MMT proposals for the 99%
Posted by WARREN MOSLER on October 16th, 2011
1. A full FICA suspension to end that highly regressive, punishing tax and restore sales, output, and jobs.
2. $150 billion in federal revenue sharing for the state goverments on a per capita basis to sustain essential services.
3. An $8/hr federally funded transition job for anyone willing and able to work to facilitate the transition from unemployment to private sector employment.
4. See my universal health care proposals on this website (Health Care Proposal).
5. See my proposals for narrow banking, the Fed, the Treasury and the FDIC on this website (Banking Proposal).
6. See my proposal’s to take away the financial sector’s ‘food supply’ by banning pension funds from buying equities, banning the Tsy from issuing anything longer than 3 month bills, and many others.
7. Universal Social Security at age 62 at a minimum level of support that makes us proud to be Americans.
8. Fill the Medicare ‘donut hole’ and other inequities.
9. Enact my housing proposals on this website (Housing proposal).
10. Don’t vote for anyone who wants to balance the federal budget!!!!
October 16th, 2011 at 1:37 pm
Good ideas, Warren.
Here are a few others: https://rodgermmitchell.wordpress.com/2011/10/12/5163/
Reply
Tyler Reply:
October 17th, 2011 at 10:41 am
Rodger,
I think you and Warren have the best ideas out there. If we enacted your proposals, we’d probably lower the unemployment rate to its WWII level!
If only we had a Congress that fully understood economics. We could really make this country an even greater place.
Reply
October 16th, 2011 at 1:43 pm
Does Jesse Jackson Jr. get it?
http://www.youtube.com/watch?v=_LEwP0UeMpo&feature=player_embedded
Reply
Tom Hickey Reply:
October 16th, 2011 at 2:06 pm
@Hoonose,
Jesse Jackson, Jr., gets it that the US is now in the midst of a civil war although he does not use that term.
Reply
ESM Reply:
October 16th, 2011 at 2:36 pm
@Tom Hickey,
Civil war? Give me a break. It’s just a bunch of college graduates with useless degrees and a soccer-mom implanted sense of entitlement complaining about their student loans. And then of course the usual troublemakers and nostalgic hippies hopping aboard the bandwagon.
It’s pretty obvious that you didn’t live through the real civil war Tom.
Reply
Mario Reply:
October 16th, 2011 at 3:22 pm
@ESM,
ESM you’re attempt to reduce and simplify OWS is not only inaccurate, it’s just plain annoying and frustrating. Frankly your “thinking” and labeling and reducing the OWS to such terms and images and connotations is one of the most potent examples of why this movement exists at all. Failure to listen, failure to understand, failure to “get it.” I find it completely baffling that people don’t know what the “message” is with OWS. After all that we’ve been through these past 10+ years and people don’t know what the message is!!!! Jesus Lord Almighty is there any hope left at all of resolving these fissures???? I continue to hear a resounding yes. And I refuse to waver or consider that physical war or violence will ever need to be taken to find resolution and peace and harmony and function again. No. We can do this and we can do this gracefully and peacefully and intelligently. I know this and I believe this. However when you and people like you (and there are MANY of “you”) don’t even give respect or creedence or the decency of even a proper description or understanding….then what hope do we have of accomplishing anything and resolving these OBVIOUS differences?
You may not remember (perhaps you didn’t take many classes from those “useless degrees” you speak so much about) so let me remind you that historically the civil war started over “intellectual” debates and different POV’s and eventually cascaded into an all out physical war in a manner not too dissimilar from our own. Ask any southerner and they will immediately agree that the civil war was NOT about slavery. It was about economy (Marx has some undeniable points you must acquiesce my friend)….but really these are “useless” topics and subjects to be thinking about and they really don’t warrant much consideration or respect….right?
Tom Hickey Reply:
October 16th, 2011 at 3:48 pm
@ESM,
That’s not what I am talking about ESM. If you listen to what JJ, Jr. said, it is that one side has refused to compromise or negotiate in good faith. When that happens, there is a prelude to war.
But what I am actually referring to is the deep divide in the US that has been building for some time and now coming to a head. When negotiation and compromise are ruled out, war ensues. How this trend will play out is not yet clear, but there is a trend developing here that is going to have profound implications over the next decade, I believe, over the direction of the country and world.
This is not just a US affair, either, although what I was referring to above is. The divisions are widening rather than closing as globalization proceeds.
Tom Hickey Reply:
October 16th, 2011 at 3:54 pm
@ESM,
“But again who’s freud anyway??? I think he was some dude in another one of those “useless” subjects that were once respected in a time long, long ago”
Not so fast about Freud. See Jonathan Winson, Brain & Psyche: The Biology of the Unconscious
ESM Reply:
October 16th, 2011 at 4:55 pm
@ESM,
“That’s not what I am talking about ESM. If you listen to what JJ, Jr. said, it is that one side has refused to compromise or negotiate in good faith. When that happens, there is a prelude to war.”
Once again, I have to say “give me a break.” Obama wants (perhaps disingenuously) Congress to pass his jobs bill. Congress doesn’t want to. Where’s the constitutional crisis? Where is the prelude to war? Obama couldn’t even get Harry Reid to put the bill up for a vote. And the Senate modified bill didn’t even get unanimous support from Senate Democrats.
When JJ Jr (or anybody else) compares the Republicans’ refusal to vote for a hastily concocted, campaign-related bill with an armed rebellion, he just makes himself look hysterical, whiny, and ignorant.
WARREN MOSLER Reply:
October 17th, 2011 at 4:53 am
i’m thinking the problem is when both sides seem resigned to high unemployment that trashes the futures of today’s youth.
and ‘yes, we have the productive capacity, but there’s no way to tap into it.’
so the message heard becomes ‘this system does’t work for the 99%, sorry’
ESM Reply:
October 16th, 2011 at 5:11 pm
@ESM,
@Mario:
Sorry to cause you so much distress, but I have watched these OWS protests pretty careful (from the safety of my computer), and I am not impressed in the slightest. I have seen dozens of youtube videos of protestors trying to explain why they’re protesting, and I haven’t seen a single one that can articulate an intelligent rationale.
Near as I can tell, these people should be protesting outside of university administrators’ offices, since they’ve basically been scammed into “investing” in their education.
I’m not a big fan of the financial sector, but as somebody who understands MMT I know that the financial sector is not the cause of high unemployment. Most of the protestors believe that the banks are responsible because they got bailouts (how does that work?). Or because they’re not lending (if they even think that far), but we all know that has causality reversed. Banks are not lending because nobody wants to borrow to expand their businesses if they don’t see future demand.
As I said, I have watched these protests carefully, and after several weeks, I see they are still small (numbering in low single digit thousands on a good day in NY). This thing is not going anywhere, no matter how much liberals desperately want their own Tea Party movement.
Raging impotently against a banking system that nobody understands really doesn’t capture too many people’s imagination. Also the timing is poor. Winter is setting in, and over time the unemployment situation will steadily improve as the federal deficits continue to work. Fortunately, our economy is self-healing to a large degree.
