How to Make Banks Really Mad: Occupy Foreclosures

Oct 19, 2011Mike Konczal

Could the next step after camping in Zuccotti Park be camping out in homes facing foreclosure?

Could the next step after camping in Zuccotti Park be camping out in homes facing foreclosure?

As people think a bit more critically about what it means to "occupy" contested spaces that blur the public and the private and the boundaries between the 99% and the 1%, and as they also think through what Occupy Wall Street might do next, I would humbly suggest they check out the activism model of Project: No One Leaves. It exists in many places, especially in Massachusetts -- check out this Springfield version of it -- and grows out of activism pioneered by City Life Vida Urbana. It is similar to activism done by the group New Bottom Line and other foreclosure fighters. Here is PBS NewsHour's coverage of the movement.

The major goal of Project: No One Leaves is to mobilize as many resources as possible to protect those going through foreclosure and keep them in their homes as long as possible in order to give them maximum bargaining power against the banks. For those focused on "weapons of the weak," this moment -- with banks and creditors using state power to conduct massive amounts of foreclosures, thus impoverishing poor neighborhoods through a financialized rationality -- is a crucial opportunity for resistance. From the webpage:

Post-Foreclosure Eviction Defense. We mobilize tenants and former homeowners living in recently or about to be foreclosed homes (bank tenants) to stop evictions, protect Springfield’s housing and communities, and mobilize bank tenants to fight back against major lending institutions and banks that are tearing our communities apart.

Their model, a two-step process known as the Sword and the Shield, works:

“The Sword”. Encouraging residents to stay in their homes, and to make their stories public, we organize blockades, vigils and other public actions to exert public pressure on the banks. The sword works together with:

“The Shield”: We inform bank tenants of their rights and work with legal services & progressive lawyers, to use aggressive post-foreclosure eviction defense to get eviction cases dismissed, win large move-out settlements (if it makes sense for that family/person), and force the banks to reconsider foreclosure evictions.

They use public action through blockades, protests, and marches, along with smart legal advice on how to maximize legal resistance to forced removal. Beyond the fact that this is a major space for resistance, it is also a great way to mobilize people. And as JW Mason notes, there is power in having a clear opponent as well as a special type of bargaining power people might not realize they have:

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Homeowners who still have title have a lot to lose and are understandably anxious to meet whatever conditions the lender or servicer sets. But once the foreclosure has happened, the homeowner, paradoxically, is in a stronger negotiating position; if they're going to have to leave anyway, they have nothing to lose by dragging the process out, while for the bank, delay and bad publicity can be costly. So the idea is to help people in this situation organize to put pressure -- both in court and through protest or civil disobedience -- on the banks to agree to let them stay on as tenants more or less permanently, at a market rent.

But there's another important thing about No One Leaves: They're angry. The focus isn't just on the legal rights of people facing foreclosure, or their real chance to stay in their homes if they organize and stick together, it's on fighting the banks. There's a very clear sense that this is not just a problem to be solved, but that the banks are the enemy. I was especially struck by one middle-aged guy who'd lost the home he'd lived in for some 20 years to foreclosure. "At this point, I don't even care if I get to stay," he said. "Look, I know I'm probably going to have to leave eventually. I just want to make this as slow, and expensive, and painful, for Bank of America as I can." Everyone in the room cheered.

Slow, expensive and painful indeed -- it's like putting the banks through their own version of HAMP. Some may reply, "But wait, aren't foreclosures healthy for the economy? Mitt Romney thinks so." But according to the latest research using discontinuities across state lines, "estimates suggest that foreclosures were responsible for 15% to 30% of the decline in residential investment from 2007 to 2009 and 20% to 40% of the decline in auto sales over the same period." This research is being debated, but the opposite evidence -- that quicker foreclosures help the macroeconomy -- can't be found there or anywhere else.

So does this fit well with Occupy Wall Street's agenda? Given the rampant fraud and abuses in the current foreclosure chain, from manufacturing documents to "robo-signing" to fee-stacking to everything else, the Obama administration's refusal to support a serious investigation is a major example of the government-financial alliance and two-tier system of justice that those in Occupy Wall Street hate. Occupy Wall Street likes to pick spaces that are legally contestable -- like private-public parks -- and draw attention to real conflicts between those with power and those without. A residence post-foreclosure is one of those spaces.

This type of demand allows Occupy Wall Street to tap into already existing networks of foreclosure fighters, avoiding the risk of looking powerless by relying on Congress to do anything. And ultimately, it gets at the banks in a way occupations normally don't: Banks may or may not feel that they aren't appreciated enough because of these protests, but they'll definitely be mad if someone is disrupting their foreclosure mills through occupation and refusal to leave.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Who are the 1% and What Do They Do for a Living?

Oct 14, 2011Mike Konczal

mike-konczal-newThere's good reason to focus on the top 1%: they're distorting our economy.

Look, a crazy anti-capitalist anarchist carrying a bizarre sign incompatible with the basic tenants of liberals:

Or not.

There's good reason to focus on the top 1%: they're distorting our economy.

Look, a crazy anti-capitalist anarchist carrying a bizarre sign incompatible with the basic tenents of liberals:

Or not.

A lot of emphasis is on the "99%" versus the "1%" in these protests. But who are the 1% and what do they do for a living? Are they all Wilt Chamberlains and Oprahs and other people taking part in the dynamism of the new economy? Nope. It's same as it ever was -- high-level management and the financial sector.

Suzy Khimm goes through the numbers here. I'm curious about occupations. I'll hand the mic off to "Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data" by Bakija, Cole, and Heim. This is the latest and greatest report on occupations and inequality. Here's a chart of the occupations of the top 1%:


Inequality has fractals. Let's go into the top 0.1% -- what do they look like?  Here's the chart of the occupations of the top 0.1%, including capital gains:

It boils down to managers, executives, and people who work in finance. From the paper: "[o]ur findings suggest that the incomes of executives, managers, supervisors, and financial professionals can account for 60 percent of the increase in the share of national income going to the top percentile of the income distribution between 1979 and 2005."

