Senator Baldwin is Asking the SEC Questions About "Disgorge the Cash"

Apr 23, 2015Mike Konczal

A lot of people were surprised last month when the investment giant BlackRock flagged the rise in stock buybacks and dividend payments as a major economic concern. Its CEO argued that the “effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy,” and that this was being done at the expense of “innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth.”

They are right to be concerned. The cash handed back to shareholders in the form of buybacks and dividends was 95 percent of corporate profits in 2014, climbing from 88 percent the year before and 72 percent in 2010 and expected to go even higher in the future. These numbers are far above historical norms, but they are the culmination of a long process starting in the 1980s. Private investment remains a weak part of the recovery, and it is necessary to investigate the connection between corporate governance and those decisions.

With that in mind, Senator Tammy Baldwin (D-WI) has sent a letter to the SEC looking for answers on these issues. In particular, she flags whether the SEC’s mission to “foster capital formation and prevent fraud" is jeopardized by short-termism in the market. It will be good to see how the SEC responds, and which other senators and organizations join in with their concerns.

Personally, I’m happy that it quotes J.W. Mason’s work on profits and borrowing shifting from investment in a previous era to cash leaving the firm now. This issue is a major piece of our Financialization Project here at Roosevelt, and we will continue to develop it in the future.

I think there are two additional things of interest. One is that this relationship is becoming more of an interest for academic and popular scrutiny. Recent, high-level research is showing that as a result of short-termist pressures, “public firms invest substantially less and are less responsive to changes in investment opportunities, especially in industries in which stock prices are most sensitive to earnings news” compared to private firms before the Great Recession.

Second, this looks like a centerpiece agenda item for liberals going into 2016. Larry Summers’s Inclusive Prosperity report for the Center for American Progress discusses concerns over short-termism, noting, “it is essential that markets work in the public interest and for the long term rather than focusing only on short-term returns. Corporate governance issues, therefore, remain critical.”

The problem of short-termism was also in Senator Elizabeth Warren’s big speech on the future of the financial reform agenda, in which she noted we need to change the rules of the economy because we “too often reward short-term risk-taking instead of sustained, long-term growth” and allow CEOs to “manipulate prices in the short-term, rather than investing in the long-term health of their companies.”

And it will be central to work from the Roosevelt Institute about inequality coming next month. (Get excited!)

I’m not sure if the right has a response to this issue. One of their core policy goals, removing all taxes on capital, will certainly make the situation worse, as the Bush dividend tax cuts increased dividends payouts without encouraging any real investment or wage growth. If the Republicans want to have real answers about inequality and stagnation, it’s important that they tackle real questions. And short-termism is one of those essential questions.

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A lot of people were surprised last month when the investment giant BlackRock flagged the rise in stock buybacks and dividend payments as a major economic concern. Its CEO argued that the “effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy,” and that this was being done at the expense of “innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth.”

They are right to be concerned. The cash handed back to shareholders in the form of buybacks and dividends was 95 percent of corporate profits in 2014, climbing from 88 percent the year before and 72 percent in 2010 and expected to go even higher in the future. These numbers are far above historical norms, but they are the culmination of a long process starting in the 1980s. Private investment remains a weak part of the recovery, and it is necessary to investigate the connection between corporate governance and those decisions.

With that in mind, Senator Tammy Baldwin (D-WI) has sent a letter to the SEC looking for answers on these issues. In particular, she flags whether the SEC’s mission to “foster capital formation and prevent fraud" is jeopardized by short-termism in the market. It will be good to see how the SEC responds, and which other senators and organizations join in with their concerns.

Personally, I’m happy that it quotes J.W. Mason’s work on profits and borrowing shifting from investment in a previous era to cash leaving the firm now. This issue is a major piece of our Financialization Project here at Roosevelt, and we will continue to develop it in the future.

I think there are two additional things of interest. One is that this relationship is becoming more of an interest for academic and popular scrutiny. Recent, high-level research is showing that as a result of short-termist pressures, “public firms invest substantially less and are less responsive to changes in investment opportunities, especially in industries in which stock prices are most sensitive to earnings news” compared to private firms before the Great Recession.

Second, this looks like a centerpiece agenda item for liberals going into 2016. Larry Summers’s Inclusive Prosperity report for the Center for American Progress discusses concerns over short-termism, noting, “it is essential that markets work in the public interest and for the long term rather than focusing only on short-term returns. Corporate governance issues, therefore, remain critical.”