Matt Franko Reply:
October 16th, 2011 at 6:39 pm
@ESM, “I know that the financial sector is not the cause of high unemployment.”… I’m afraid I have to agree, no bank fraud could ever be large enough to result in 14 million unemployed. This has to be the result of other massive “innocent” frauds that emanate from the economic academe and Washington DC… Resp,
WARREN MOSLER Reply:
October 17th, 2011 at 4:58 am
it came from the govt not making the right sized fiscal adjustment as soon as aggregate demand started to slip
Tom Hickey Reply:
October 16th, 2011 at 6:39 pm
@ESM,
ESM, ever since Obama took office the GOP has just said no, demonized him from the presidential campaign on, and some even said publicly that their goal was to “break him.” There has been a stonewall erected reflecting the deep divide in the county and the paralysis of the political process.
People take to the streets when they come to believe that the political process no longer works for them. That creates political instability and if the situation is not dealt with, then it deteriorates further with greater social unrest. That is the course the US is on.
As far as the OWS protests go, I saw a crowd of a few dozen on the steps of Sproul Hall in the Free Speech Movement in 1964 grow to massive protests in Washington, DC in a few years. If things do not improve and deteriorate, expect more of the same over the next decade.
Mario Reply:
October 16th, 2011 at 7:15 pm
@ESM,
Sorry to cause you so much distress
I’m getting thicker skin day by day. ;)
I have seen dozens of youtube videos of protestors trying to explain why they’re protesting, and I haven’t seen a single one that can articulate an intelligent rationale.
agreed! And the same applies to the TP movement too quite frankly. Why can’t they articulate themselves? In all honesty I think it is in large part b/c they don’t understand MMT. They KNOW there’s problems in “Denmark” but they don’t understand the system well enough. Denmark is a reference to Hamlet in case you didn’t know. ;) Sooo much of the global anxiety today revolves around myths that MMT busts wide open and clears the path for new growth. whew what a relief for us….but for the rest of the people….well you get OWS and the Tea Party, etc. Just b/c you don’t understand the lies doesn’t mean you don’t KNOW they are lying to you and robbing you blind. We all know on a gut level when we’re being conned…it’s just taken things to get this bad before TP and OWS come out of the woodwork…but they come fast and strong.
the lack of an ability to ARTICULATE their angst does NOT negate the fact that real angst exists. And that angst is HUGE EVIDENCE that we have serious problems that extends faaar beyond hippies and bone nose-rings. You’re engaging in fallacious thinking my friend.
Near as I can tell, these people should be protesting outside of university administrators’ offices, since they’ve basically been scammed into “investing” in their education.
They are ESM. Why complain to the cashier when you can go talk to the owner of the company and voice your concerns directly with him? why ask for a loaf of bread when you can get the whole bakery? For all of your “careful studying” you still don’t get it man.
but as somebody who understands MMT I know that the financial sector is not the cause of high unemployment.
what!??!?! I almost spit out my drink when I read this!!!! haha!!! okay ESM not only have you missed the boat on OWS…you’ve missed the boat on the GFC my friend. You do realize that the Tea Party was founded on going up against the banks and the bailouts right?!?!! Better study up a dash I think no??!?! Maybe those “useless liberal arts” programs are really actually pretty valuable after all. Most people either think through their emotions (that is to say they don’t think at all) or if they really do think then it is in a more mathematical and analytic fashion (engineers, computer guys, etc.). It’s input in, output out type of linear thinking which is soooo valuable and totally awesome but there is also other types of thinking modes that are also very, very important and valuable (left brain/right brain, etc.)…it’s more of a conceptual and gestalt framework of putting large pieces together. I’m just saying man….to be or not to be…that is the question. ;)
This thing is not going anywhere, no matter how much liberals desperately want their own Tea Party movement.
well it’s a month strong now with no respite (aka 24-7 for 30 days man….that’s ummmm….more than the TP ever did)…..and it’s only getting bigger and bigger and more and more global by the WEEK. How global was the TP movement again? Right. Exactly. Perhaps you’re not catching the trend here?!?!?! I don’t see this as just fizzling away like Ross Perot nor do I see this as being bought out like the Tea Party either….so how else is this going to “go away” exactly?
Raging impotently against a banking system that nobody understands really doesn’t capture too many people’s imagination.
uhhhh….how about the TP movement? How about over 5,000 protestors marching across Manhattan plus parallel movements in nearly every city in the US PLUS in over 70 countries around the world!??!! WTF careful studying are you doing exactly?!?!?! And I think that if the past 3-4 years have only done one thing it’s show that EVERYONE–everyone— hates the banks so WTF are you talking about man?!?!?! Seriously you are really, really smart and I totally respect everything and anything you have to say but in this regard man you’re just totally missing the forest for the trees….and frankly I don’t even think you’re seeing any of the trees either!!!
Also the timing is poor. Winter is setting in
it only makes their efforts that much more brave and commendable and creates an even larger channel for others to help out, chip in, contribute, and support the movement thereby only growing it and empowering it that much more. Man you haven’t read Henry V have you?!!?!? Gotta study up bro!!!!! ;)
over time the unemployment situation will steadily improve as the federal deficits continue to work.
yeah okay and will that be before or after we raise all hell to balance the budget and get our nation’s “financial house in order”…while eliminating capital gains and putting in regressive taxation practices to boot…oh yeah and destroying medicare and social security as the garnish for the next decade….makes total sense to me man…..
Perhaps read this quick little article from a wall street guy who loves Chris Christie and feels the same you do about OWS….you might get a more “careful” look at things on the street….more than what the news outlets will share with you of course.
http://www.thereformedbroker.com/2011/10/16/suzanne/
with all due respect it seems to me that you’ve gotta hit the drawing boards again on this one mate. It’s not to say you need to agree with OWS or let your hippie self run free or anything like that. But it is to say you need to be able to at least call a spade a spade.
Mario Reply:
October 16th, 2011 at 7:19 pm
@ESM,
to me the thing with OWS is that it’s a good bad thing. It’s good that it’s happening but it’s bad that it has to happen like this in order to be heard. THAT is not a good sign at all. It reveals to us that our leaders are fundamentally disconnected from the people and they need to be more responsive and anticipate and engage with the people to prevent this type of stuff from happening. Prevention is key and the longer they delay the more dire things become. It’s only too easy the longer it gets for sustained and large mass movements like this to go to another level. Sort of like the “shot heard ’round the world” type of a scenario. Our country could be gathering more and more “kindling” and the more of it that accumulates the easier and more likely one spark can “set things off.” This would not be good and must be prevented at all costs. But in order to do that real change needs to occur at the highest levels of society and leadership. The people’s problems fundamentally are our leaders’ problems. Clearly it is up to our leaders to listen and respond before things only get worse. Yet we see people not understanding, mis-understanding, resisting, and entrenching themselves in their POV’s….clearly something has to give eventually. I only hope we can give things up and move on peaceably and easily and gracefully please. Personally I think the “OWS message” is quite clear…indeed quite loud in fact….and goes far beyond what any one website or party or “representative” of OWS says or articulates. I only hope and pray that our leaders and others get it and make that change.