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For fun, there are more than twice as many people listed as "Not working or deceased" than are in "arts, media, sports." For every elite sports player who earned a place at the top of the income pyramid due to technology changes and superstar, tournament-style labor markets that broadcast him across the globe, there are two trust fund babies.

The top 1% of managers and executives often means C-level employees, especially CEOs. And their earnings versus the average worker have skyrocketed in the past 30 years, so this shouldn't be surprising:

How has this evolved over time?  Can we get a cross-section of that protest sign above?

Same candidates. There's a reason the protests ended up on Wall Street: The top 1% and top 0.1% comprises all the senior bosses and the financial sector.

One of the best things about Occupy Wall Street is that there is no chatter about Obama or Perry or whatever is the electoral political issue of the day. There are a lot of people rethinking things, discussing, learning, and conceptualizing the kinds of world they want to create. Since so much about inequality is a function of the legal structure known as a "corporation," I'd encourage you to check out Alex Gourevitch on how the corporate is structured in our laws.

The paper notes that stock market returns drive much of the manager's income. This is related to a process of financialization, something JW Mason has done a fantastic job outlining here. The "dominant ethos among managers today is that a business exists only to enrich its shareholders, including, of course, senior managers themselves," and this is done by paying out more in dividends that is earned in profits. Think of it as our-real-economy-as-ATM-machine, cashing out wealth during the good times and then leaving workers and the rest of the real economy to deal with the aftermath.

Both articles mention chapter 6 of Doug Henwood's Wall Street; anyone interested in how things have changed and where they need to go would be wise to check it out. It's even available for free pdf book download here.

There's good reason to focus on the top 1% instead of the top 10 or 50%. There is evidence that financial pay at this elite level is correlated with deregulation and the other legal changes that brought on the crisis. High-ranking senior corporate executives' pay has dwarfed workers' salaries, but is only a reward for engaging in shady financial engineering practices. These problems require a legal solution and thus they require a democratic challenge and a rethinking of how we want to structure our economy. Here's to the 99% and Occupy Wall Street helping get us there.

Mike Konczal is a Fellow at the Roosevelt Institute.

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The Obama Economy: What Could Have Been

Oct 13, 2011Mike Konczal

Are President Obama and his economic team really victims of circumstance, or were they brought down by their own poor judgment?

Are President Obama and his economic team really victims of circumstance, or were they brought down by their own poor judgment?

Ezra Klein wrote a 7,000 word summary of what went right and wrong on economic policy during the first three years of the Obama administration. It's well-reported and fun to read, and you should check it out. I imagine that the piece will function as a kind of baseline argument for critiquing the Obama administration on the economy from the liberal wonkosphere corner of the blogosphere. I'm going to throw out some critical thoughts below.

The piece is quite consciously avoiding the narrative, storytelling approach to politics and the presidency. It reads as almost the mirror image of something like Drew Westen's approach to how Obama did on the economy -- Obama's passion isn't in question here. Klein's piece is all projections based on available evidence, political possibilities given political constraints, and negotiating with hostile counterparties. As such, there are a couple of ideas-level issues at play that should be made more explicit.

Fiscal Policy

First off, Obama is much more of a fiscal conservative than I had imagined. Or more specifically, he's someone who generally takes Rubinonomics for granted but couldn't shift gears when it came to the largest downturn since the Great Depression. Hence a lot of concerns over the deficit and, more importantly, a real focus on expanding the short-term deficit if and only if it involved closing the long-term deficit.

Noam Schieber at The New Republic was getting word from Treasury as early as late 2009 that it thought that it needed “some signal to U.S. bondholders that it takes the deficit seriously” and that “spending more money now [on stimulus] could actually raise long-term rates, thereby offsetting its stimulative effect.” This naturally led the administration to want to strike "grand bargains" with the other side, a path that led it down some bad roads.

The flip side of this is the administration's focus on "confidence" -- financial markets, Wall Street, and the business community -- as a way of bringing growth up and unemployment down. This has most obviously driven policy in regards to Wall Street and the financial markets (more on that in a second), but we see this in terms of dealing with the deficit. It has also brought in approaches that emphasize positions that are much more "supply-side" -- patent reform, regulation cutting, appointing senior business leaders to key positions, a key State of the Union based on "Winning the Future" through education investments -- that can't be justified as getting us back to full employment. By the time of the debt ceiling fight, these administration talking points were becoming a parody of right-wing talking points and Hooverism.

In Klein's article, he writes that the consequence of misjudging the severity of the recession was not being not able to go back to Congress later. I think a more important problem is that it created a priority for tax cuts over longer-term investments, which would have been better stimulus. I've had staffers tell me on background that members of Congress would approach the administration in 2009 looking to build out huge, New Deal-style infrastructure on a separate track, only to be told that the recovery would be fully underway by the time it kicked in -- thus wasted. There was no response to this. That's a problem given the narrow window they had to operate in the Senate.

Monetary Policy

Ryan Avent has tackled the Federal Reserve problem here. There's a new Federal Reserve iPad app. It is pretty rad. You can click on all the members of the FOMC. You can also click on the two vacant seats and it says that they are vacant:

Even iPad apps are mad at Obama for not being aggressive on the Fed appointments!

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First of all, the article focuses on a "This Time Is Different" approach to financial crises. One antibody our country had for financial crashes in the 19th century, pre-Keynes, was mass temporary bankruptcy for bad debts. During the 19th century you saw bankruptcy laws passed in the aftermath of bad financial crises to assign the losses and move the economy forward, which were repealed shortly thereafter. This happened with the Panic of 1837, which was followed by a devastating recession.

