Canova, a professor of international economic law at the Chapman University School of Law in Orange, California, appeared on Russia Today America earlier this month following his inclusion on an IPA news release. He talked about the financial crisis and the “most top-heavy distribution of wealth and income since before the 1920’s, perhaps since the Gilded Age of the 1890s.”
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Is the Fed Both Causing and Exploiting Crises?
TIM CANOVA, tim@timcanova.com
Canova is professor of law and public finance at Nova Southeastern University in Ft. Lauderdale, Florida. He said today: “The present crisis reveals some of the big shortcomings in the 2008 bailout approach — starting with a failure to nationalize and prosecute fraudster bankers; a refusal to close down the derivatives markets, cronyism and revolving doors between D.C. policymakers, regulators and banks; and the Federal Reserve’s trickle-down monetary policy, printing money to bailout banks and subsidize financial markets and a casino economy. … There are indications that the Federal Reserve may use the present crisis to try to usher in central bank digital currency (CBDC) and a centralized system of social credit and social control.”
In 2011, Tim was appointed by Senator Bernie Sanders (I-Vt.) to serve on an Advisory Committee on Federal Reserve Reform. He has written extensively on the Federal Reserve, including “The Role of Central Banks in Global Austerity.” Other works are here.
DNC Head Wasserman Backs “Loan Shark” Payday Lenders
Huffington Post reports: “DNC Chair Joins GOP Attack On Elizabeth Warren’s Agency.” See in Esquire: “It’s Time for DNC Chair Debbie Wasserman Schultz to Ride Off into the Sunset,” and “Debbie Wasserman Schultz Shouldn’t Be Welcoming Loan Sharks Into the Democratic Party,” by Tim Canova, who is challenging Wasserman in the Democratic Party primary.
MEHRSA BARADARAN, mehrsa at gmail.com, @MehrsaBaradaran
Baradaran is author of the new book How the Other Half Banks from Harvard University Press. She is associate professor at the University of Georgia School of Law where she teaches contracts and banking law. Baradaran is currently in NYC and will be in D.C. on March 10 and 11.
She said today: “All of the headlines have portrayed this as some sort of political catfight between two top DNC leaders, but it is nothing of the sort. The CFPB [Consumer Financial Protection Bureau] is not ‘Warren’s Agency,’ though it was her brainchild. The fight is much bigger than a Wasserman/Warren feud. This is the DNC siding with payday lenders over people. It is no wonder voters on the left and the right have lost faith in the establishment.
“Wasserman wants the CFPB to back away from their payday lending rules for two years. This would kill their momentum on the notice and comment rulemaking they have been engaged in for the last several years and would assure an even weaker bill once it was passed after the delay. In the agency context, delay means death for many bills.
“Wasserman wants state pre-emption of payday lending rules. What this means functionally is no payday lending rules. This is because payday lenders can work online and from Native American reservations or charter in states with weak consumer protection laws and operate in other states. This is the EXACT reason the CFPB was created. Federal oversight is the only thing that works when different state rules create a race to the bottom.
“The Office of the Comptroller of the Currency (OCC) was engaged in federal pre-emption of state consumer laws for the decade before the financial crisis. This is why so many predatory and fraudulent mortgages did not get caught. The OCC allowed state rules to govern and many states did not have good rules and those that did, the OCC pre-empted. Thus, the lack of oversight created a predatory and fraudulent market. Making the CFPB impotent against payday lenders would create the same dynamic.
“I am glad Wasserman’s actions came to light and there is some pushback, but often these bills do not get sufficient media attention because there aren’t as many well-funded and well-organized consumer protection groups as there are interested payday lender lobbies. I hope this is a warning to all policymakers that the public is now paying attention.
“Payday lenders are modern day loan sharks. The industry has ballooned in the last two decades as banks have abandoned low income neighborhoods. They profit off of the desperation of poor borrowers by charging the maximum interest rates allowable by law (up to 2000 percent APR in some circumstances). Any policymaker that defends this industry is more interested in campaign contributions than alleviating the very real suffering of their constituents.”