ESM Reply:
October 16th, 2011 at 8:56 pm
@ESM,
@Mario:
First, from the article you linked to, this is the climactic quote from the pro-capitalism Suzanne:
“This is about checks and balances, not about redistribution. We all went to sleep ten years ago and allowed the banks and the government to run the show, we trusted them and they took over, eliminating opportunity for everyone else. This is about taking that opportunity back”
I have no idea what this means, do you? I mean is she saying that when the typical homeowner refinanced his $200K mortgage (on a house he paid $250K for back in 2000) into a $405K mortgage on a house newly appraised for $450K in 2006, thus cashing out for $205K and spending that money on cars, vacations and college education for his spoiled yet perfectly average kids, that somehow the bank was eliminating opportunity for him? Or is it that he trusted the bank to protect him from his own avarice and self-delusion?
I mean, honestly, the only people who were really hurt by the banks during those years were investors in non-agency mortgage-backed securities, and those investors took their lumps years ago and moved on.
All the rest of the chaos was caused by the failure of the government to provide enough NFA to the private sector: in the first place, to sustain the huge private sector credit expansion which had taken place over the previous 15 years, and secondly to counteract the accelerating private sector deleveraging after the credit expansion reversed itself (with 20/20 hindsight, the popping of a credit bubble).
Second, as to the comparison with TP, the Tea Party was fundamentally a libertarian movement that was scared into action by the big government axis of Obama-Reid-Pelosi. No, Tea Partiers don’t understand the financial system, or MMT for that matter, but what they do understand is that the government was preparing to get into everybody’s business in a big way. From bailouts for the banks and car companies to proposed bailouts for delinquent homeowners and then on to proposed new regulations, cap and trade, and, last but certainly not least, Obamacare, it looked like the country was being moved way, way to the left from where we had played ball for the last 30 years. This desire to see government scaled back was expressed in terms of scaling back spending AND taxation. Yes, some railed against deficits, but I am convinced that the Tea Party was mainly against big government. “Tea” technically stands for Taxed Enough Already, by the way. If Tea Partiers actually cared about deficits, per se, perhaps the movement would have been called something different since increasing taxes is actually a way to decrease the deficit.
Matt Franko Reply:
October 16th, 2011 at 9:04 pm
@ESM, “failure of the government to provide enough NFA to the private sector: in the first place, to sustain the huge private sector credit expansion which had taken place over the previous 15 years, and secondly to counteract the accelerating private sector deleveraging after the credit expansion reversed itself”
Dont forget the out of control external balance (China and oil)… Resp,
beowulf Reply:
October 16th, 2011 at 9:55 pm
@ESM,
“This is about checks and balances, not about redistribution. We all went to sleep ten years ago and allowed the banks and the government to run the show…”
Actually she has that wrong. Whether she knows it or not, the underlying issue is redistribution. More precisely the avoidance of redistribution (i.e. fiscal policy) to address the growing income inequality of the past three decades. Instead the plan was, as Ragh Rajan put it, “let them eat credit”.
the government’s response to rising inequality—whether carefully planned or the path of least resistance—has been to encourage lending to households, especially but not exclusively low-income ones (the government push for housing credit was just the most egregious example). The benefit—higher consumption—is immediate, and paying the inevitable bill can be postponed into the future. Cynical as it may seem, recent administrations have used easy credit as a palliative to address the deeper anxieties of the middle class directly. As I argue in my recent book Fault Lines, “let them eat credit” could well summarize the mantra of the political establishment in the go-go years before the crisis.
http://www.tnr.com/article/economy/77242/inequality-recession-credit-crunch-let-them-eat-credit
Tom Hickey Reply:
October 16th, 2011 at 10:14 pm
@ESM,
alternate universe
Tom Hickey Reply:
October 16th, 2011 at 11:26 pm
@Beowulf,
Rajan’s “let them eat credit” fits in precisely with the MMT analysis. When government doesn’t step up to the plate sufficiently either the economy (sectoral balances) adjusts by contracting or else the private sector increases debt to maintain lifestyle. A cynical person would say that this is the agenda of private lenders, who use their influence to decrease the government contribution, so that the rents they receive will increase. Otherwise, it is sheer stupidity.
Zanon Reply:
October 17th, 2011 at 12:15 am
@ESM,
You are quite corrects. OWS is fairly sad movement–they dredge up that poor tool Cindy Sheehan–it will all come to nothing
Toms hickey and their ilk are the pathetic dried up hippy you see around college campuses who will tell you, with all earnest, “we were there man”. It never occur to them that the sixties actually WON and yet here we are. Still, if something obviously fail, I guess doing it again and again is viBle option
But still, there is real issue with equity and I think it is right that people want to see banks feel pain. But Paul Krugman does not believe in capitalizing non-govt sector so Lloyd remains too big to fail.
Mario Reply:
October 17th, 2011 at 2:24 am
@ESM,
I think she’s talking about glass-steagall ESM. And I think she’s also referring to political and Fed processes and policies in general as well….hence the comment “checks and balances.” By “redistribution” she is addressing the common and inaccurate complaint (which you make all too often) about OWS (and health care and education debt, etc., etc.) as being some socialist/communist band of rag-tag stoned hippies that only want to take other people’s money and get rich on a free ride by doing nothing at all. That’s just not true. It’s not about redistribution. Yes it is about income inequality to be sure (the 99% is a euphemism for income inequality) but that inequality is not to be solved by redistribution….but rather through proper political and institutional checks and balances and decision and policy making that is for the PEOPLE not the banks, big oil/energy, education, medical industry, military, etc. NO not for those a-holes….but for the people. That’s what she’s talking about ESM. Perhaps that useless liberal arts degree that teaches one how to read, write, and analyze language and thought and idea and put such seemingly disparate concepts together turned out to be pretty handy once again in this wild and crazy world! Who would have thunk it?!?!?! Oh I realized earlier today something else as well….did you know ESM that biology, chemistry, physics, and even sacred mathematics…the father of sacred engineering….all fall under the college of liberal arts (otherwise known as the humanities)?!?!?!? Can you believe such sacrilege?!?!? Personally I was outraged when I found out such a monstrosity was running rampant in our society today. Here’s what wicked wikipedia defines as the nasty and useless “liberal arts” (we might as well burn all their books too while were at it right!!!):
The term liberal arts refers to a curriculum that imparts general knowledge and develops the student’s rational thought and intellectual capabilities, unlike the professional, vocational, and technical curricula emphasizing specialization. The contemporary liberal arts comprise studying literature, languages, philosophy, history, mathematics, and science.[1]
puffaw!!! What rubbish!!!! Who needs such “skills” in our advanced FIRE society today!!! All these people should only be getting 15/hour MAXIMUM….heck they should be GRATEFUL they are getting THAT in fact!!! I swear the audacity of these “kids these days” is just pure hubris plain and simple.