The problem of short-termism was also in Senator Elizabeth Warren’s big speech on the future of the financial reform agenda, in which she noted we need to change the rules of the economy because we “too often reward short-term risk-taking instead of sustained, long-term growth” and allow CEOs to “manipulate prices in the short-term, rather than investing in the long-term health of their companies.”

And it will be central to work from the Roosevelt Institute about inequality coming next month. (Get excited!)

I’m not sure if the right has a response to this issue. One of their core policy goals, removing all taxes on capital, will certainly make the situation worse, as the Bush dividend tax cuts increased dividends payouts without encouraging any real investment or wage growth. If the Republicans want to have real answers about inequality and stagnation, it’s important that they tackle real questions. And short-termism is one of those essential questions.

Follow or contact the Rortybomb blog:
 
  

 

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Denise Cheng: To Prepare for the Future, Lower the Voting Age

Apr 22, 2015Laurie Ignacio

The Next American Economy's video series on “The Good Economy of 2040" continues this week with Denise Cheng from the MIT Center for Civic Media and the San Francisco Mayor’s Office of Civic Innovation.

The Next American Economy's video series on “The Good Economy of 2040" continues this week with Denise Cheng from the MIT Center for Civic Media and the San Francisco Mayor’s Office of Civic Innovation.

Cheng is an advocate of open government initiatives like open data and participatory budget projects. But if she had to pick only one thing to ensure a good economy in the future, she would lower the voting age to 16 “so people are actually getting their civic education while they’re still in high school," ensuring that "they have the best information to make an informed vote.”

Read more about initiatives to lower the voting age to 16:

"Scotland let 16-year-olds vote. The US should try it too.” (Vox)

"Hyattsville becomes second U.S. municipality to lower voting age to 16" (Washington Post)

Denise Cheng is an innovation fellow with the San Francisco Mayor’s Office of Civic Innovation. She has an eclectic background in community building, the future of news, and labor in the peer economy—specifically, worker support around the growing pool of people who depend on piecemeal income. Cheng has spoken, written, and appeared widely in NPR, Harvard Business Review, and Next City, at the New Museum and Personal Democracy Forum, and more about the sharing economy. She received her MSc from MIT and is an affiliate researcher with the Center for Civic Media at MIT Media Lab.

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Andrew McAfee: Immigration Reform Is Key to Our Economic Future

Apr 17, 2015Laurie Ignacio

Our series on The Good Economy of 2040 continues with MIT’s Andrew McAfee. To build a better economy over the next 25 years, McAfee says, we’ll need a more open immigration system that welcomes skilled workers. "When the world’s most talented, ambitious, tenacious, capable people want to come here and build their lives and their careers…it absolutely makes no sense to me that we put all these ridiculous Kafkaesque barriers in their way."

Our series on The Good Economy of 2040 continues with MIT’s Andrew McAfee. To build a better economy over the next 25 years, McAfee says, we’ll need a more open immigration system that welcomes skilled workers. "When the world’s most talented, ambitious, tenacious, capable people want to come here and build their lives and their careers…it absolutely makes no sense to me that we put all these ridiculous Kafkaesque barriers in their way."

To read more about skilled immigration, check out the following articles:

Getting a Visa Took Longer Than Building Instagram, Says Immigrant Co-Founder (Bloomberg)

The basics of the US immigration system (Vox)

Andrew McAfee is a principal research scientist at MIT and cofounder of its Initiative on the Digital Economy, where he studies how computer technologies are changing business, the economy, and society. His 2014 book on these topics, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (co-authored with Erik Brynjolfsson), has been both a New York Times and Wall Street Journal top ten bestseller. He writes two blogs, academic papers, and articles for publications including Harvard Business Review, The Economist, the Wall Street Journal, and The New York Times. He’s talked about his work on The Charlie Rose Show and 60 Minutes, and at TED and the Aspen Ideas Festival. McAfee was educated at Harvard and MIT.

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Predatory Finance Has Hurt Our Universities, But Students Can Fight Back

Apr 13, 2015Dominic RusselRyan Thornton

Our tuition checks shouldn't be going to pay off debts from Wall Street's bad deals.

Our tuition checks shouldn't be going to pay off debts from Wall Street's bad deals.