The Obama administration was either indifferent or hostile to changes in the bankruptcy code -- like cramdown -- following this crash, even though Obama campaigned on it. A technical point: cramdown isn't about making the banks eat the loss; it's about the loss coming from credit writedowns versus a fire sale of a house in foreclosure -- hence cramdown wouldn't raise costs. But either way, in addition to forgetting things since Keynes, we are also in the business of forgetting things from the 19th century.

David Dayen wrote up all the failures in housing policy. The important thing to follow is that the whole housing market approach was predicated on not upsetting the financial sector -- even to the point of not investigating basic unlawful behavior in foreclosures -- so that this "confidence" would get us back on track. Backing the financial sector instead of housing and people turned out to be backing the wrong horse. There's a backlog of housing that isn't going to go anywhere, armies of creditors and rentiers fighting each other indefinitely in the courts, investors wary of investing in a neighborhood when 2 million foreclosures hang over the economy each year, people's lives devastated, etc. Dayen:

The Administration set aside $75 billion through TARP for HAMP, and to date have used $1.6 billion or so on a program that is effectively irrelevant at this point (and they have cleverly revised history to claim that it was only a $50 billion allotment, to make this look a little better). Without any need to clear Congress, the Administration had all the authority they needed to put this $75 billion to work, including the ability to punish servicers who failed to comply with guidelines...

Then, for two years, Treasury swore up and down there was nothing they could do to punish servicers who didn’t comply. Finally, a few months ago, they started withholding incentive payments for noncompliance, as if they just magically acquired the power. It turns out, as Paul Kiel from Pro Publica displayed in a story this week, that Treasury wasn’t even checking on servicer compliance for at least the first year of the program...

The truth that emerges from all of these facts is that the Administration had no interest whatsoever in using more than a token amount of the TARP authority they had already husbanded for mortgage relief and foreclosure mitigation....You can call this the function of bad politics, but I’d say it was more an extension of bank policy, a policy to preserve the wonderful sub-1 percent growth and still-vulnerable financial system we have going for ourselves....Even today there are programs that could be scaled up to work for the mass of homeowners. They aren’t being done not because of some Tea Party-fueled backlash, but because Wall Street would face trouble.


Klein's final take is that the Obama team got some right, some wrong, but were ultimately boxed in by failing institutions and a crisis too big to handle.

For a fun counterpoint, Corey Robin wrote in Dissent recently:

My impression of American history was that those presidents universally considered great—Washington, Lincoln, Roosevelt—were beset by crises: the founding of a new nation, the Civil War, the Depression, the Second World War. And far from “balancing crisis management” with their pursuit of long-term goals, the great presidents saw, or found, in those crises an opportunity for reconstructing American politics from the bottom up. It was the crises, in other words, or at least how they handled those crises, that enabled them to pursue their long-term goals.

That at any rate was the final judgment Teddy Roosevelt rendered on his own presidency: that he would never be remembered as another Lincoln because he didn’t have the benefit of confronting catastrophe.  Or so I remember reading somewhere, perhaps here.

Whatever one thinks about Obama, it really makes no sense to say that he can’t be all that his supporters want him to be because of the Great Recession, two (now three) wars in the Arab and Muslim world, a recalcitrant opposition, and so on. Other presidents would have killed for opportunities like these.

Your thoughts?

Mike Konczal is a Fellow at the Roosevelt Institute.

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Banks Have No “Right” to Fleece Customers for Profit

Oct 12, 2011Bryce Covert

Far from dragging down Bank of America's profits, consumers are actually giving it a boost. So why does it say it needs to charge us extra fees?

Far from dragging down Bank of America's profits, consumers are actually giving it a boost. So why does it say it needs to charge us extra fees?

It was just about a week ago that a strange fight broke out between President Obama and Bank of America CEO Brian Moynihan, Occupy Wall Street rumbling in the background. Bank of America had just announced its plans to charge customers a $5 monthly fee on debit cards. Obama hit back, warning the bank that it doesn't "have some inherent right just to, you know, get a certain amount of profit if your customers are being mistreated." Moynihan retaliated, saying, "we have a right to make a profit."

Which one is right? While the rest of Moynihan's statement is true -- "I have an inherent duty as a CEO of a publicly owned company to get a return for my shareholders" -- there is no inherent right to make a profit. Companies start and fail all the time. That's one of the functions that bankruptcy serves. While CEOs have a legally binding duty to shareholders to turn as much profit as they can, the rest of us aren't on the hook to help them do it.

But as it turns out, we are helping Bank of America do it. BoA, it's true, is in a tough financial position lately. Its stock is down 53 percent for the year and it posted a loss of more than $9.1 billion in July. What's dragging it down? Much of it has to do with its acquisition of mortgage company Countrywide Financial and the legal challenges it faces related to mortgage lending. In its filing in April, the bank showed a loss of $2.4 billion in the consumer real estate business.

Card users, it turns out, are one of the bright spots. The poor earnings reported in April were partially offset by "strong earnings from the credit card business," the New York Times reported. That unit saw income rise by 77 percent. And in fact the bank beat analysts' forecasts in July, earning $3.1 billion, and part of its success story was a return to profitability for its credit card business after losing about $1.6 billion last year. The company attributed this in part to fewer delinquencies -- in fact, charge offs fell by $1.2 billion from the previous quarter. Overall, in its latest SEC filing, it reported that net income from the Global Card Services unit -- which includes both credit cards and deposits as of March -- is up 110 percent for the first half of the year as compared to 2010, from $1.8 billion to $3.8 billion. It's up even higher looking at just the latest quarter: 146 percent. While it did report losing about $300 million related to new regulations, or the CARD Act, it seems to have made a pretty small dent. As Moynihan put it when it released its first quarter earnings, "Our customer-focused strategy is working well." Sure is.