Jobs: Goolsbee Resignation and Ten Years After Bush Tax Cuts
On Sunday chairman of President Obama’s Council of Economic Advisers Austan Goolsbee appeared on ABC’s “This Week” defending the administration’s record on helping to produce jobs. “It’s not a jobless recovery” he said. Later in the program, economist Paul Krugman said: “The fact is, for about 18 months, we’ve had an economy that’s recovering in a technical sense, but it’s not generating jobs faster than population growth.”
On Monday morning, the Institute for Public Accuracy issued a news release titled “Colbert or Goolsbee: Who’s the Clown?” which quoted Goolsbee telling Stephen Colbert two years ago: “A year from now we’re going to be in a very happy place.” Late on Monday, the White House announced Goolsbee would be resigning.
Tuesday marks the ten-year anniversary of the Bush tax cuts, which were renewed late last year.
TIMOTHY CANOVA, canova at chapman.edu
Canova is a professor of international economic law at the Chapman University School of Law in Orange, California. He is the author of numerous articles and book chapters forewarning of financial crisis and examining government intervention in the economy, including “The Federal Reserve We Need” and “Legacy of the Clinton Bubble.” [more]
Colbert or Goolsbee: Who’s the Clown?
Nearly two years ago, Chairman of President Obama’s Council of Economic Advisers Austan Goolsbee, told Comedy Central host Stephen Colbert, “A year from now we’re going to be in a very happy place.” (June 15, 2009, 1:40 mark of the video.)
TIMOTHY CANOVA, canova at chapman.edu
Canova is a professor of international economic law at the Chapman University School of Law in Orange, California. He is the author of numerous articles and book chapters forewarning of financial crisis and examining government intervention in the economy, including “The Federal Reserve We Need” and “Legacy of the Clinton Bubble.”
Today, Canova said: “According to Goolsbee, ‘the main driver of recovery at this point has got to be the private sector.’ Goolsbee recently told the Financial Times that only during ‘a rescue phase’ should the government be the primary driver of the economy. Likewise, for the past year President Obama has repeatedly said that the private sector must be the engine of job creation, a perspective shared by such Tea Party leaders and libertarians as newly-elected U.S. Senator Rand Paul and eerily reminiscent of the approach of the Hoover administration. Unfortunately, private sector job growth continues to stall and underperform. The U.S. added just 54,000 jobs last month, well below the 150,000 to 200,000 new jobs that are needed each month just to keep up with the increase in the working age population. The official U.S. unemployment rate is now 9.1 percent. According to the U.S. Bureau of Labor Statistics, nearly one in five American workers are either unemployed, underemployed, or discouraged workers who have given up looking for work. [more]
Rule by “Hedge Fund Democrats”
NOMI PRINS
Prins just wrote the piece “Geithner’s Plan: Pure Plunder” for Mother Jones magazine. Prins is a senior fellow at Demos and is the author of two books: Other People’s Money: The Corporate Mugging of America and Jacked: How Conservatives Are Picking Your Pocket. She is a former investment banker turned journalist. She used to run the European analytics group at Bear Stearns and has also worked at Lehman Brothers and Goldman Sachs.
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JOHN SAKOWICZ [see note below] Sakowicz is a 30-year veteran of Wall Street. He is currently a general partner at Templar Advisors, an offshore investment advisory group. Sakowicz also hosts “The Truth About Money” at KZYX in Northern California and he writes for alternative weeklies as a contributing editor at the North Bay Bohemian.
He said today: “Bank stocks have soared, but their bonds haven’t budged. In some cases, they’ve actually fallen. When that happens, the market is telling us something. It’s telling us to come back to reality. It’s telling us these toxic assets may be more toxic than we think. … In Geithner’s plan, the leverage is about five or six federal dollars to every one dollar invested by the private sector. That’s like saying, ‘Let’s drive a truck full of money directly at a freight train full of money to prevent a train wreck.'”