The last few decades have not been kind to America’s local public institutions. Cities that once built state-of-the-art infrastructure are now struggling to fix potholes in the street. Public schools that were once the best in the world are lagging behind. Even our universities, which used to be gateways to a shot at a better life, are increasingly becoming too expensive for much of the population.

There’s no shortage of explanations for these problems, ranging from globalization to government waste to an aging population. These answers, however, all overlook the role that a growing Wall Street has played in changing the picture for public institutions.

In 1950, the financial sector accounted for about 3 percent of U.S. GDP; it now accounts for more than 6.5 percent. This financialization has given the big banks on Wall Street immense wealth and power, allowing them to extract greater and greater earnings from public and private borrowers. While the financial industry is reaping huge profits, it is individuals, not corporations, who pay an increasingly large share of the taxes that are supposed to support our public institutions. Since 1950, corporate tax contributions have dropped from 32 percent to only 17 percent despite corporations claiming a growing share of GDP. In contrast, individuals now pay 63 percent of taxes, up from 45 percent in 1950.

Our cities and schools—and all public institutions that rely on taxes to provide essential services—have felt the impact of this change. Facing slashed budgets, they have been forced to turn to the financial industry for loans. Undoubtedly, borrowing is necessary for financing extensive long-term capital projects; however, public institutions are increasingly compelled to secure loans for their short-term spending as well. Big banks are more than happy to accept the business of cities and universities desperate for funding, especially when the banks get to write the terms of the deal.

Wall Street’s profits are no longer solely built on interest from traditional “vanilla” loans. Instead, its banks have turned to high-risk, high-cost, and unnecessarily complex deals to further inflate their profits. Take interest rate swaps, for example. Swaps are a financial instrument devised by banks that allows cities and universities—those issuing bonds to finance long-term projects—to “swap” a variable interest rate for an agreed-upon fixed interest rate.

These interest rate swaps were deceptive from the very start. They were sold as protection from changing interest rates, but because exorbitant termination fees made refinancing extremely costly, they were essentially dangerous bets that would have only worked out if interest rates rose. And the deck was stacked against the cities and universities making these bets.

Banks illegally manipulated the London Interbank Offered Rate (LIBOR), which was tied to many deals, and helped precipitate a financial crisis that led to near-zero interest rates that continue today. Because banks had negotiated the swaps contracts so that they would be paying the variable market rates, cities and universities ultimately ended up locked into deals in which they were paying as much as 50 times what the banks were paying—all of which went to Wall Street as profit.

Both of the schools we attend—the University of Michigan and George Mason University—entered into swap deals that have costs them millions. One swap at Michigan even protected banks by allowing them to terminate the deal if variable rates hit just 7 percent, while offering no protection for the university when rates actually sank near zero.

The current imbalance in power need not be the case. Increased transparency surrounding the fees and terms of public finance deals would allow students and taxpayers to oversee the officials and banks who use their money and hold them accountable. When university regents, trustees, or other executives receive or have received compensation from the financial institutions their school does business with (as was the case in a series of University of California swaps), they should immediately recuse themselves from financial decision making to avoid conflicts of interest. Cities, states, and universities can work together to bargain with banks or create public options for bond underwriting and borrowing.

In situations in which our public entities have been targeted by banks, we can organize and pressure our public leaders to regain the money we lost. The city of Detroit was able to reduce its bank payments from $230 million to $85 million by exposing the invalidity of a swap.

Because swaps were often marketed to public institutions as a safe protection from variable interest rates—not as risky bets—it may be possible to pursue legal action to reclaim some of the losses. One avenue to reclaim public funds is the regulatory framework of the Municipal Securities Rulemaking Board, which mandates that municipalities be made fully aware of the risks and possible costs of entering into financial deals.

As students, we feel the impact of Wall Street every time we pay tuition. We put ourselves in thousands of dollars of debt to pay for school, but because most university borrowing is backed by student tuition, this personal debt simply begets institutional debt. All this borrowing means huge profits for the banks that finance debt, much of it coming from hidden fees and inflated payments on long-term deals with our schools.

However, as students we also have the unique opportunity to band together and make our collective voice heard. For a few years our well-being is the primary focus of a massive anchor institution, and our dollars are often the main source of its funding. We can demand better than the status quo by pressuring our schools to reclaim that money from wealthy bankers and put it back into our institutions.