It’s just hilarious to me to hear you openly admit how the TP was against the bailouts and banks and government catering to certain businesses, institutions, etc. Listen ESM….this is an intervention….you have a personal blind-spot and do not see what you are saying. OWS and TP are two sides of the same coin. You are fighting your shadow side ESM!!! There has to be a star-trek episode for this phenomena!!! Both OWS and TP need to find MMT in order to reach the proper conclusions and solutions they are looking for….and then once that happens we can all have the types of policy arguments that we all engage in here and still haven’t resolved (yet anyway)!!! LOL hahaha the angst of the world never seems to end does it!! LOL I suppose the lion and the lamb never really lay down to rest in this wilderness of a world….I should stop waiting, looking, hoping for such an occurrence here on Earth….one more inch of now even tougher skin I suppose….where of where does my soft heart lie in all of this mess?!??! Perhaps wrapped around a tree-hugging hippie!! ;) Cheers mate!!
ESM Reply:
October 17th, 2011 at 9:43 am
@ESM,
@Mario:
“Who needs such “skills” in our advanced FIRE society today!!!”
I assume you went to college Mario. You know what you received for your tuition. Tuition is now over $40K/year at an elite, liberal arts institution. Does that make sense to you? College at that price level is obsolete. It’s more of a year-round camp than a scholastic experience, anyway.
I’m not against learning about fine arts and French literature. I am against paying $40K/year for somebody to assign you homework and give you a grade.
Also, if you want to learn that stuff, and, don’t get me wrong, it can be really useful for impressing people at cocktail parties, you shouldn’t expect it is going to increase your value in the marketplace.
“OWS and TP are two sides of the same coin.”
Well, yes and no. TP understands that government is the problem, not the solution. I think OWS believes it is the other way around.
As I pointed out in an earlier post, I think that it is OWS that suffers from internal contradictions, as summarized in the parody:
“Corporations Control Government! We Need More Government Regulation to Protect us from these Corporations!”
TP has been accused of contradictions as well, but I think unfairly. For example, it is a logical fallacy to consider the following a contradiction: “Keep the Government’s hands off my Medicare.”
Liberals get very snarky when they accuse Tea Partiers of attacking big government while benefiting from various government programs. But there is no contradiction there, or even any hypocrisy. I don’t begrudge Warren Buffett or George Soros the tax loopholes they exploit. Them’s the rules, and they have a perfect right to minimize their taxes. Likewise, if there is a government program which gives me money, I don’t think I have an obligation to shun it. Also, just because I think government should be smaller in general, it doesn’t mean that there aren’t some government programs that I think are working or are necessary.
In the case of Medicare, I can see that somebody who is against larger government on the principle that political elites will just use their greater authority to enrich their friends and donors, as well as screw things up with their impractical pie-in-the-sky ideas, might not want them tinkering with Medicare in secret committees hidden away from public scrutiny. It is not inherently contradictory to fight empowering a handful of liberal elites to revamp a government program behind closed doors.
Deus-DJ Reply:
October 17th, 2011 at 7:28 pm
@ESM,
You lost all credibility after you said this: “I’m not a big fan of the financial sector, but as somebody who understands MMT I know that the financial sector is not the cause of high unemployment.”
Oh really? From someone who proposes to be learn-ed that is quite an ignorant remark to make.
WARREN MOSLER Reply:
October 17th, 2011 at 7:49 pm
The financial sector is largely a waste of human endeavor but unemployment is the evidence the federal deficit is too small. Please read ‘the 7 deadly innocent frauds of economic policy’ on this website asap thanks
Djp Reply:
October 17th, 2011 at 8:57 pm
@ESM,
@Mario,
First a brief comment on semantics:
When I was in college there was a College of Liberal Arts and Sciences. The topics you mention that I agree are part of a broad education that can help you acquire gainful employment (math, physics, chemistry, biology) are all in the “Sciences” category. They are excellent things for someone going to college who is a little unsure of exactly what it is they want to do, to study. It’s an old saw that a physics degree prepares you for many careers you never even thought about. Heck, quite a few amazing database engineers and computer scientists in general, had physics or math degrees.
I agree with ESM, it’s the price. It feels odd that it’s even worth mentioning on a blog that is sort of an economics blog. I can’t stand that there are so many people out there with $200k in student loan debt from getting an undergraduate degree. People need to learn how to price things. I was just talking with a quite successful trader who related how he did not even apply to private schools because he knew the premium he would pay over his state school just wasn’t worth it – and his parents could never afford it. Even Steve Jobs relates the story of how he left Reed once he understood how costly it was in absolute and relative terms (for his middle class parents). You want to go to Reed? Great, go for it, but don’t do it on my dime.
Mario, surely with your decision to be a tax preparer you’ve thought about the relative value one gets from a Gender Studies curriculum versus the value you would get from a course on accounting?
WARREN MOSLER Reply:
October 18th, 2011 at 7:09 am
and then there is monetary value to the individual and psychic value to the rest of us.
something nice about being surrounded with friendly, educated people, even when just reading blog comments
Deus-DJ Reply:
October 17th, 2011 at 9:54 pm
@ESM,
I’m aware that fiscal policy is counter-cyclical and that any rate of unemployment is necessarily always because of a lack of stimulus for AD, but absent a smart government of course it is the fault of the banks, in every way possible. Predatory lending–>financial crisis–>fall in home values–>loss of equity and loss of slack income–>perceived lack of demand by businesses due to collapse, they cut back, unemployment rises.
WARREN MOSLER Reply:
October 18th, 2011 at 7:14 am
I like to say ‘removing fiscal drag’ rather than using the s word.
Don’t forget banks ARE govt. They are public private partnerships set up by govt presumably for public infrastructure for public purpose, which i know is lost on today’s govt officials, which is the root of the issue.
And, to make a point, let me state the following which isn’t meant entirely literally:
If conservatives, who hate all govt, knew this, instead of wanting banks to be allowed to do everything, they’d want them to do almost nothing.
And if progressives, who want a more active role for gov, knew this, they’s want banks doing all kinds of things they aren’t doing now etc.
Deus-DJ Reply:
October 17th, 2011 at 9:55 pm
@ESM,
That was a reply to Warren, and to ESM too I suppose.
ESM Reply:
October 17th, 2011 at 11:25 pm
@ESM,
@Deus:
“Predatory lending–>financial crisis–>fall in home values…”
Predatory lending is a myth. I have not seen a single clear example of it among the thousands of delinquent loans that I’ve analyzed as part of my business. Nor have I seen a single example amoung the two dozen homeowner sob stories I’ve seen published in newspapers. In fact, in roughly 80% of the newspaper stories about homeowners being foreclosed on after living in their house for 20 years, if you read all the way to the end, you’ll find out the homeowner did a >80% LTV equity take out loan at the top of the market.
Even with the supposedly notorious hybrid ARM subprime loan where you have a low fixed rate period followed by a reset to a high floating rate, the loans either went delinquent long before the reset, or by the time of the reset, the interest rate was not materially different from the fixed period due to the drop in interest rates.
Predatory borrowing, on the other hand, was widespread.
Housing collapsed because it was a bubble that popped. Prices got to a point where the only way a borrower could get a mortgage was if he lied. And the banks didn’t do very much due diligence because either they got caught up in the “housing prices only go up mentality” that most people did, or they knew they were going to be selling the loan on to some sucker investor so they didn’t care.