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TIMOTHY CANOVA
Canova is a professor of international economic law at the Chapman University School of Law in Orange, California. He is the author of numerous articles and book chapters forewarning of financial crisis, in addition to such short essays as “Greenspan’s Grip” and “Legacy of the Clinton Bubble.”
Canova said today: “The latest Treasury plan by Timothy Geithner is befitting an administration run by ‘hedge fund Democrats.’ Such is the nature of bankster capitalism, the zombie banks are propped up by public subsidies and their losses are socialized. Under the plan, the Federal Reserve and Treasury as the ‘public partners’ would provide enormous subsidies to the ‘private partners,’ the unregulated and unregistered hedge funds that have been overleveraged and facing mounting losses of their own. The subsidies would go to hedge funds for taking near worthless assets off the books of the ailing banks.
“There’s been much criticism of the American Insurance Group for paying out $165 million in excessive bonuses to executives in its financial products division, the now notorious AIG unit that sold more credit default swaps than the firm could cover. Lost in the outrage was news that AIG had paid out $40 billion in taxpayer bailout money to some of the world’s largest banks and hedge funds. Most of that went to ten U.S. and foreign banks, with Goldman Sachs leading the list. This is the same Goldman Sachs that has owned the Treasury Department for two decades. Its former CEOs, Robert Rubin and Henry Paulson, became Treasury secretary. Its chief lobbyist, Mark Patterson, recently became chief of staff to Geithner, one of the few vacancies filled in the department, and one that required an immediate waiver to Obama’s supposedly tough ethics rules.
“Within the academy, there’s a recognition that the sanctity of private contract requires striking down sham contracts. Bert Ely, a Cato Institute banking analyst, now argues that credit default swaps should be considered unenforceable contracts since the counterparties lack any insurable interest in the underlying assets. Lucian Bebchuk, a Harvard Law professor and centrist, now proposes Chapter 11 bankruptcy for AIG to stop the bleeding on its $1.2 trillion in credit default swaps. Paul Krugman, Nobel economist, argues for nationalizing the zombie banks to get them to shed their toxic assets and jump-start their lending activities for productive investment in real economic activity.
“The subsidies to Wall Street hedge funds and banks are not without enormous costs. Last week the Federal Reserve announced that it would double the size of its balance sheet to $3 trillion by doubling its purchases of asset-backed securities from its favored clientele, which now includes foreign banks and central banks. Three trillion dollars that could be spent on real needs, like jobs and education, the kinds of large public spending programs that raised the economy out of the Great Depression, created the last great middle class boom for the Greatest Generation, and left future generations with tangible assets instead of worthless paper.”
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For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167
Note to journalists:
The Institute for Public Accuracy included John Sakowicz as a financial analyst in news releases on Sept. 18, 2008 and March 24, 2009. IPA recently received the following from the editors of the North Bay Bohemian newspaper in California: “Effective April 28, 2009, the North Bay Bohemian has disinvited contributing editor John Sakowicz from the paper. He is not to represent himself as anything but a former contributor to the Bohemian and our sister publications, the Metro Silicon Valley and the Metro Santa Cruz. Mr. Sakowicz has not proven his professional background to our satisfaction.” Similarly, IPA, which had identified Sakowicz as having been employed at various Wall Street firms, recently contacted Sakowicz, but he declined to give an on-the-record response on specific matters. We regret that IPA news releases passed along descriptions of his professional background that cannot be verified.
Change on Economy?
TIMOTHY CANOVA
Canova is professor of international economic law at the Chapman University School of Law in Orange, California.