If borrowing from the big banks was on fair terms and intended for long-term capital projects, it wouldn’t be a problem. Unfortunately, instead of using our nation’s wealth to pay for education, increase our human and physical capital, and build our long-run potential for growth, we are using it to increase incomes for the wealthiest bankers.

We've reached a worst-case scenario, but it doesn't have to stay that way. By holding Wall Street accountable for how it plays with tuition and tax dollars, we can bring things back around so that public investment means improving society, not improving Wall Street's balances.

Dominic Russell is a sophomore at the University of Michigan and the Roosevelt Institute | Campus Network's Policy Impact Coordinator for the Midwest. Ryan Thornton is a junior and Campus Network chapter head at George Mason University.

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Felicia Wong: To Build a Better Economy, We Must Close the Racial Wealth Gap

Apr 9, 2015Laurie Ignacio

Our ongoing series about the good economy continues with a video featuring Roosevelt President and CEO Felicia Wong. When asked about what she would do to ensure a good economy in 25 years, she says her top priority is closing the racial wealth gap. After examining wealth over generations, she finds that wealth, more than income, is the most important factor that determines whether people can make it to the middle class and succeed.

Our ongoing series about the good economy continues with a video featuring Roosevelt President and CEO Felicia Wong. When asked about what she would do to ensure a good economy in 25 years, she says her top priority is closing the racial wealth gap. After examining wealth over generations, she finds that wealth, more than income, is the most important factor that determines whether people can make it to the middle class and succeed.

To learn more about the racial wealth gap, check out the following articles:

The Racial Wealth Gap Is Three Times Greater Than the Racial Income Gap

Today’s racial wealth gap is wider than in the 1960s

Wealth inequality has widened along racial, ethnic lines since end of Great Recession

Felicia Wong is the President and CEO of the Roosevelt Institute, which seeks to re-imagine the social and economic policies of Franklin and Eleanor Roosevelt for the 21st century. Felicia came to the Institute from the Democracy Alliance, where she led the development and assessment of the organization’s strategic investment portfolio. She holds a Ph.D. in political science from the University of California, Berkeley. Her doctoral dissertation on the role of race and framing in K-12 public education politics received the 2000 American Political Science Association award in Race, Ethnicity, and Politics.

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Why Is Lehman Brothers Suing Georgetown from Beyond the Grave?

Apr 9, 2015Alan SmithAditya Pande

The ghost of Lehman Brothers is still haunting colleges and universities around the country, continuing to extract money from institutions even though the financial firm itself is long dead.

The ghost of Lehman Brothers is still haunting colleges and universities around the country, continuing to extract money from institutions even though the financial firm itself is long dead.

When Lehman Brothers Holdings declared bankruptcy in 2008, it was the fourth largest investment bank in the United States. The giant’s collapse was felt in all corners of the global economy, but at least that collapse was thought to be a thing of the past. Now, it turns out that Lehman Brothers lingers on as a bankruptcy group trying to collect debts from the schools it already fleeced in 2008.

In St. Louis, the haunting is public: Lehman is suing St. Louis University because it doesn’t feel the school paid a fair market value (equivalent to the termination fee at a given time) on some interest rate swap derivatives in 2008.

Let’s look at that transaction: the school paid about $25 million in early termination fees on its interest rate swaps.* SLU didn’t necessarily want to bail out of these swaps, even though they were costing the school millions; it had to terminate them because Lehman Brothers, the counterparty to the deals, was going belly up. But in a lawsuit filed in December 2014, Lehman alleges that SLU’s termination payments were short of market value and that Lehman is in fact owed another $17.5 million on these swaps. 

Let's say that again: These swaps triggered in 2008 because of the Lehman bankruptcy. The school had to pay a termination fee because the firm that owned the swaps had effectively ceased to exist. And now that firm is suing the school because it wasn’t adequately compensated for its own failure.

Here’s where the story (and related research by the Roosevelt Institute | Campus Network) gets really interesting: The ghost of Lehman isn’t just in St. Louis. Looking at the financial records of Georgetown University, there appears to be a similar story playing out in private but with even larger stakes.

Georgetown’s financials from 1998 onward are rife with big bond projects, but for now let’s focus specifically on auction rate security (ARS) bonds. These are economic devices where the interest rate paid on the bond is regularly reset through a public auction. The theory was that these auctions would allow the market to drive the interest rates to the lowest possible bidder each period; some even reset every week. These bonds were being marketed (sometimes by Lehman Brothers) as a highly liquid way to get some safe cash.