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Banks overall aren't faring too terribly in the aftermath of a recession they caused. Banks insured by the FDIC reported a profit of $29 billion in May, an almost 70 percent increase from the same quarter in 2010. It was the seventh consecutive quarter of year-over-year industry earnings gains. In the second quarter, profits were up at most other large banks, including Goldman Sachs, which more than doubled its profits.

So what of the charge that a cap on debit card interchange fees makes the cards less economic, leading to the need for monthly card fees? Bank of America's debit card business, after all, is nearly $3 billion, and now that charges on each card transaction will be capped to 24 cents, those profits will likely take a hit. But it may help to visit the history of debit cards to understand their "cost." As Lloyd Constantine wrote in an op-ed for the New York Times:

Debit cards were developed by banks as a replacement for paper checks. When a consumer pays with a debit card instead of a check, the bank saves money. In the 1980s, Visa calculated the savings at 55 cents to $1.60 per check. The savings is much higher today... [P]urchases made with a debit card didn't involve a loan from the bank, posed very little fraud risk and were extravagantly profitable to banks because they eliminated the costs of processing and clearing checks.

Constantine recounts the case that lead to a $3.4 billion settlement to stores in 1996 due to the practice of "deceiving stores and forcing them to accept overpriced debit transactions" while the bank was actually saving money. They also had to reduce their interchange fees to 42 cents. While Bank of America doesn't have some legally protected right to reap profits from consumers, it does have the obligation to follow court rulings that find it is deceiving customers and retailers. It also has a legal obligation to follow new rules set out by the CARD Act and Consumer Financial Protection Bureau looking out for the interests of working Americans. It can't even blame its financial struggles on us. Bank of America's stock and profits may be depressed from an ill-fated acquisition, but money from our use of credit cards is helping to keep it afloat. If it wants to pad its profits, it'll have to turn elsewhere.

Bryce Covert is Editor of New Deal 2.0.

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How the Top One Percent Ripped Off the Bottom 99 Percent

Oct 11, 2011Jon Rynn

wall-street-150As the financial sector sucks up more and more money, the rest of us are left making less and less.

wall-street-150As the financial sector sucks up more and more money, the rest of us are left making less and less.

Occupy Wall Street has put a spotlight on the vast and growing economic inequality in the United States. It now takes its place as a top progressive priority -- perhaps the highest priority it has experienced since the Great Depression.

Underlying this greater and greater inequality is a shift of wealth from manufacturing to the top 1 percent and the financial sector. Over the past 40 years, the sectors of the economy that grew in output share grew very little in employment share -- making more money but paying it to a small group of people. The sectors of the economy that grew in employment share did not grow in output share, meaning that a growing number of workers had to share in a smaller pot of profits. From 1969 to 2007, the richest 1 percent has grabbed 15 percent more of the income of the United States, to a total of about 24 percent. Meanwhile, the manufacturing sector has lost a similar 15 percent of gross domestic product (GDP). This has led to a downward shift in income for the bottom 99 percent.

Let’s look at the shift among sectors of the economy in a bit more detail, because as finance has risen, so have other lower pay sectors. A good way of looking at the health of an economy is to see if there is a difference in how much income a particular sector, such as manufacturing or finance, pulls in -- that is, how much of the economy (GDP) it constitutes versus how much employment it accounts for. You might think of this as what percentage of the economy each working person receives, viewing each sector as a whole. I will call this the “the ratio”: that is, the ratio of the GDP (value-added) share of the economy to the percentage of the employment share of the economy for a particular sector; I will always compare 1968 to 2009 (all data sourced from the Bureau of Economic Analysis).

Manufacturing has historically been the quintessential middle class sector because its share of GDP declined slightly, from 28 percent to 25 percent, between 1948 and 1968 in tandem with its share of employment (its ratio was 104 percent in 1968). Thus someone working in the manufacturing sector made an average income for the economy as a whole -- that is, he or she was right smack in the middle of the middle class. Since 1968, the employment share of manufacturing has been heading down by .38 percent per year, so that it is now 8.7 percent, while its share of the economy is 11.2 percent. The average employee is making about 30 percent more than the average for the economy, most likely because so many of the low-skill jobs were outsourced (along with most high-skilled ones).

At the same time, the finance, insurance, and real estate, or FIRE, sector increased its share of the economy from 14.2 percent to 21.5 percent, while the employment share only rose from 4.4 percent in 1968 to 5.7 percent in 2009. So this sector went from a ratio of 322 percent to 376 percent; for finance alone, the ratio almost doubled from a fairly middle class 116 percent in 1968 to 197 percent in 2009. Real estate always had a ratio of about 1000 percent, which is one more reason, perhaps, that society should not encourage real estate bubbles. Overall, the pot of money has exploded without an increase in payrolls.

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So FIRE took about half of the share of GDP that manufacturing lost while barely increasing employment. The rich got richer.

On the other hand, in what is called “accommodation and food services,” or basically hotels and restaurants, the share of the economy moved from 2.2 percent to 2.7 percent in the 41 years between 1968 and 2009, but its share of employment rose from 4.5 percent to 7.2 percent; the ratio fell from 49 percent to 33 percent. The “health care and social assistance” sector, dominated by the health care industry, saw its ratio decline from 73 percent to 63 percent; its share of GDP rose from 2.8 percent to 7.5 percent, but its employment soared from 3.8 percent to 11.9 percent. The other sector that saw a major decline was retail, which actually saw a decline in economic share from 7.9 percent to 5.8 percent at the same time that its employment share increased slightly from 9.9 percent to 10.8 percent. Call this the “Walmart” effect: driving out mom-and-pop stores, leading to a greater efficiency, but lowering the average wage from 79 percent to 54 percent of the economy-wide average.

