary of the territory’s return to China, over the widening income gap.

A 2009 report by the United Nations Development Report found Hong Kong had the greatest income disparity of the 38 developed economies it studied.

“It’s just embarrassing,” said Nury Vittachi, a Hong Kong resident who attended Saturday’s rally. The Hong Kong government likes to stress stability and prosperity, Mr. Vittachi said, but a widening wealth gap threatens those ideals.

“We’ve had decades of increasing inequality, culminating in the financial crisis,” said Jack Copley, 20, a student at the University of Birmingham who was protesting in London. “The best we can hope for,” he said, gesturing to the gathered crowd, “is that we can change the political climate to make it harder for politicians to rule in the interests of the few.”

Rachel Donadio reported from Rome, and Elizabeth A. Harris from New York. Reporting was contributed by Kevin Drew from Hong Kong, Nicholas Kulish from Berlin, Matt Siegel from Sydney, Australia, Ravi Somaiya from London, and Hiroko Tabuchi from Tokyo.



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“Thus a decision awaits us which is more a matter of timing than substance. The system is going to collapse in its current form because it is and always was a pyramid scheme. They all fail every time. The question is when. So the only question that remains is whether we will assert ourselves now and start building from within, or pass the opportunity and try to arise from the rubble of what remains when this pyramid collapses under its own weight. Or, put another way, do we want to be the Phoenix that rises out of its own ashes, or the falcon that does what is practical to stay alive and bring home dinner? It seems that the Occupyers have that answer — do it now!” NEIL F GARFIELD, LIVINGLIES.ME


EDITOR’S NOTE: The simple fact is that they don’t have any collateral in most instances and their assets are accordingly grossly overstated on their balance sheet. And the fact remains, no matter how they try to spin it, that Wall Street simply dipped into the pockets of people’s savings, pensions and taxes, pretended the money was their own, and then convinced people to borrow their own retirement money in ways that could never be paid.Now they claim to be creditors to whom the debt is owed even though the money came from the very person they claiming owes them still more money. And they are getting paid very well to assume this position while the average person of even substantial means is being ordered to “assume the position” to take it again.
With credit card interest at 20%-30%, private student loans going to 18%, and home equity being an irresistible target for Wall Street game players, people are now left without any meaningful amount of savings, a decrease in the amount of their pension plans, and a nearly permanent block to ever getting out of debt. And Wall Street is still successfully positioning itself as the injured party to whom the debt is owed. According to them, the Occupyers just lack the sophistication to understand why the Banks are not at fault for anything.
In truth our reliance on self-governance by Wall Street was misplaced the moment we allowed them to go public and transfer the risk to the public. In the end the people always get the shaft no matter which way they turn and no matter which “class”they think they are in. Each person is getting shafted by the Banks under the current infrastructure regardless of whether they think of themselves as an investor, a consumer, a creditor or a debtor.
The collateral claimed by banks is irretrievably broken by their own intervention in the chain of title. But the really pernicious quality of this mess is that people are under the gun by virtue of debt that was forced upon them using their own money. The cost of servicing that debt that steadily increased just as wages stagnated. But by “giving” people the money to buy things, the banks created the appearance of real commerce. In reality most of the commerce was built on debt — but the other side of the equation is never mentioned. The debt arose not just because someone borrowed money but also because someone loaned the money. And the parties who loaned the money were and remain the people themselves who, as a class of taxpayers, savers and pensioners, are the same on BOTH SIDES OF EVERY TRANSACTION.
If you ask the average 401k person whether he would have taken money out to purchase something, their answer is almost always negative. Yet placed in the hands of money managers who were institutional investors, these same people in fact did borrow the money indirectly without any knowledge of what place they held in the securitization hierarchy. They were dead last. As the source of the funds, they had a sure loss coming eventually whether it was a mortgage, credit card, or student loan debt. Then, encouraged by promises of never-ending replacement loans, they accepted loan products that were unworkable. The result is that they have no money to pay their debt because their own money was used to create the debt and now of course that money is gone — into the pockets of Bankers as fees and profits — they are guaranteed to have diminished capacity to pay off the debt.
Bankers always resist regulation. And “free market” believers are drawn into the narrative by ideology and the mistaken factual belief that the lenders, as a class and the borrowers, as a class, are not one and the same. Ask one of these bankers or “free market” enthusiasts whether Wall Street should be allowed unlimited access into the pension funds and taxpayer funds to lend people their own money, raking off absurd profits, and they would probably not be able to sustain any argument against regulation. To be sure, in the interest of financial liquidity, the function of Wall Street has a value and they should be paid for their services — a real amount based upon real service.  
The problem arose when through deregulation the goal of liquidity became the only goal. That is why, in the absence of regulation, courtesy of legislation passed in 1998, Wall Street was the only one at the table who could  pursue self-interest. Everyone else had to go through their gate if they wanted to do anything. And so they were allowed to issue private currency in a very public way, drawing upon funds from hardworking people who had earned the pensions that awaited them and then, in pursing their interests for ever increasing profits and fees, produced a stupid amount of liquidity that exceeded real money issued by all the governments around the world. They didn’t just exceed it. They issued 12 times the amount of real money in the world.
Now in order to make the profits they intended, they are demanding that taxpayer money be used to cover the profits and fees they think they earned. Every time we do that the taxpayer is paying another dollar toward pornographic profits, salaries and bonuses on Wall Street, while our lives, our infrastructure and our prospects crumble under the weight of a financial infrastructure that must collapse at some point because there literally is not enough money in the world to cover the paper issued by Wall Street.
Thus a decision awaits us which is more a matter of timing than substance. The system is going to collapse in its current form because it is and always was a pyramid scheme. They all fail every time. The question is when. So the only question that remains is whether we will assert ourselves now and start building from within, or pass the opportunity and try to arise from the rubble of what remains when this pyramid collapses under its own weight. Or, put another way, do we want to be the Phoenix that rises out of its own ashes, or the falcon that does what is practical to stay alive and bring home dinner? It seems that the Occupyers have that answer — do it now!