We’ve since learned that nothing could be further from the truth, as the rate markets for ARS bonds locked up in 2008 and borrowers like Georgetown were stuck paying double-digit interest rates. These bonds were more than simply investments that didn’t pan out; banks that sold the ARS bonds were also propping up the market by bidding on the rates in their own auctions, which created a false impression for buyers that the market was stable. These were bad deals made worse by illegal activity, and universities and municipalities across the country were suckered into them. When the banks eventually stopped keeping the market afloat, most such auctions failed, and the ARS market has been largely frozen since.

Although Georgetown is now almost entirely out of the ARS market and has brought down its variable-rate debt, getting rid of these increasingly expensive ARS bonds appears to have cost the schools millions in fees and even more in borrowing to pay off that debt.  Some of those bonds were underwritten by Lehman; some by other investment banks.

None of this even begins to capture the costs of the swaps, which is where this story started. The ARS bonds were cheap but had highly volatile interest rates. To mitigate these risky fluctuations, Georgetown bought interest rate swaps with Lehman Brothers. But like SLU, Georgetown did not realize it had made a deal with a potentially catastrophic downside. As the economy went into a tailspin in 2008, the Federal Reserve cut interest rates to the bone and has kept them low since; money became available for next to nothing in an attempt to keep banks from freezing up completely. This also served to drive the fair value of interest rate swaps through the roof. The worse the economy got, the more the fair market value of Georgetown’s debt hedges grew. A final insult: As the ARS rates locked up ever higher, the floating index rates that the swaps were indexed to went down, so Georgetown was losing money on every part of every deal.

And finally, finally, Lehman Brothers, which had sold swaps to so many different colleges and universities around the country, went out of business, which resulted in Georgetown having to pay Lehman more than $53 million to terminate the seven swaps it had on May 12, 2009—again, swaps that were meant to hedge against the risky ARS bonds that were also, in some cases, sold by Lehman.

Fast forward to 2012, and a lawsuit from Lehman Brothers appears on Georgetown’s financial documents. This lawsuit is only mentioned in the financial statements and has not yet gone public, so we cannot say with certainty that the story is the same as in St. Louis. However, it appears as if the disparity between the “fair market value” calculation of what the swaps were worth in 2008 and the eventual payment Georgetown made to Lehman is about the same as in the SLU case.

For those keeping score at home, this means that Georgetown was hemorrhaging money to Lehman Brothers in at least four different ways:

  1. ARS bonds marketed by Lehman cost the university $6 million in interest rates and $8.34 million in debt restructuring costs.
  2. Approximately $77.8 million in payments on the seven interest rate swaps terminated in May 2009.
  3. More than $53.4 million in swap termination fees.
  4. Though still unconfirmed, all signs point to a lawsuit from Lehman to recoup what it claims are underpayments on the “market rate” of its swaps.

The full cost is probably even higher, as these calculations do not account for the fees Georgetown paid each time it got into a bond deal, nor for other deals that Lehman did not underwrite. Still, the bill is already north of $140 million, and we’ve only been looking at publicly available records.

It certainly seems as though Georgetown was hard done by in this case, and we plan to continue our research until we can present a full tally of how much Georgetown has lost and is continuing to lose to Wall Street.

Why does this matter? After all, Georgetown is a stable institution—not like Sweet Briar or liberal arts schools, where losses in the hundreds of millions could mean the difference between solvency and closing their doors. Neither is this a public institution, where public tax dollars are being funneled into Lehman’s grave. But even a storied private institution like Georgetown is feeling the pinch of millions of dollars being extracted, and that pinch is being passed on to students.

Tuition and fees will increase 4 percent at Georgetown next year, contributing to a nearly 40 percent increase since 2006 that shows no signs of slowing down. While there are many factors in the rapid rise of education costs borne by America’s students, including the “amenities arms race” and administrative bloat, the massive debt private colleges like Georgetown have accrued and the unbelievably expensive financial engineering that has come with it deserve a lion’s share of the blame. Lehman Brothers, having already managed to scrape more than $140 million from Georgetown’s coffers, is audacious in asking for more from beyond the grave. We must be equally audacious in demanding that Wall Street pay some part of the bill it’s left students since 2008.