WARREN MOSLER Reply:
October 18th, 2011 at 7:17 am
it was predatory in that it was fraud committed against shareholders, who suffered the most best I can tell.
and that was largely our public pension funds, along with a few saudi prince types.
and it was state sponsored, as banks *are* govt (public private partnerships, etc.) and failed to put the right incentives in place
as well as the right limitations.
The entire episode was and continues to be a failure of govt.
of course, i’m not the type to blame wolves for eating sheep
Clonal Antibody Reply:
October 18th, 2011 at 12:04 am
@ESM, On predatory lending, you have to read What Bill Black as to say about “Control Fraud.” I do not believe that you are correct on absolving the banks of fraudulent behavior
Read Lenders Put the Lies in Liar’s Loans and Bear the Principal Moral Culpability
WARREN MOSLER Reply:
October 18th, 2011 at 7:20 am
all federally sanctioned/ allowed by federal regulators and supervisors.
where was shiela? how did this public enemy #1 become a hero is my question.
JCD Reply:
October 18th, 2011 at 9:17 am
@ESM,
Warren,
Due to the goofy thread mechanics of your estimable site, I’ll post here. seems as good a place as any.
Up there (somewhere) you noted:
If conservatives, who hate all govt, knew this, instead of wanting banks to be allowed to do everything, they’d want them to do almost nothing.
This is such a great point, and so missed by most of my conservative/libertarian friends. They all understand that Freddie and Fannie are abject examples of Government failure. They all saw (before 2007) that those GSE’s would end in tears.
But when I ask them today “Why is BAC any different than Freddie/Fannie?” They sputter and stammer, but can’t get their head around it. (An aside: Maybe if Chuck Schumer was as visible as Barney Frank they’d learn to distrust banks more?)
All those Conservatives will also talk smack about Chinese and European banks being in bed with the government. Really? Let’s take the FDIC stickers off the doors at the US banks, and see how they do …
ESM Reply:
October 18th, 2011 at 9:21 am
@ESM,
@Clonal:
It’s a good article, but it is incomplete. First, it fails to note (or at least make clear) that most of the fraudulent loans were originated by individual mortgage brokers, aggregated by non-bank mortgage originators, and then sold on to banks for securitization. Second, it fails to mention a form of fraud that was perhaps even more serious than inflating income, which was where the homeowner lied about living in the home.
Remember, it was not completely unreasonable to think that a homeowner who could put down 20% (admittedly many got simultaneous 2nd liens for another 10% or even 20%) and who was living in the home would be a decent risk. In theory, the housing market would have to drop more than it had ever done since WWII for the 1st lien mortgagee to lose money. Mortgagors buying a second (or third or, in many cases I’ve seen, 10th) home are speculating and therefore much worse risks. They are more likely to have overpaid, more likely to let the home fall into disrepair, and more likely to skedaddle the moment the market turns against them.
In any case, we perhaps have different definitions of predatory lending. My definition is a loan festooned with tricky and onerous terms, which was designed either to extract a non-market level amount of interest from a borrower or to make it difficult for the borrower to stay out of default so that the lender could seize the home (presumably to collect even more fees or to make a profit).
I haven’t seen any examples of these. In almost all cases, I think the homeowner got an good deal (too good – that’s the problem!) on the loan. If there was a problem for the homeowner, it came in the form of the purchase price for the house being too high (if indeed it was a purchase loan). I don’t think you can blame an individual lender for that, although you can blame the lending community in the aggregate for facilitating the growth of the largest bubble in history.
Also, Black underestimates the pressure to produce mortgage products to “feed the beast.” There was a general credit bubble throughout all sectors of the economy (and indeed the world) due to the huge global savings desire which was unfulfilled by government deficits. Investors were clamoring for anything with yield, and in the mortgage space, Fannie Mae and Freddie Mac were buying and securitizing all of the “good” loans, using their (larger) implicit government subsidy to outcompete the banks. Any large bank which developed scruples about which kinds of loans it would buy and securitize would be shut out of the market for mortgages, and would be quickly replaced by some smaller banks, or perhaps another large bank, taking its market share.
It’s too simple-minded to say it was criminal fraud (at least at the level of the banks). It was negligence, fertilized by self-delusion. I’m not condoning the behavior. I’m merely explaining why it happened, and why it will happen again some day.
WARREN MOSLER Reply:
October 18th, 2011 at 11:20 am
let me add that the private sector is necessarily pro cyclical
Tom Hickey Reply:
October 18th, 2011 at 12:56 pm
@ESM,
Black’s work is voluminous and it would not be correct to say that he overlooks this. He considered a spectrum of issues that relate to the lead up to the crisis, its unfolding, and failure to investigate it properly afterwards.
The point makes about “control fraud” is that from the point of view of his field, financial forensic analysis, the people in charge of regulating the financial sector allowed what he calls a “criminogenic environment” to develop. He points out that this is a well-known area in financial forensics, and he cites the literature.
Black holds that there is no excuse for it having been allowed to proliferate to the degree it did. In his view, this was Enron writ large. After prior experience with the S&L crisis, Enron, etc., it is just not credible that this was a mere oversight or lack of understanding. It was abject failure on the part of the regulators, especially the chief regulator, the Fed chairman (Greenspan at the time), especially when the FBI had specifically warned about massive fraud in the industry as the bubble was building.
Moreover, to date there has been little if any real accountability, whereas after the S&L crisis, over a thousand people were successfully prosecuted.
Were other things involved? Sure. Would the crisis been as bad, or even have happened in the absence of a criminogenic environment. Black thinks that this is doubtful. That means much of this can be prevented in the future. It was not due to some unforeseeable shock
Mario Reply:
October 18th, 2011 at 1:18 pm
@ESM,
@Djp
Mario, surely with your decision to be a tax preparer you’ve thought about the relative value one gets from a Gender Studies curriculum versus the value you would get from a course on accounting?
well you’d be surprised at how much money liberal arts businessmen can make. You’d also be surprised at how many liberal arts majors are self-employed. As for me, I am of the more “obsessive” type…so when I do something I like to do it 150% with 360 degree views. So here I am becoming an accountant!!! I am not saying that if you want to make a million dollars you should be a lit major. But if you have a jobs program for the dumbest of the dumb that pays 8-10 per hour, it is just insane to think that 15/hr for educated men/women is “reasonable”….no matter what the degree. The real deficiency lies in a lack of teaching entrpeeurship more than anything else. On the Fed’s website I read them saying something (and I paraphrase), “some say that to own a home is the American Dream. But we believe that to own a business is the American Dream.” Well I was quite struck by that statement first b/c I had never heard or thought of that before and secondly b/c it really is quite true and far ore historically accurate too!
I’m not against learning about fine arts and French literature. I am against paying $40K/year for somebody to assign you homework and give you a grade.
I agree with you there! The same can be said for many a business school and accounting program too though ESM. This stuff isn’t “hard” it just takes some studying. More than anything it’s about discipline than actual material….as is the case with most things. All the books are available online and these days with a little help from google you’ve got all that you need really!
Let’s not forget that many a business professional is also self-taught, etc.