If we combine these employment “growth” sectors, GDP share moves from 12.9 percent to 16 percent between 1968 and 2009 but the employment share grows from 18.2 percent to 29.9 percent. The ratio fell from about two-thirds of the average to less than half. More and more Americans are employed by sectors that aren’t bringing in a large share of the economy.

So where did the employment and economic output of the manufacturing sector go? When it declined, most of the income went into FIRE and the top 1 percent, and most of the employment -- such as it is -- went into lower paying service jobs or has ceased to exist.

Counter to conservative ideology, the economic role of the government has actually gone down -- at least when measured, as I have been doing here, by value-added data, which eliminates the effect of transfer payments. From 1968 to 2009, the share of employment for the federal government decreased from 9.7 percent to 3.8 percent, and its GDP share went from 6.9 percent to 4.3 percent, while for the state and local governments the employment share rose from 11.7 percent to 14.4 percent and GDP share went from 7.6 percent to 9.3 percent. So much for “big government." FIRE’s share of GDP is at 21.5 percent, while government at all levels is at 13.6 percent. Sounds like “big finance” to me!

All of these statistics point to the need to understand the “natural history” of the economy. The health of a particular sector of the economy is a relevant political issue, as is how we might change the relative importance of each. I have argued previously that manufacturing is at the center of the economy. If we were to move from a manufacturing sector with 9 percent of employment to 20 percent, the economy would add over 14 million jobs. To achieve a change like that, we need to redirect our resources from the “economic royalists” and top 1 percent to the bottom 99.

Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems.

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Is Occupy Wall Street Our Triangle Moment?

Oct 10, 2011Frank L. Cocozzelli

triangle-fireToday's outrage has the potential to be another turning point in American politics.

triangle-fireToday's outrage has the potential to be another turning point in American politics.

Frances Perkins, FDR's future Secretary of Labor, was an eyewitness to the Triangle Shirtwaist Factory fire of March 25, 1911. It was a tragic day in our history, one in which 143 workers lost their lives due the indifference of their employers.

Triangle was the culmination of licentious economic behavior. Powerful business interests fought on-the-job safety regulations; exit doors that were kept locked to keep out union organizers also kept workers from escaping the building; proposed fire safety standards were fought tooth and nail, all in the name of economic freedom.

But as tragic as the fire was, it was also a turning point. The tragedy of that horrible fire made Americans begin to truly realize that working people were not merely a means to wealth, but ends in and of themselves, worthy of being treated with dignity. On a political level, it was the singular event that transformed Al Smith and Robert Wagner Sr. from Tammany Hall hacks into champions of reform. It caused the Democratic Party to better live up to its moniker, “the party of the people.” It is why Perkins came to say that day of that fire was “the day the New Deal began.”

Similarly, today we now endure an economy set on fire by this same perverse notion of “freedom.” Freedom? What many on Wall Street call economic freedom is nothing more than anarchy and license. While workers see wages and benefits taken away, the top one percent live lives filled with conspicuous consumption -- and conspicuous waste. True freedom requires discipline, the structure of regulation, laws of oversight that curb and deflect destructive greed. And yet after thirty years of savings and loan failures, fraudulent CDOs, and Wall Street bailouts followed by million dollar bonuses, economic libertarians still want to tear down the very framework that provides order.

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But something has stirred in the American people. We are witnessing protests on Wall Street demanding that this stilted notion of freedom be revisited and revised. Despite what many free market types claim, a healthy form of capitalism cannot survive by being indifferent to the workers who physically build the products or provide the services. As Paul Krugman put it, “…we may, at long last, be seeing the rise of a popular movement that, unlike the Tea Party, is angry at the right people.”

Just as it was in the wake of the Triangle Shirtwaist Factory fire, the public is outraged and is demanding change. The rising of a popular movement comes at a moment none too soon. It is an opportunity for the Democratic Party to again turn out its present-day hacks and replace them with advocates of an already proven New Deal capitalism.

Then perhaps one day we will look back at the events of today and be able to say, “that was when the New Deal was reborn.”

Frank L. Cocozzelli writes a weekly column on Roman Catholic neoconservatism at and is contributor to Dispatches from the Religious Left: The Future of Faith and Politics in America. A director of the Institute for Progressive Christianity, he is working on a book on American liberalism.

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Occupy Wall Street’s Outrage at Greed Can Expand to Corporate Stock Manipulation

Oct 6, 2011William Lazonick

stockmarket-1500001Rather than invest profits in building a strong economy, corporate execs invest in their own pay.

stockmarket-1500001Rather than invest profits in building a strong economy, corporate execs invest in their own pay.

Occupy Wall Street is keeping our focus on the insatiable greed and undemocratic influence of those who run our major financial institutions. But the quest for personal wealth and political power by the top executives of U.S. business corporations goes well beyond the Wall Street banks. It pervades industrial as well as financial corporations.

Even though, as Table 1 shows, the pay of top corporate executives is down from its pre-financial-crisis levels, it remains out of control. The average remuneration of the top 100 highest paid corporate executives (named in annual proxy statements) was $33.8 million in 2010, up 10 percent from a 2009 average of $30.1 million (in 2010 dollars). Since the financial meltdown, executive pay has remained far higher than it was in the early 1990s, when it was already viewed as extraordinarily excessive.

Table 1.  Mean pay of the highest paid corporate executives and percent of pay from exercising stock options, 1992-2010


As can be seen in Table 1, much, and in many years most, of this exorbitant pay comes from the exercise of stock options. The gains from stock options depend on rising stock prices. What better way for corporate executives to give a manipulative boost to a company's stock price than to spend hundreds of millions, or even billions, of dollars buying back its stock.