Is your college or nonprofit involved in an ongoing lawsuit with Lehman Brothers? Let us know!

*Interest rate swaps are a type of derivative that allows an institution to lock in a loan at a fixed rate by “swapping” its existing variable-rate loan with a bank, an idea that becomes particularly toxic when the market crashes and interest rates plummet like they did post-2008. It’s the equivalent of taking out a mortgage at 5 percent a year and then finding out the next day that mortgages are now available at 1 percent. But, unlike mortgages, swaps cannot be refinanced or even “paid off” at will. To do so, one must pay an expensive termination fee equal to the total amount the bank expects to make over the entire life of the swap. It was a lose/lose proposition for the school once its bet that interest rates would stay high didn’t work out. 

Alan Smith is the Roosevelt Institute | Campus Network's Associate Director of Networked Initiatives.

Aditya Pande is a freshman in the School of Foreign Service at Georgetown University, where he studies international economics.

Thanks to Carrie Sloan and Alexandros Taliadoros for their contributions to this post.

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While Congress Plays Politics, New York State Must Invest in Young People

Mar 26, 2015Kevin Stump

Last week, the House of Representatives and the U.S. Senate released budget proposals that include a slew of policy changes that would negatively impact young people’s ability to fully participate in the economy.  

Last week, the House of Representatives and the U.S. Senate released budget proposals that include a slew of policy changes that would negatively impact young people’s ability to fully participate in the economy.  

The proposals would, among many other bad ideas, freeze funding on Pell Grants for 10 years and eliminate mandatory funding for the program, leaving it vulnerable to the unstable political culture of Washington, D.C. Both budget proposals would charge students interest on all their loans while they’re still in school, costing the average borrower thousands of dollars more. Each budget also eliminates the Pay As You Earn student loan repayment program, which caps monthly payments based on borrower incomes to make payments more affordable for moderate- and low- income debt holders.

It’s concerning that Congress cares so little about an entire generation of young Americans — the very generation that will have to repair what today’s leaders have broken.

While Congress continues to play politics, states need to make investments so this generation isn’t subject to spiraling economic inequality and missed opportunities. As New York approaches its April 1 budget deadline, the governor and the state legislature need to prioritize policies that will help young people to fully realize their potential and participate in the economy.

As outlined in my critique of Governor Cuomo’s student loan program, New York State must: (1) inject resources into public higher education, (2) roll back tuition hikes, (3) reform the Tuition Assistance Program, and (4) require that economic develop initiatives include some type of student loan relief for employees.

But even those measures won’t be enough by themselves. In order for the state to forge ahead and truly invest in youth, it will also need to do the following:  

  1. Increase the minimum wage. With Millennials making up 71 percent of minimum wage workers, raising the wage would give young people a chance to pay down debt, invest in the economy, and start building their economic future. 
  2. Charge the governor’s 10 Regional Economic Development Councils with developing a serious comprehensive plan to integrate paid apprenticeship and internship programs into the criteria for doing business with the state. To help combat the double-digit unemployment rate for 16–24-year-olds across the country, New York State should take advantage of its economic development projects, like START UP NY and NY SUNY 2020, to (1) provide young people with income and (2) impart the skills necessary to compete in today’s economy.
  3. Pass the NY DREAM Act to give thousands of New York’s undocumented youth access to state financial aid so they too can fully participate in the economy.
  4. Expand Governor Cuomo’s proposal to double the Urban Youth Jobs Program. This will help reward businesses that hire and train inner-city youth. In addition, this will help give New Yorkers ages 16–24 the opportunity to learn professional skills while also getting paid.

Conservatives and progressives are both trying to shift the political pendulum in their direction as they gear up for the 2016 election, which will consequently shape the fabric of our political system for the next decade. But Republicans in Congress, as evidenced by their budget proposals, continue to forget about young people. It is now up to President Obama to reject these failed principles and for states to get serious about enacting the real policy changes we need to give young people a fighting chance.

As Roosevelt Institute | Campus Network National Director Joelle Gamble articulates so well, “the young people who are inheriting the effects of the decisions made at all levels of government today… want to see investments made in a more prosperous future.”

Kevin Stump is the Roosevelt Institute | Campus Network's Leadership Director.

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What Would You Do Today to Ensure a Good Economy 25 Years From Now?