Let’s also not forget that you’re changing the topic and discussion from liberal arts studies to the cost of education in general. Those debate skills I learned really pay off I must say!! LOL ;)
But not only that let’s not forget our late and great Mr. Steve Jobs. I don’t know if you’ve heard him speak about the value of his calligraphy class or not but there’s that. He’s also spoken about how what made macintosh was the fact that the creators were all poets, historians, writers, and artists who also happened to be computer scientists and tech guys.
And finally how could I not end with a famous literary quote from Percy Bysshe Shelley’s “In Defense of Poetry” (note his definition of “poet” extends beyond just writers and includes any and all artists in the true sense of that word….this can include truly innovative businessmen and scientists as well if you don’t yet realize it. ;) A true poet or artist is what we all strive to become…even if you don’t realize it. Go read some Homer and Virgil and you’ll see EXACTLY what I mean….true men living and striving in the world!!! yeah!!! ;) In fact historically many of the greatest artists and scientists we also the wealthiest people as well. Why do you think that is (other than education was not free or available to all?)…perhaps truly successful men live not on bread alone….perhaps there is more to what we deem “successful” and therefore “worth it”…perhaps….but I digress…back to good ole’ Percy!! (note I visited Shelly’s 2nd house which he shared with Keats in Rome right up against the Spanish Steps…not too far down the road from Goethe’s apartment in Rome as well whom he borrowed from Tishbein and I saw his most famous painting of Goethe on the Campagna….ahh Roma!!! Land of the GREATS!!). How anyone could not appreciate art is beyond me….art is what makes a man HUMAN and separates him from the beasts of the earth whom also know how to forage for food and find shelter and protection too…surely there is more to man than a bank account!!!….but again I digress!!! And of course all the greatest achievements we live and thrive upon come not from our FIRE economy but from truly great visionaries….these are the poets of the world….unacknowledged as they may truly still be!!!!
In spite of the lowthoughted envy which would undervalue contemporary merit, our own will be a memorable age in intellectual atchievements, and we live among such philosophers and poets as surpass beyond comparison any who have appeared since the last national struggle for civil and religious liberty. The most unfailing herald, companion and follower of the awakening of a great people to work a beneficial change in opinion or institution, is Poetry. At such periods there is an accumulation of the power of communicating and receiving intense and impassioned conceptions respecting man and nature. The persons in whom this power resides, may often as far as regards many portions of their nature have little apparent correspondence with that spirit of good of which they are the ministers….Poets are the hierophants of an unapprehended inspiration, the mirrors of the gigantic shadows which futurity casts upon the present, the words which express what they understand not, the trumpets which sing to battle and feel not what they inspire: the influence which is moved not, but moves. Poets are the unacknowledged legislators of the World.
Deus-DJ Reply:
October 18th, 2011 at 5:50 pm
@ESM,
ESM, don’t try to push your ideology that banks could do not wrong onto us. Who do you think was pushing for the creation of the CDO’s? And what do CDO’s need? More loans to be made, and of course the banks(with their investment banking side) were creating those products. You would behoove yourself to actually educate yourself on the matter, read ECONned by Yves Smith for starters.
As for your ridiculous assertion that predatory loans didn’t exist and that only predatory borrowing did, you’ve got to be joking. Banks had a higher than ever demand for CDO creation…do you think those mortgage originators cared whether the borrower was creditworthy or not? No, they willingly allowed the loans to be made because it wasn’t something they had to hold onto, and the money was flowing in like crazy.
Until you show all of us that these borrowers had a gun to the heads of these mortgage originators or banks, your story is nothing more than a pathetic attempt to blame the wrong people for the crisis.
anyway my calling it “predatory lending” stood not only for actual predatory lending but for the creation of bad loans in general(even those you couldn’t consider predatory).
Warren I find your comment that the shareholders were hurt most quite troublesome.
WARREN MOSLER Reply:
October 19th, 2011 at 9:55 am
what’s wrong with CDO’s per se?
who do you think was hurt the most by lender fraud if not shareholders who took the losses?
ESM Reply:
October 18th, 2011 at 7:42 pm
@ESM,
@Deus-DJ:
Predatory borrowing includes originators borrowing from banks (i.e. selling crappy loans to the banks) and banks borrowing from investors (i.e. selling crappy CMOs and CDOs).
It was the borrowers taking advantage of the lenders at all stages of the game.
Few people think about where all of the money that the banks (and investors) lost on bad mortgages went. Every single dollar that was lost (net of money made back by new investors buying at the bottom) went either to homeowners, former homeowners (who sold at the top), or other people who worked in the housing industry (e.g. real estate agents, contractors, and mortgage brokers). Food for thought, huh?
Sergei Reply:
October 19th, 2011 at 7:13 am
@ESM,
“Food for thought, huh?”
Lol! You forgot bonuses. But then you are comparing banks (an abstract thing which by definition can not commit a fraud) and homeowners etc which are real. Well, you know what? Bankers ARE VERY real.
Listening to you it sounds like some homeowners (you call them “former”) plus the housing industry have organized themselves to rip-off innocent bank and investors. And they succeeded. Nice story but it can hardly fly.
WARREN MOSLER Reply:
October 19th, 2011 at 10:12 am
mostly bank personnel ripping off bank shareholders. bill black just did a post on that as well.
ESM Reply:
October 19th, 2011 at 8:00 am
@ESM,
@Sergei:
Mortgage banker/broker bonuses are included in the catch-all “people who worked in the housing industry.” My main point is that the money didn’t just disappear. It went somewhere, and it mostly went to retail homeowners in the aggregate. Imaginary wealth disappeared, but that’s a different story altogether.
My
Sergei Reply:
October 19th, 2011 at 8:33 am
@ESM,
“Mortgage banker/broker bonuses are included in the catch-all “people who worked in the housing industry.””
ESM, you are trying to change the topic which is not about whether money has disappeared or not (of course it did not) but rather who ripped off who and was there a rip-off at all.
“it mostly went to retail homeowners in the aggregate”
Aggregates tell you nothing. The point of the discussion is exactly the opposite, i.e. the distribution which is the de-composition of the aggregate. You have to show that there is (was) NO clear pattern in such de-composition and therefore everything is (was) random and arbitrary then I will accept that there was no fraud. And even in the simplest of the simplest forms of distributions (normal distribution) you still need at least two (not one!) variables in order to be able to claim anything about possible implications.
Tom Hickey Reply:
October 19th, 2011 at 9:07 am
@ESM,
“it mostly went to homeowners i aggregate.”
Banker’s bonuses, mortgage brokers fees, etc. They not only got on the gravy train on the way in by creating what Michael Hudson and Bill Black call “fictitious profits,” they also got on the bailout train on the way out while homeowners in the aggregate got left holding the bag. Now a lot of homeowners with mortgages who were not remotely involved are underwater, and many funds and firms that bought the dodgy securitizations are out, too. Not only that the courts are tied up with suits over the mess, and not just a few titles are clouded.
October 16th, 2011 at 2:34 pm
Can’t argue, but here’s the thing that is disturbing. I understand the economy is running a deficit of something like $1.3 trillion and corporations have a few trillion in cash, just in the US. That makes no sense. I guess there really is a liquidity trap? It does suggest to me that the only thing that will work is direct actions, like hiring the unemployed. Tax cuts end up in bank accounts and seldom help.