As Figure 1 shows, in 2003 buybacks were already substantial among S&P 500 companies, with an average of $300 million. But over the next four years, that amount quadrupled, so that on the eve of the financial crisis these companies averaged over $1.2 billion in buybacks. During the financial crisis, they dropped back down to about $300 million per company, but in 2010 doubled to around $600 million. In 2011, buybacks of S&P 500 companies are on pace to hit an average of $900 million, and there is every indication that they will continue to escalate in 2012 and beyond, as happened in 2003-2007. For overpaid U.S. corporate executives, this form of stock-price manipulation has become an addiction.

Figure 1.  Repurchases (RP) and dividends (DV), 1997-2010, of 419 companies in the S&P 500 Index in January 2011 that were publicly listed back to 1997; mean distributions and proportions of net income (NI)

lazonick-figure-11As shown in Table 2, the top 50 repurchasers from 2001-2010 represent a range of industries. Combined, over the decade they spent more than $1.5 trillion repurchasing their own stock.

Of these 50 companies, 11 spent more than 100 percent of their net income over the decade on buybacks, 32 more than 50 percent, and 43 spent 30 percent or more. When dividends are added to buybacks, half of these 50 companies expended all of their profits and more in distributions to shareholders from 2001 through 2010.

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Table 2. Top 50 stock repurchasers among U.S. corporations, 2001-2010


Research on these various industries and companies has revealed the deleterious impacts of stock repurchases on economic performance. For example, over the decade 11 of the 12 ICT companies on this list spent more on buybacks than on R&D, while for the twelfth, Intel, the proportion was 93 percent. Most of the financial services companies on the list had to be bailed out by the federal government in 2008-2009. Led by Exxon Mobil, the three petroleum refining companies in the top 50 wasted a combined $222 billion on buybacks while charging high oil prices and neglecting substantial investments in alternative energy. For the three aerospace companies, defense contracting generates much of the profits that they then use to manipulate their stock prices through buybacks. Pharmaceutical companies charge drug prices that are twice as high in the United States as in the rest of the world, yet use much or all of their profits for buybacks. Health insurers use their profits to jack up their stock prices, and executive pay, while giving us high cost, low quality health coverage.

Executives like to say that buybacks are financial investments that signal confidence in the future of their company as measured by its stock price performance. In fact, however, companies that do buybacks never sell the shares at higher prices to cash in on these investments. To do so would be to signal to the market that their stock prices have peaked, something that no executive would ever do. Executives often say that they do buybacks because of a lack of more attractive investment opportunities. Yet we live in a world of rapidly changing technology, burgeoning new product markets, and intense global competition. Any CEO of a major U.S. corporation who says that buybacks are the best investments that his or her company can make should take the next logical step: fire him or herself!

William Lazonick is director of the UMass Center for Industrial Competitiveness and president of The Academic-Industry Research Network. His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) was awarded the 2010 Schumpeter Prize.

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What Would Our Founding Radicals Have Thought About Occupy Wall Street?

Oct 5, 2011William Hogeland

american_colonial_flagOccupy Wall Street isn't just a threat to financial elites -- it's a challenge to lazy historians.

american_colonial_flagOccupy Wall Street isn't just a threat to financial elites -- it's a challenge to lazy historians.

Among other intriguing and possibly problematic features, Occupy Wall Street, now in its third week and spreading, seems to represent an inchoate attempt at reviving an American radicalism that has deep roots in our founding period. The Tea Party has of course made its own highly explicit and politically successful claim on that period. Because OWS, like the Tea Party, focuses on national economic and financial issues, the new movement offers a disquieting, potentially illuminating alternative to the Tea Party's right-wing interpretation of America's founding economic values.

I began writing New Deal 2.0's "Founding Finance" series last winter in hopes of shining light both on the financial elitism of the famous American founders, who we often wrongly cast as pioneers (or at least half-conscious seed-sowers) of equality, and on what I see as historical tendentiousness on the part of the Tea Party, whose claims on the founding period are meant to support a low-tax, small-government, anti-debt agenda. I've tried to show that this agenda, which may or may not have its merits as policy, in no way accords with the avowed purposes of the founders across their own political spectrum from Hamilton to Madison.

In the series, I've also tried to bring to the fore some routinely marginalized yet highly resonant 18th century economic thought, as well as the actions of those who sought to obstruct wealth concentration and make cash and credit more readily available to ordinary Americans. It's an unsettling fact that our founding democratic, economic activism was not against England but against the homegrown American investing and creditor class that was leading the resistance to England.

I've explored that founding economic radicalism in the debtor riots and "regulations" of the late colonial period; in the overthrow of Pennsylvania during the run-up to the Declaration; in the period after victory over England, when foreclosed Massachusetts debtors, the so-called Shays Rebels, marched on the armory at Springfield; and in the early Federal period, when the so-called Whiskey Rebels of trans-Appalachia, criticizing the new U.S. Constitution on bases very different from those of antifederalist elites, went so far as to fly their own flag, hoping to launch a new, more economically egalitarian country in what was then the American West.

Throughout those struggles, the activists' goal was to pressure and in some cases to use government to restrain the power of wealth and promote economic equality through legislation. They wanted to outlaw monopolies, build debt relief into currency, institute easy-term, small-scale government lending, and take banking charters away from crony insiders. Some wanted progressive taxation on income; some wanted what we call Social Security. Much later phenomena like the Square Deal, the New Deal, and the Great Society, which can seem hypermodern (and even, to the Tea Party, unconstitutionally anomalous), actually have deep American roots. However, those roots are not in the thinking of the famous founders -- New Dealers' claims on Jefferson possibly to the contrary -- but in grassroots, 18th century movements that, while little-known today, were of immense importance during our founding.