Mar 24, 2015Laurie Ignacio

In January, the Roosevelt Institute gathered 30 experts and practitioners in technology, education, finance, and economics to discuss the next American economy. We asked them what they would do today to ensure a good economy 25 years from now.

Over the next few weeks, Roosevelt will be highlighting some key suggestions. Check out the experts in attendance and then explore their revolutionary ideas:

In January, the Roosevelt Institute gathered 30 experts and practitioners in technology, education, finance, and economics to discuss the next American economy. We asked them what they would do today to ensure a good economy 25 years from now.

Over the next few weeks, Roosevelt will be highlighting some key suggestions. Check out the experts in attendance and then explore their revolutionary ideas:

First up we have Michelle Miller, co-founder of Coworker.org, a digital platform that provides workers with campaigning tools and other digital organizing support.

Michelle recommends reimagining how we classify employees. As more and more people freelance and rely on alternatives to full-time employment, like selling crafts on Etsy or driving for Uber, Michelle says that we should rethink the current employment classification system in order to expand protections, like health care deductibility, that are currently available only to more traditional employees.

To read more about American workers’ changing roles and new challenges, check out the links below.

"The future of work: There's an app for that," The Economist

"Lawsuits facing Uber, Lyft could alter sharing economy," CNBC

"What Happens To Uber Drivers And Other Sharing Economy Workers Injured On The Job?," Forbes

Michelle Miller is the co-founder of Coworker.org, a digital platform that matches campaigning tools with organizing, media and legal support to help people change their working conditions. Since its founding in 2013, Coworker.org has catalyzed the growth of global, independent employee networks at major companies like Starbucks, Wells Fargo, Olive Garden and US Airways. Miller’s early work developing Coworker.org was supported by a 2012 Practitioner Fellowship at Georgetown University’s Kalmanovitz Initiative for Labor and the Working Poor. She is a 2014 Echoing Green Global Fellow.

Before co-founding Coworker.org, Miller spent a decade at the Service Employees International Union where she pioneered creative projects that advanced union campaigns. She is also a nationally recognized media artist and cultural organizer. Most recently, she directed the participatory media creation process for Hollow, a 2014 Peabody award-winning interactive documentary about her home state of West Virginia.

Learn more about Michelle Miller’s work by visiting coworker.org and her profile at EchoingGreen.org.

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Seven Ways Chicago Can Put Working Families Before Wall Street

Mar 24, 2015Saqib Bhatti

The ReFund America Project released a new report this morning, “Our Kind of Town: A Financial Plan that Puts Chicago’s Communities First.” The report lays out a plan for getting Chicago’s finances back on track without painful austerity measures, which exacerbate economic inequality by forcing working families to shoulder the cost.

The ReFund America Project released a new report this morning, “Our Kind of Town: A Financial Plan that Puts Chicago’s Communities First.” The report lays out a plan for getting Chicago’s finances back on track without painful austerity measures, which exacerbate economic inequality by forcing working families to shoulder the cost.

Over the last month, Moody’s Investors Service downgraded the credit ratings of the City of Chicago and Chicago Public Schools (CPS) to near junk level. Last week, Fitch Ratings followed by cutting CPS’s rating to just one notch above junk. Even though the major credit rating agencies are unreliable institutions, rife with conflicts of interest, a history of missed calls, and a reputation for using their ratings to push political agendas, these downgrades have put the issue of financial management front and center in Chicago's political debate. Questions about how best to manage the city’s money shine a spotlight on the competing interests of Chicago residents and the powerful Wall Street firms that have been profiting from the city’s financial problems.

In the developing world, the International Monetary Fund and World Bank require financially distressed governments to enact painful cuts in order to obtain financing. Moody’s and Fitch are similarly using these downgrades to push an austerity agenda in Chicago. These downgrades will benefit Wall Street firms because the city and CPS will be forced to take out more expensive products like credit enhancements and bond insurance to boost investor confidence in their bonds. Already, the city and CPS are on the hook for a combined $300 million in penalties connected to interest rate swaps as a result of these downgrades. But all of this is wholly unnecessary because none of Chicago’s governmental units are actually in any danger of defaulting on their bonds.