Behold the dangers of contaminated collateral [updated]

Posted by John McDermotton Oct 10 22:06.

Yale University’s Gary Gorton and Guillermo Ordoñez have a new working paper out on the role of collateral in financial crises. This may not pass for exciting news in some places but FT Alphaville is not like other places. Gorton is renowned for his work on shadow banking and wrote an excellent short primer on the recent crisis.

(Update: He’s also, as our commenters point out, the man behind some of the AIG’s risk-management models. Take that as you will, we still think there are some interesting insights in the paper.)

The paper, “Collateral Crises”, uses complicated mathematics we don’t understand want to discuss at this point. But don’t let that put you off: it has some important insights for those interested in the role of information and collateral in the financial system.

First, a very important caveat: the below refers to a model. The empirical evidence presented in the paper is labelled “Very Preliminary and Incomplete” so consider the ideas below as educated musings rather than empirical statements.

The hypothesis is a neat one and although the authors readily admit it’s just one way of looking at recent troubles, it’s an interesting way of thinking about how the crisis hit when it hit.

The argument runs something like this: short-term private funding markets such as money markets or interbank markets work by dealing in “information-insensitive debt”. In other words, there’s buying and selling without anyone worried about adverse selection. Collateral is put down and — assuming it’s AAA — no questions are asked. These ideas have been suggested before (such as here) but this paper is the first to look at its macroeconomic implications.

In particular, it uses this micro model to explain how small shocks can translate into big events. To understand the professors’ logic it’s useful to grasp their version of financial crisis events (our emphasis):

Financial crises are hard to explain without resorting to large shocks. But, the recent crisis, for example, was not the result of a large shock. The Financial Crisis Inquiry Commission (FCIC) Report (2011) noted that with respect to subprime mortgages: ”Overall, for 2005 to 2007 vintage tranches of mortgage-backed securities originally rated triple-A, despite the mass downgrades, only about 10% of Alt-A and 4% of subprime securities had been ’materially impaired’-meaning that losses were imminent or had already been suffered-by the end of 2009” (p. 228-29). Park (2011) calculates the realized principal losses on the $1.9 trillion of AAA/Aaa-rated subprime bonds issued between 2004 and 2007 to be 17 basis points as of February 2011.  The subprime shock was not large. But, the crisis was large…

The authors hypothesise that when these types of collateral markets exist, no useful information is created because it’s too costly (at least for market participants in the short-term) to do so. Thus there’s no information that can help one distinguish between good and bad collateral — between Scandinavian government bonds, say, and AAA-rated sub-prime mortgage bonds.

Indeed, there’s more consumption and lending when there are no questions asked. The longer the boom continues, the more ignorance percolates and bad collateral gets into the system.

When information is not produced and the perceived quality of collateral is high enough, firms with good collateral can borrow, but in addition some firms with bad collateral can borrow. In fact, consumption is highest if there is never information production, because then all firms can borrow, regardless of their true collateral quality. The credit boom increases consumption because more and more firms receive 3financing and produce output. In our setting opacity can dominate transparency and the economy can enjoy a blissful ignorance.

Here’s the problem. The bigger the lie, the harder the fall:

In this setting we introduce aggregate shocks that may decrease the perceived value of collateral in the economy. It is not the leverage per se that allows a small negative shock to have a large effect. The problem is that after a credit boom, in which more and more firms borrow with debt backed by collateral of unknown type (but with high perceived quality), a negative aggregate shock affects more collateral than the same aggregate shock would affect when the credit boom was shorter or if the value of collateral was known. Hence, the size of the downturn depends on how long debt has been information-insensitive in the past.

Gorton and Ordoñez are not rubbishing the importance of leverage — indeed they’re sort of talking about leveraged opacity. But their original argument is that the sub-prime shock was not large and not in itself the cause of the subsequent fall-out. It was the overall reduction in perceived quality of collateral.

A negative aggregate shock reduces the perceived quality of all collateral. This may or may not trigger information production. If, given the shock, households have an incentive to learn the true quality of the collateral, firms may prefer to cut back on the amount borrowed to avoid costly information production, a credit constraint. Alternatively, information may be produced, in which case only firms with good collateral can borrow. In either case, output declines because the short-term debt is not as effective as before the shock in providing funds to firms.