So important in their day were those now-buried radical movements, in fact, that much of the famous founders' behavior can't be understood without the context of elite dedication at times to collaborating uneasily with the economic radicals, at other times to squelching them and pushing back their political advances. Many historians of the period ignore that context. Hamilton's biographers, for example, do not deem the people's movement important. Hamilton did; he spent his career trying to kill it. We therefore learn almost nothing important about Hamilton's purposes by reading his biographies. Much founder biography, and much mainstream history, operates on just such comfortably foregone, ultimately useless conclusions.

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In place of founding radicalism, historians tend to emphasize the emergence, from the Revolutionary period through the Jackson era, of a rowdy, fluid, non-deferential, competitive America. They place developing ideas of American democracy almost solely in that 19th century context. But Thomas Paine, the best-known of the radical 18th century egalitarians, would surely have been crushed if he'd glimpsed the kind of society that passed for a democratic one in Jacksonian America.

Paine's intensity gives both liberals and radicals a problem. It was a widely held view in the Washington administration -- and it's been widely held in more or less liberal American history ever since -- that Paine's awful experiences in the French Revolution give us cause to celebrate the failure of Paine-ite radicalism in America. Fair enough: Today, as every day, it would be wise to recall not only crimes against humanity committed by bankers but also those committed on behalf of a supposedly collective, supposedly revolutionary "People," from the French Terror to the Stalinist mass murders and well beyond.

Still, the French Terror, which almost killed Paine, has served as a convenient pretext for exercising historical complacency about the suppression of his and others' fervently democratic visions for America in 1776. Without those visions, anathema as they were to the famous founding elitists -- anathema as they were, for that matter, to Jacksonian capitalism and are today to high-finance "neo-liberalism" -- we might never have declared independence at all.

So from a certain historical point of view, I think Occupy Wall Street rebukes, even more sharply than it rebukes rightist Tea Party claims on the founding, a familiar and complacent history of American democracy -- especially that history's failure to confront our long struggle over the relationship between high finance and government. Occupy Wall Street may be going about things all wrong, as some on what remains of the American left have asserted. I find those assertions hard to dispute. I've been critical of what I suspect may turn out to be a cultural premium, part and parcel of objections to elitism, on intellectual sloppiness and incoherence. That mode was never adopted by the activist 18th century working class, whose objections and demands (pace the lazy snobbism of Hamilton's biographers) took the form not only of action but also of crystal-clear, deeply informed, published resolutions. The 18th century activists remind us that resolutions don't have to be handed down from above; they can filter up and be adopted by majority or by consensus.

The very concept of "up" may be anathema to the new movement. We'll see.

But the most honest answer to any and all objections to Occupy Wall Street may be "So what?" Criticism often comes down to no-cost fantasizing about more appealing actions that nobody has actually bothered to take. When American high finance takes over America, "occupy" is what some American people do, and have always done.

William Hogeland is the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History. He has spoken on unexpected connections between history and politics at the National Archives, the Kansas City Public Library, and various corporate and organization events. He blogs at

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Occupy Wall Street: Not Anarchy, But Beautiful Sincerity

Oct 4, 2011Jeff Madrick

The media may mock the Wall Street protesters, but their commitment and their cause are no joke.

The media may mock the Wall Street protesters, but their commitment and their cause are no joke.

The contrast between the press accounts of Occupy Wall Street and the reality is stark. That is what I noticed first when I was invited there to speak on Sunday and joined Joe Stiglitz in a teach-in. At first it indeed looks like anarchy. People are sleeping there overnight. You think you may never find an organizer, but my wife and I were guided by the young man who invited me. Soon you find that amid the seeming confusion there is organization. It is, I must say, organization of a most beautiful kind.

There are “facilitators,” who somehow round up the people, pick a spot and, oops, spontaneously, the teach-in begins. These facilitators organize who will speak at the general assembly, which addresses the entire crowd. And they create the now-famous echo, which overcomes the seemingly major obstacle that the police have not allowed the protesters and their guests any microphones or other amplification.

The echo chamber is extraordinary. You must speak in half sentences, which the group then repeats. In the general assembly, each phrase is repeated twice, once by those nearest the speaker, then again for those behind the front group. This has produced surprising benefits: People are engaged, they pay attention, and they force the speakers to talk briefly and get to the points. Ah, the benefits of no technology.

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The other characteristic of the crowd is how friendly and courteous it is. The young people (though they were not all young) that Joe Stiglitz and I spoke to, perhaps a hundred or more, were very attentive, very much wanting to absorb what information and opinions we had to offer. We talked about income distribution, predatory lending, and ways to get out of the mess. They were eager and they were grateful. Finally, they asked good questions. They were also, after all, talking to a Nobel laureate standing on the wet grounds of Zuccotti Park.

Later, as dark descended, I spoke to the general assembly. It seemed like perhaps 500 people. I spoke briefly, telling them about how much money the top 1 percent make, about how steep the Great Recession is, about the lack of prosecutions, about the inadequacy of reregulation, and about how we need a serious conversation about what Wall Street is for.

As I left, I heard one sincere "thank you" after another.

Many criticize the protesters for not having formal objectives or an agenda. That is just fine for now. But many of the protesters are concerned about specific issues. They may well develop agendas over time, and people like Joe and myself may help them get better informed and focus their views.

What is most aggravating is how the press has mischaracterized this group and treated it as an event with no meaning and the participants as clowns. Even the progressive press often has a tone of condescension. Many of these people are educated, but all of them are frustrated and angry. Is there some reason they should not be? Try to get a good job if you are in your twenties today. Try to make sense of why Washington has not been harder on Wall Street. Try to understand why the unemployment rate is still 9 percent and may rise in 2012, not fall. Dressing up as zombies to mock Wall Streeters -- is that so wrong for capturing attention, letting off steam, and fighting wealth not with violence, but with humor?