He said today: “The selections of Larry Summers as chair of the National Economic Council and Timothy Geithner as Treasury Secretary are disappointing. Although President-elect Obama has referred to their ‘sound judgment and fresh thinking,’ when it came to the issue of deregulating banks and derivatives, both Summers and Geithner have shown very poor judgment and old thinking. Summers, as Treasury Secretary in 1999, was shoulder to shoulder with Robert Rubin and Alan Greenspan in sweeping aside the Glass-Steagall Act provisions from 1933 which had kept commercial banking and insurance separate from securities and the casino economy. A year later, Summers was behind the legislation that was signed by Bill Clinton to shield derivatives from federal regulation. What made the deregulation of derivatives particularly outrageous was that it came on the heels of the meltdown of the Long-Term Capital Management hedge fund because of its speculation in the derivatives markets.
“As a result of such deregulation, the market for derivatives has exploded in size and volatility. Credit default swaps, with a notional value of more than $50 trillion, helped bring down AIG, an insurance giant that has required more than $150 billion in taxpayer support. The market for exchange rate and interest derivatives is even bigger, at least $500 trillion in face value. What’s needed is a central clearing exchange with the authority to set capital requirements and margin requirements for credit derivatives. Geithner, as president of the New York Federal Reserve Bank, has been talking about such a clearinghouse for the past two years. Six months ago, Geithner promised to have such a clearinghouse in place by the end of this year. But there is no evidence that there has been much action, even though Geithner has used this time to negotiate multibillion-dollar bailouts and deals associated with the collapse of Bear Stearns, Lehman Brothers, AIG, and now Citigroup. Even with the kind of leverage the New York Fed has enjoyed, Geithner has been unable, or unwilling, to impose a central clearinghouse on derivatives. No wonder the stock market reacted favorably to the initial news of his nomination. Perhaps Wall Street is hoping that little will change with Geithner at Treasury.
“At a time when the pleas of General Motors and other carmakers for a $25 billion federal bridge loan are being closely scrutinized, Wall Street continues to enjoy the endless financial support of the New York Federal Reserve Bank, and with no strings attached. For Wall Street firms, there have been no limits on executive compensation or dividend payments, no commitments by the banks to maintain their lending levels to industry and homeowners, and unlike in Britain and elsewhere, no public officials have been appointed to their oversight boards. Hedge funds and derivatives remain unregulated, and many billions (perhaps trillions) of dollars in toxic assets remain hidden in off-balance-sheet accounting shells.
“Supporters of President-elect Obama will be tempted to embrace the experience argument, and it is true that Geithner and Summers have lots of experience at crisis management and doling out bailout funds to their Wall Street clientele. However, there are others with plenty of experience who have actually showed sound judgment and fresh thinking, including economists like Joseph Stiglitz, Paul Krugman, James Galbraith, and Dean Baker, and financiers like George Soros. The selection of Geithner and Summers to top administrative posts rewards past failure and protects special interests. It also sends the wrong message to those who thought they were voting for change.”
Canova’s articles related to the current crisis include the piece “ The Legacy of the Clinton Bubble,” and the recent “Massive Stimulus May Be Needed to Stem Crisis” for the Wall Street Journal.
A recent video interview is available online.
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For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167
The Financial Crisis: Now What?
DAVID KOTZ
Kotz is professor of economics at the University of Massachusetts at Amherst. He said today: “The $700 billion Paulson bailout bill passed Congress, but as its critics warned, it has not stemmed — or even slowed — the financial crisis. It is great for the bankers, but it does nothing to solve the underlying set of problems behind the financial crisis. Huge and growing income inequality forced millions of families to take out inadvisable loans to keep afloat. Deregulation allowed financial institutions and their executives to get rich by creating new securities based on loans to low-income families that magically appeared safe to hold. It worked as long as the housing bubble kept inflating. Once it burst, the inevitable result was both a financial crisis, due to all those bad securities, and a severe recession from the end of families’ ability to keep paying their bills by borrowing.