There’s a fair bit to critique here and not just to state the obvious point that credit rating agencies are supposed to provide the sort of information found useful by market participants. Leverage also probably does matter “per se”: it affects the pace in which margin calls come in and funding crises hit. Moreover any notion of intent is missing here — opacity serves some interests more than others.

Still, there are some interesting ideas here and we’ll be cockahoop to see some empirical evidence about the importance of not being able to separate good and bad collateral.

The big sort, rather than the big short.

Update II: Not for the first time, the comments section on an FT Alphaville post are more enlightening than the main text. Scroll down for more, and do contact rob2.7 if you can speak complex mathematics.

Related links:
Shadow banking – from Giffen goods to Triffin troubles – FT Alphaville
Regulating the shadow banking system – Marginal Revolution
Interview with Gary Gorton – Minneapolis Fed
Gary Gorton on Financial Crises – The Browser” href=”” target=”_blank”>Gary Gorton on Financial Crises – Five Books Interviews



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“protest is the message: income inequality is grinding down that middle class, increasing the ranks of the poor, and threatening to create a permanent underclass of able, willing but jobless people. On one level, the protesters, most of them young, are giving voice to a generation of lost opportunity.”

EDITOR’S NOTE: This Times editorial has it right. Washington law enforcement and regulators should be listening to the people and not the bankers. But even here, the Times refuses to address the essential problem that brought us to this brink: the banks’ manipulation of the housing market into nearly complete destruction, thus dragging the entire economy down, the prospects for employment dwindling, and the prospects for a better future bleak, at best. We must be willing to take on the banks, hold them to the rule of  law, and that will stop the foreclosures, allow the housing market to at least start a recovery and take the heat off of an economy that can’t stand the pain.

October 8, 2011

Protesters Against Wall Street

As the Occupy Wall Street protests spread from Lower Manhattan to Washington and other cities, the chattering classes keep complaining that the marchers lack a clear message and specific policy prescriptions. The message — and the solutions — should be obvious to anyone who has been paying attention since the economy went into a recession that continues to sock the middle class while the rich have recovered and prospered. The problem is that no one in Washington has been listening.

At this point, protest is the message: income inequality is grinding down that middle class, increasing the ranks of the poor, and threatening to create a permanent underclass of able, willing but jobless people. On one level, the protesters, most of them young, are giving voice to a generation of lost opportunity.

The jobless rate for college graduates under age 25 has averaged 9.6 percent over the past year; for young high school graduates, the average is 21.6 percent. Those figures do not reflect graduates who are working but in low-paying jobs that do not even require diplomas. Such poor prospects in the early years of a career portend a lifetime of diminished prospects and lower earnings — the very definition of downward mobility.

The protests, though, are more than a youth uprising. The protesters’ own problems are only one illustration of the ways in which the economy is not working for most Americans. They are exactly right when they say that the financial sector, with regulators and elected officials in collusion, inflated and profited from a credit bubble that burst, costing millions of Americans their jobs, incomes, savings and home equity. As the bad times have endured, Americans have also lost their belief in redress and recovery.

The initial outrage has been compounded by bailouts and by elected officials’ hunger for campaign cash from Wall Street, a toxic combination that has reaffirmed the economic and political power of banks and bankers, while ordinary Americans suffer.

Extreme inequality is the hallmark of a dysfunctional economy, dominated by a financial sector that is driven as much by speculation, gouging and government backing as by productive investment.

When the protesters say they represent 99 percent of Americans, they are referring to the concentration of income in today’s deeply unequal society. Before the recession, the share of income held by those in the top 1 percent of households was 23.5 percent, the highest since 1928 and more than double the 10 percent level of the late 1970s.

That share declined slightly as financial markets tanked in 2008, and updated data is not yet available, but inequality has almost certainly resurged. In the last few years, for instance, corporate profits (which flow largely to the wealthy) have reached their highest level as a share of the economy since 1950, while worker pay as a share of the economy is at its lowest point since the mid-1950s.

Income gains at the top would not be as worrisome as they are if the middle class and the poor were also gaining. But working-age households saw their real income decline in the first decade of this century. The recession and its aftermath have only accelerated the decline.

Research shows that such extreme inequality correlates to a host of ills, including lower levels of educational attainment, poorer health and less public investment. It also skews political power, because policy almost invariably reflects the views of upper-income Americans versus those of lower-income Americans.

No wonder then that Occupy Wall Street has become a magnet for discontent. There are plenty of policy goals to address the grievances of the protesters — including lasting foreclosure relief, a financial transactions tax, greater legal protection for workers’ rights, and more progressive taxation. The country needs a shift in the emphasis of public policy from protecting the banks to fostering full employment, including public spending for job creation and development of a strong, long-term strategy to increase domestic manufacturing.

It is not the job of the protesters to draft legislation. That’s the job of the nation’s leaders, and if they had been doing it all along there might not be a need for these marches and rallies. Because they have not, the public airing of grievances is a legitimate and important end in itself. It is also the first line of defense against a return to the Wall Street ways that plunged the nation into an economic crisis from which it has yet to emerge.

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