Moreover, this response will come at the expense of community services like education, mental health, and parks programs. Many politicians are already using the downgrades to call for austerity measures that would take a toll on Chicago’s most vulnerable residents and to justify slashing government workers’ pensions, in violation of the Illinois Constitution. State Representative Ron Sandack has even introduced a bill in the Illinois Legislature to allow municipalities to file bankruptcy in order to circumvent the state constitution’s protection of public pension funds.

The current discourse ignores the simple reality that the city is not spending too much on either public services or workers. The real problem with Chicago’s budget is that the city is hemorrhaging money on predatory financial deals with Wall Street banks and not properly taxing its wealthiest corporations and residents. Chicago needs a proactive agenda that puts the needs of communities first. In the short term, this includes measures like:

  • Recovering losses from predatory municipal finance deals. The City of Chicago, its related governmental units, and their pension funds should take all steps to recover taxpayer dollars when banks deal unfairly with them. This includes taking both legal and economic action to try get out of bad deals like interest rate swaps and recoup lost money.
  • Reducing financial fees by 20 percent across the board. The City of Chicago, its related governmental units, and their pension funds should press for negotiations demanding 20 percent reductions on all financial fees to force Wall Street firms to share in the sacrifices that Chicagoans are being forced to make every day.
  • Insourcing pension fund management. The City of Chicago and its related governmental units should bring investment management in-house for a significant portion of their pension funds’ investments, by hiring qualified staff with a proven record of effective management instead of paying Wall Street firms tens of millions of dollars each year to accomplish the same goal.
  • Ending corporate tax subsidies and tax breaks. The City of Chicago should end all corporate tax subsidies and tax breaks to major corporations, and claw back subsidies given to corporations in exchange for job creation if they did not live up to their goals of creating jobs for city residents. This includes tax subsidies from the city’s tax-increment financing (TIF) programs.

In the longer run, Chicago needs structural solutions. This includes:

  • Collective bargaining with Wall Street. The City of Chicago, its related governmental units, and their pension funds should identify financial fees that bear no reasonable relationship to the costs of providing the service and join with other cities in the region and across the country to create a new industry standard for fees and refuse to do business with any bank that does not abide by that standard.
  • Creating a public bank. The City of Chicago should establish a public bank that is owned by taxpayers and can deliver a range of services, including municipal finance, and provide capital for local economic development and affordable housing in Chicago’s neighborhoods.
  • Raising progressive revenue. The City of Chicago should work to raise progressive revenue by instituting measures like a graduated city income tax to force high earners to pay their fair share, a commuter tax on suburban residents who work in the city, and the LaSalle Street Tax on financial transactions at the Chicago Board of Trade and the Chicago Board Options Exchange. All of these likely require state approval, so the mayor would have to petition the state for authorization. California and Minnesota have both enacted progressive revenue measures in recent years that have helped solve their respective budget crises.

These steps will allow Chicago to reclaim power in its relationship with Wall Street and create a financial regime in the city that will put the interests of Chicago’s communities first.

Saqib Bhatti is a Fellow at the Roosevelt Institute and Director of the ReFund America Project.

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The Republican Budget Plan Looks to the Past, Not the Future

Mar 19, 2015Joelle Gamble

The Republican budget plans are causing quite a stir in the D.C. press and in Congress. However, the content of their proposals, if enacted, will ripple beyond the beltway and into states, cities, communities, and college campuses across the country – and the consequences should be of particular concern to young Americans.

The Republican budget plans are causing quite a stir in the D.C. press and in Congress. However, the content of their proposals, if enacted, will ripple beyond the beltway and into states, cities, communities, and college campuses across the country – and the consequences should be of particular concern to young Americans.

Rather than using their new platform in Congress to make investments in the future of this nation, Republicans have chosen to pack in a laundry list of complaints and repeals based in our past. Young organizers have already begun to push back against proposed slash in Pell grant funding.  Other backwards-looking choices, from repealing the Affordable Care Act to failing to invest in new energy technology, would also have a profound impact on young people.

The Campus Network believes in policy that is by and for people, not built at the expense of them. We’ve got a student-generated budget to prove it. As the young people who are inheriting the effects of the decisions made at all levels of government today, we want to see investments made in a more prosperous future. Investments in accessible and affordable education, critical infrastructure, green energy, and good jobs are what is going to help our generation succeed – not the renewal of old policies that have repeatedly proved ineffective.

Joelle Gamble is the National Director of the Roosevelt Institute | Campus Network.

 

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