“Immediate government intervention is needed, but it should address the real problems: 1) stop the foreclosures by rewriting the unfair mortgage terms for millions of struggling families, so that they can either afford the payments or remain in their home as renters; 2) take over problem banks and restructure them as needed, so that the taxpayers will gain when the economy and financial system recover. For the longer run, major steps should be taken to reduce income inequality and regulate the entire financial system to prevent any more rounds of dangerous speculative investments.”
DOUG HENWOOD
Henwood is author of the book Wall Street and editor of Left Business Observer. He said today: “Paulson has assembled around himself a gang of old Goldman Sachs cronies to run the bailout. We have to be careful that all the Goldman alums — who are very clever people — don’t direct several scores of billions into the coffers of their former employer. And the solution to that is not to put another Goldman alum, like supposed wise man Robert Rubin, in charge instead.”
Reacting to last night’s debate, Henwood said: “It was encouraging to hear Obama talk about shaping the $700 billion bailout plan in a more constructive direction. The broad wording of the law gives the Treasury Secretary enormous flexibility to do pretty much whatever he (and maybe someday she) wants. And Obama did say some good things about using that discretion to help troubled homeowners avoid foreclosure, and make sure that Wall Street titans don’t use public funds to refill their troughs. But given the generosity of many big Wall Streeters in funding his campaign, I’ll believe it if and when I see it.
“McCain was on autopilot, reciting tired old right-wing talking points that might have sounded fresh, even if dumb and cruel, 25 or 30 years ago. Now they just sound like they emerged from a time capsule. The only exception was his proposal to spend $300 billion to buy up distressed mortgages — not a bad idea, but something that he seemed to come up with on the spot. Even Mitt Romney was surprised to learn about it. It would have been nice if he’d promoted that during the suspension of his campaign, when he was supposed to be shaping the bailout. Now it just looks like rank opportunism, and at odds with everything else he stands for.
“There is a germ of truth to the Republican argument that Democrats encouraged Fannie and Freddie to support reckless lending — it was a market-based solution to the problem of inadequate housing that was a bad substitute for public housing and other forms of support to the poor. But you’re not likely to hear a New Democrat say anything like that.
“I was massively disappointed, however, that Obama didn’t challenge the premise [put forward by moderator Tom Brokaw and McCain] that Social Security was in trouble and needed radical surgery of some unspecified sort. It’s not in trouble, and needs no major overhaul. Apparently ‘change’ doesn’t extend to challenging conventional nonsense like that.”
PATRICK BOND
Currently visiting the U.S., Bond is author of the recent paper “The U.S. financial meltdown: What really happened? Roots of the economic crisis in overaccumulation, financialization and ‘global apartheid.'” Bond is a political economist and research professor at the University of KwaZulu-Natal School of Development Studies in South Africa, where he directs the Center for Civil Society. Bond’s recently authored and edited books include Looting Africa: The Economics of Exploitation, Talk Left, Walk Right and Against Global Apartheid: South Africa meets the World Bank, IMF and International Finance. Patrick was the drafter of 15 policy papers for the South African government from 1994-2001.
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Correction: An Oct. 1 IPA news release quoted Timothy Canova stating “There are almost 10,000 foreclosures a day now.” It should have read “almost 10,000 foreclosures a week.”
For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167
Bailout: “No Lasting Positive Effect”
JAMES THINDWA
FRAN TOBIN
The group Jobs with Justice is organizing protests around the country today. Thindwa is executive director of Chicago Jobs with Justice; Tobin is the group’s Midwest regional organizer. The protest in Chicago begins at noon Chicago time in front of the Federal Reserve Bank of Chicago.
JOHN BERG
Professor and chair of the government department at Suffolk University in Boston, Berg is author of Unequal Struggle: Class, Gender, Race and Power in the U.S. Congress. He said today: “The bailout seems to be very deficient but looks as though it might get through because it’s take-it-or-leave-it. Plans to save people’s homes don’t seem to be getting traction in Congress. The government is beholden to the big banks. Our system is pretty undemocratic and on finances it’s particularly undemocratic.”