Reply
WARREN MOSLER Reply:
October 17th, 2011 at 4:43 am
the private sector is necessarily pro cyclical.
only govt can be counter cyclical.
and corp cash accumulation is a good thing.
means for the same size govt taxes can be that much lower.
Reply
October 16th, 2011 at 3:28 pm
Warren once again you outdid yourself…great post here man. I’ve spread it again freely and unabashedly.
From your mouth to our leaders’ (and the peoples’) ears!!!
Reply
WARREN MOSLER Reply:
October 17th, 2011 at 4:47 am
thanks!
Reply
October 16th, 2011 at 3:51 pm
Fantastic proposals, Warren. Now I have to apologize for yelling at you over at TPC.
As for the spam protection here? Math is hard. Just ask Barbie. And if I don’t pass, well you will just have to live with that. ;)
Reply
WARREN MOSLER Reply:
October 17th, 2011 at 4:49 am
thanks!
and i don’t get to read other blogs so i missed that one.
Reply
October 16th, 2011 at 5:43 pm
About the only way I will vote again is if Warren Mosler, or someone similar runs. What did the book say, if God had meant for us to vote, He would have given us candidates? Other than that, I’ll just take the day off.
By the way, I agree with Tom Hickey. This is beginning to feel like the sixties.
Reply
October 17th, 2011 at 3:53 am
Warren’s 3rd point: “An $8/hr federally funded transition job for anyone willing and able to work to facilitate the transition from unemployment to private sector employment.”
If that consists of subsidised places with existing public and private sector employers, that’s OK with me. But if it consists of “make work” schemes like the 1930s WPA, I’m not so keen. There is evidence from European studies that subsidised “real work” produces better results than subsidised “make work”. Not surprising. See here:
http://www.cepr.org/meets/wkcn/4/4527/papers/gerfin.pdf
Reply
Neil Wilson Reply:
October 17th, 2011 at 4:38 am
@Ralph Musgrave,
Subsidising props up failed private sector operations that need resolving.
The job guarantee is there to catch people as private sector malinvestment goes bust, and to stop that process of going bust damaging otherwise sound private sector investment.
More appropriate is for the government to fund the work and allocate the people to the non-profit voluntary sector (with tightly controlled maximum wage settings amongst the non-job guarantee staff).
There should be nothing in the way of allowing bad investment to go bust. It needs to go bust big and early.
Reply
Ralph Musgrave Reply:
October 17th, 2011 at 12:14 pm
@Neil Wilson,
I am strongly against subsidies SPECIFICALLY DESIGNED to support lame ducks. The recent mega bail outs for incompetently run banks are just the most recent example of this unacceptable practice.
In contrast, the subsidies I do tend to favour (depending on the exact nature of the subsidy) are those designed to deal with labour market deficiencies. For example if you look at the Gerfin paper I linked to above, you’ll see that the employment subsidies they had in Switzerland (and may still have for all I know) did not concentrate specifically in loss making firms. Same applies to some of subsidies we’ve had in the UK over the last half century, e.g. the Small Firms Employment Subsidy. Same goes for the subsidy of all low paid labour advocated by Edmund Phelps.
I think part of Phelps’s argument was that minimum wage rules resulted in poor quality labour being over-priced, which in turn raised unemployment. If that’s the case, and if that interference in the labour market can be rectified with a Phelps subsidy, that will facilitate a rise in demand and increased employment in every other firm in the country, a very small proportion of which will actually be saved from bankruptcy by the subsidy. I see nothing wrong with that.
Reply
Neil Wilson Reply:
October 17th, 2011 at 12:52 pm
@Ralph Musgrave,
Yes, but he was arguing that without a job guarantee system which takes people away from the private sector and requires that they bid them back.
The JG defines the minimum standard of work society is prepared to accept. In which case it becomes the new ‘zero’ which everything else is priced from.
My feeling is that you either subsidise all jobs in the private sector (Universal Pension) or none at all. Otherwise the distortions always bite somebody.
Jim Baird Reply:
October 17th, 2011 at 9:06 pm
@Ralph Musgrave,
I dunno. Every time i go to local state park ans see the beautiful buildings and facilities the CCC built back in the 30s i wonder to myself “why aren’t we doing this anymore?”
Reply
WARREN MOSLER Reply:
October 18th, 2011 at 7:09 am
right, must be some kind of rock shortage…
Reply
October 17th, 2011 at 9:56 am
#11 From each according to his ability, to each according to his needs.
Warren: The more you align yourself with fringe radicals and radical ideas, the less likely MMT will every be taken seriously.
Reply
Gary Reply:
October 17th, 2011 at 11:45 am
@Ivan,
MMT will not be take seriously by the interests that want to preserve status quo anyway.
I mean – they may use it – but only to benefit themselves and would never admit it. To make MMT public is too dangerous. Too much information that would benefit the public.
The only way to inform the public of MMT is to go straight to the public, IMHO.
Reply
Gary Reply:
October 17th, 2011 at 11:53 am
@Ivan,
“#11 From each according to his ability, to each according to his needs.”
According to David Graeber, author of “5000 years of debt” – the principle that you stated actually underlies society. It is the basic principle in family, in small close knit communities, in any emergency cooperation where people have to get their skills together to quickly solve something, even in corporations that organize small teams that have to quickly solve something – where everybody gets what they need so they could be most productive.
But it would never work for the economic system as a whole, and Warren definitely does not propose that.
Reply
WARREN MOSLER Reply:
October 17th, 2011 at 2:55 pm
can’t say I’ve ever been aligned with anyone.
Reply
Ivan Reply:
October 18th, 2011 at 3:49 pm
Could have sworn I saw you run as a democrat.
Reply
WARREN MOSLER Reply:
October 18th, 2011 at 4:11 pm
you did, but if you blinked you’d have missed it.
wasn’t a good fit, to say the least.
Deus-DJ Reply:
October 17th, 2011 at 7:34 pm
@Ivan,
go join the tea party if that’s your cup of tea.
Reply
Ivan Reply:
October 18th, 2011 at 12:17 pm
Deus:
I guess if I’m not a follower of Marx, I should join the Tea Party? Those are now my only two choices?
BTW, blaming the banks when the CRA was introduced in the 70′s and expanded in the 90′s, all while FNMA and FHLMC were ordered to increase lending to low income borrowers, is just silly. In order to meet the CRA requirements and low income borrower targets, lenders had to create affordability products in expensive markets. Even today, local banks are under increasing regulatory pressure to make loans to less credit worthy borrowers.
The problems we’ve faced are largely government driven and the lack of a recovery is also government driven. You don’t increase regulation, threaten tax increases, argue for tariffs on Chinese goods etc when the economy is on life support.
Reply
Deus-DJ Reply:
October 18th, 2011 at 5:36 pm
@Ivan,
First thing you should never do is pull the CRA card when you don’t know what you’re talking about. Then again the only people that do use it are the ones that don’t. 50% of all subprime loans were made by mortgage originators not subject to CRA, and another 25% of them were made by international banks also not subject to it. There goes your silly argument.