Roosevelt Institute Senior Fellow Jeff Madrick is the author of Age of Greed.

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The Young Are on the Streets Because They Have the Most to Lose

Oct 3, 2011Mike Konczal

mike-konczal-newWhy are so many of the protesters on Wall Street college-age kids? Because their futures are at stake.

This Occupy Wall Street sign is my favorite:

The sign has a clever double meaning. The young have the most to lose by standing idle and not having their voices heard in the political process, and they have the most to lose by actually being idle -- or unemployed.

Why are so many of the protesters on Wall Street college-age kids? Because their futures are at stake.

This Occupy Wall Street sign is my favorite:

The sign has a clever double meaning. The young have the most to lose by standing idle and not having their voices heard in the political process, and they have the most to lose by actually being idle -- or unemployed.

The media hasn't learned the lessons from the 1960s, as there is still a tendency to dismiss young people protesting because they are young. You can see this phenomenon in the original New York Times coverage, and it appears in much of the rest. But at the heart of dismissals of young college kids in the 1960s was the idea that they had a very bright future ahead of them that they were taking for granted. For instance, here's President Nixon in the New York Times, May 1970:

You know, you see these bums, you know, blowin' up the campuses. Listen, the boys that are on the college campuses today are the luckiest people in the world, going to the greatest universities, and here they are, burnin' up the books, I mean, stormin' around about this issue, I mean you name it -- get rid of the war, there'll be another one.

Can it be argued that young people, college educated or not, are particularly lucky in this recession? Every category of worker is doing terribly in the Lesser Depression. My former editor Derek Thompson has a must-read article, "Who's Had the Worst Recession: Boomers, Millennials, or Gen-Xers?," which compares the three age categories across employment, income and wealth, and finds that everyone is suffering across the board.

But let's focus on the young. The issue of debt, especially student debt, hovers over the protests. How is the employment ratio looking for young people with a college degree? Here's data from last year:

And that doesn't factor in the fact that many college educated workers are working jobs that don't require college degrees. They are essentially using their degrees to crowd out those with a high school diploma or some college education from the jobs they would normally take. And no matter what jobs they are able to get, student debt hangs around their necks like an albatross.

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This impacts everyone who is young. Here's a summary of the recent 2010 Census' American Community Survey by PBS:

  • Employment among young adults between the ages of 16 to 29 was at its lowest level since the end of World War II. Just 55 percent were employed, compared with 67 percent in 2000.
  • Nearly 6 million Americans between the ages of 25 to 34 lived in their parents' homes last year.
  • Young men are nearly twice as likely as women to live with their parents.
  • Marriages among young adults hit a new low. Just 44 percent of Americans in that age group were married last year.
  • Other trends were also headed in the wrong direction. In 43 of the 50 largest metro areas -- often a magnet for 20-and-30-somethings -- employment declined.

In our desperate bid to replicate Japan, we are also replicating the poverty and joblessness among Japanese youths. This 2010 AOL article, "Japan's Economic Stagnation Is Creating a Nation of Lost Youths," can give you a sense of our trajectory.

Will we get our own version of the hikikomori? Young people are doubling up and not moving out of their parents' houses in this recession. If we looked at solely their own income, their poverty rates would be astounding. From the Census Bureau:

These “doubled-up” households are defined as those that include at least one “additional” adult -- in other words, a person 18 or older who is not enrolled in school and is not the householder, spouse or cohabiting partner of the householder...

In spring 2007, there were 19.7 million doubled-up households, amounting to 17.0 percent of all households. Four years later, in spring 2011, the number of such households had climbed to 21.8 million, or 18.3 percent...

Young adults were especially hard-hit, with 5.9 million people ages 25 to 34 living in their parents’ household in 2011, up from 4.7 million before the recession. That left 14.2 percent of young adults living in their parents’ households in March 2011, up more than two percentage points over the period.

These young adults who lived with their parents had an official poverty rate of only 8.4 percent, since the income of their entire family is compared with the poverty threshold. If their poverty status were determined by their own income, 45.3 percent would have had income falling below the poverty threshold for a single person under age 65.

Even if we can ever move out of the short-term recession, it will impact young people for years to come. Looking at a research summary compiled previously by Roosevelt Institute super-intern Charlie Eisenhood, Beaudry and DiNardo (1991) found “that every percentage increase in the [national] unemployment rate is associated with a 3-7 percent drop in entry-level contract wages.” Kahn (2009) found an estimate on the high end of that spectrum, discovering an “initial wage loss of 6 to 7% for a 1 percentage point increase in the unemployment rate measure.”

Unfortunately, the recession’s effect is not limited just to the initial job search and wages. The negative impact persists far beyond that. Kahn found that the effect “falls in magnitude by approximately a quarter of a percentage point each year after college graduation. However, even 15 years after college graduation, the wage loss is 2.5% and is still statistically significant.”

Job mobility is also affected. Kahn found a “negative correlation between the national unemployment rate and occupational attainment (measured by a prestige score) and a slight positive correlation between the national rate and tenure.” She concludes that “workers who graduate in bad economies are unable to fully shift into better jobs after the economy picks up.” Worse, Oreopoulos found permanent wage effects on workers with low expected earnings (based on occupational prestige).

So yes, young people have an important stake in what happens going forward. Do we continue policies that benefit Wall Street and the top 1 percent? Do we tax the rich to rebuild America? Do we reform a financial sector that dominates the economy? The list of choices in front of us goes on and on. Their whole future, indeed all of ours, depends on it. It's no wonder that they've taken to the streets.

Mike Konczal is a Fellow at the Roosevelt Institute.

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