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ROBIN HAHNEL
Hahnel is professor emeritus of economics at American University and currently visiting at Portland State University. Hahnel’s most recent books are Panic Rules!: Everything You Need to Know About the Global Economy, The ABCs of Political Economy: A Modern Approach, and Economic Justice and Democracy: From Competition to Cooperation.
He said today: “An unregulated financial industry is an accident waiting to happen. Eighty years ago that lesson was learned and New Deal legislation ushered in an unprecedented era of financial stability. But over the past 30 years the U.S. financial industry, Republican free market ideologues, and ‘New Democrats’ have conspired to eliminate necessary safeguards. The result is a financial system now dominated by three megabanks where those engaged in unregulated, risky investment banking once again have full access to the savings of ordinary people in commercial banks that are experiencing a category four financial meltdown.
“A week ago Secretary of the Treasury Paulson came to Congress with a terrible three-page proposal designed to bail out Wall Street but not Main Street with no oversight or judicial review. A week of negotiations with congressional leadership added 99 pages of window-dressing to the Paulson plan, devoid of any enforceable protections for taxpayers or homeowners, that was voted down by the House of Representatives, leaving us with no effective government response to a financial crisis that worsens by the hour.”
TIMOTHY CANOVA
Canova is professor of international economic law at the Chapman University School of Law in Orange, California. His articles related to the current crisis include the piece “The Legacy of the Clinton Bubble.”
He said today: “I am unconvinced that this $700 billion bailout for Wall Street will have any lasting positive effect. If the goal is to help the credit markets, the Federal Reserve already has the authority to purchase commercial paper and support the money markets. The Bush administration is once again using fear to scare people into supporting a dangerous course. There are almost 10,000 foreclosures a day* now, and between one and two million adjustable rate mortgages are due to adjust upward in the next year. Without help for the bottom of the pyramid, Wall Street will be back next year asking for another trillion dollars. This was Japan’s quagmire in the 1990s. The decline in housing prices must be stopped in its tracks and the sooner the better.
“Obama is saying many of the right things — that we should be helping Main Street as well as Wall Street, and that we need to re-regulate Wall Street. But like many in Congress, he’s also saying that these things can wait until next year, that such measures should not be in the bailout package. However, now is the time when Wall Street is desperate for taxpayer help for Congress to demand real help for Main Street.”
Canova addressed what’s missing from this rescue package: “First, there should be a moratorium on foreclosures and the Bankruptcy Code should be amended to allow people to modify their mortgage loans and stay in their homes. Congress should also extend the ban on short-selling in financial stocks. This could all be accomplished immediately. Any exceptions to a moratorium on foreclosures or to a ban on short-selling can wait some weeks or even months. Likewise, Congress should pass at least $50 billion in revenue sharing for state and local governments which have been hit hard by the decline in tax revenues stemming from falling property values.”
Canova highlights the need to scrutinize the Federal Reserve: “It was the Fed that helped gut the Glass-Steagall Act that had kept banks separate from securities speculation, and it was the Fed that lobbied against margin requirements and reserve requirements, and against the regulation of derivatives and hedge funds. All of this was the inevitable result of making the Federal Reserve ‘autonomous,’ a euphemism for the capture of the Fed by the same financial interests it should have been regulating. It’s like the fox running the henhouse.
“The Fed clearly violates both the Constitution’s Appointments Clause and its private non-delegation doctrine. But the federal courts have dismissed these challenges on very narrow procedural grounds, namely that plaintiffs lack standing because the courts say they cannot show they were directly injured by the Fed. It’s ludicrous, and Congress has the power to change the Fed’s structure and make it more accountable to a wider range of interests and perspectives.”
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For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167
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CORRECTION:
Emailed on Oct.8:
* Correction: An Oct. 1 IPA news release quoted Timothy Canova stating “There are almost 10,000 foreclosures a day now.” It should have read “almost 10,000 foreclosures a week.”