October 17th, 2011 at 12:04 pm
OWS is borrower movement against the lenders. The classic “cancel the debts” movement as society is buried in debt and see no way to repay it. It is also combined with the feeling of disillusionment over disfranchisement, the concern over environment, feeling of injustice over inequality, and the fear of the future – with Social security being threatened and health care costs sky rocketing.
The inequality part would quickly go away if people could pay their debts, or get them eliminated, and get some assurances for retirement and health care.
Basically a good part of society has been pushed to the brink, where they are really worried about the future and see the present disintegrating fast.
So this movement will not go away. It will increase, and if it will be ignored – it will become more and more radical.
That is my guess.
Reply
October 17th, 2011 at 12:51 pm
I re-read the link in #5 and am a fairly regular reader of this site but I don’t recall seeing the proposals in #6…is there a link to those proposals?
Reply
October 17th, 2011 at 6:49 pm
Re OWS: It does not take a genius to smell a rat.
Re #10: AMEN – I wish the public realized that reduction in the so-called “national debt” comes right out of the pocket of the 99%.
Reply
WARREN MOSLER Reply:
October 17th, 2011 at 7:45 pm
And worse
The debt reduction adds to uneloyment
Reply
October 17th, 2011 at 6:51 pm
What we have is a crisis in liquidity – - – there is plenty of stuff for everyone to have enough. But there is a fixed total amount of money that has been issued, and most of it is being hoarded by the 1%, leaving too little in circulation. You feel this by not receiving enough and not having enough to spend. Anything that reduces the national debt only makes this worse. Legislation is needed to force the money hoarders to spend it – - – on anything they wish as long as the money goes back in circulation. This is not a tax but could be implemented by a tax penalizing those who receive significantly more than they spend.
Reply
WARREN MOSLER Reply:
October 17th, 2011 at 7:46 pm
And read ‘the 7 deadly innocent frauds’ on this website ASAP thanks!
Reply
Ivan Reply:
October 18th, 2011 at 12:19 pm
What country do you live in? “Legislation is needed to force the money hoarders to spend it”?
Reply
WARREN MOSLER Reply:
October 18th, 2011 at 2:04 pm
the operative money hoarder is the govt. of issue which should be forced to cut taxes and/or increase spending
Reply
October 17th, 2011 at 8:14 pm
Great comments as usual.
However there is one very important element missing.
If we look at We Are the 99 Percent a predominant theme is unpayable student debt. This ranges from $30,000 to $250,000
A JG program can be coupled with a form of debt forgiveness. JG pays $8 (for the lowest CPI locale in the US) adjusted for local CPI, plus student debt forgiveness at $40/hr)
The JG programs should be like the New Deal programs WPA, CCC, FWP and FERA. It should be noted that under the WPA, worker pay
Reply
WARREN MOSLER Reply:
October 18th, 2011 at 7:00 am
amend the bankruptcy laws?
Reply
beowulf Reply:
October 18th, 2011 at 12:14 pm
@WARREN MOSLER,
Warren,
You’ve made the point before (IIRC) that a govt injection of capital into banks is the equivalent of reducing bank capital requirements (without the unfortunate need for Congress to appropriate public funds). Thinking along those lines, couldn’t banks refi underwater mortgages (or any loan really) themselves by by cutting interest rate if the govt regulators credited the foregone interest towards bank capital?
Let’s say average 30 yr mortgage rate is 5% and the govt (Tsy, Fed, OCC, FDIC) targeted 2% rates. On a $300,000 mortgage, monthly payments would be cut from approx $1600 to $1100.
1. Homeowner saves $500 a month
2. Bank’s Tier 1 capital increases by $500 a month .
3. If low rate (and capital credit) made available on new loans, home prices would increase. Like Michael Hudson said, “A lower interest rate will increase the capitalization rate – the amount of debt that a given flow of income can carry”.
The rub is most mortgages are now held by FHFA (Fannie/Freddie), a govt agency which, of course, doesn’t have capital requirements. However I imagine the capital credit could “run with the mortgage”. That is, if a Fannie mortgage was marked down to 2% and later sold to a bank, the new mortgage holder could apply the accumulated (and continuing) credits to their own Tier 1 requirements. In this way, the FHFA could mark down interest rates on its mortgages without having to show a diminution in value of public assets (value of current mortgage = marked down mortgage + capital credits).
Reply
WARREN MOSLER Reply:
October 18th, 2011 at 2:03 pm
yes, the gov could credit bank capital accounts with ‘gifts’ for any reason it wants to.
the question is political
beowulf Reply:
October 18th, 2011 at 3:47 pm
Thanks for your feedback Warren.
Congress wouldn’t have to vote on this because there’s no add or drain of “taxpayer money”, its not an appropriation or even a tax credit. As a regulatory action, the closest analogy I can think of is a county commission rezoning a parcel’s land use from agriculture to residential– instantly increasing its property value (and owner’s net worth) without the expenditure of any public funds.
I don’t see any reason (other than politics) Tsy and the Fed couldn’t do this under current law, perhaps working through the new Financial Stability Oversight Council to drag along the other federal regulators.
http://en.wikipedia.org/wiki/Financial_Stability_Oversight_Council
WARREN MOSLER Reply:
October 18th, 2011 at 4:10 pm
maybe, but federal spending that adds to bank capital feels a lot like the tarp politically.
beowulf Reply:
October 18th, 2011 at 4:43 pm
There’s no federal spending or loss of tax revenue, but I take your point that calling them “capital credits” sounds like Uncle Sam is adding to bank capital. What’s the saying… if you can’t move Mohammed to the mountain, move the mountain to Mohammed; so instead, Uncle Sam could REDUCE bank capital requirements dollar for dollar with mortgage relief given to borrowers.
The crusher about TARP was Bernanke forced congressmen to vote, just weeks before an election, in favor of using appropriated funds to do what the Fed board could have done itself with 13(3) loans and regulatory forbearance. That was just mean.
WARREN MOSLER Reply:
October 19th, 2011 at 9:52 am
to me the crusher was the chairman didn’t understand what it was actually all about.
banks (and housing agencies) are regulated govt agents. the regs can be altered so banks can’t refuse refis of their own loans due to appraisals and/or income statements.
that means they’d have to refi all above market rate loans on their books at once, as they originally planned they’d have to do when they originated the loans.
the appraisal and income barriers are a convenient afterthought.
beowulf Reply:
October 19th, 2011 at 8:33 am
@Warren Mosler,
I guess the capital credit form of this has a name, “regulatory goodwill”.
They [the FDIC] signed a contract with Meritor providing for “regulatory goodwill,” a fantasy form of capital that bank examiners disliked and, according to e-mails Meritor uncovered, plotted to unwind.
http://www.forbes.com/sites/danielfisher/2011/06/24/fdic-gives-up-in-meritor-case-will-pay-judgment/
That Meritor case (Slattery v. US), coincidentally enough, is the case from earlier this year I’ve mentioned where the appeals court ruled FDIC obligations are also Tsy obligations (and we all know what the 14th Amendment says about those). So now FDIC creditors can elect to either sue FDIC in US District Court or sue Tsy directly in the Court of Federal Claims.