Friday, October 21, 2011

Time to make your own luck

The largest private employer in the United States of America is tightening its belt, tightening that belt around the throats of the 1.3 million workers caught in its trap. The workers paradise of Walmart is cutting back on its expansive health care benefits program. That’s sarcasm if you didn’t guess, since most Walmart employees don’t get health coverage now and rely on Medicaid or good luck.

Republicans whine about the big government welfare state but think nothing of subsidizing employers by providing healthcare and food stamps for their employees while simultaneously pushing to eliminate the minimum wage the employers must pay.

Walmart will make what benefits it does offer unavailable for any new hire that doesn’t consistently work more the 24 hours per week for a year. Keeping workers hours restricted keeps them poor, and a second job will likely result in dismissal. Walmart will also double the premiums for many existing employees who almost all make less than $10.00/hour. When the minimum wage was established during the height of the Great Depression at at 25 cents/hour and would be, when adjusted for inflation, somewhere between $12 and $14/hour today.

Keep in mind that 25 cents/hour was not big money even in 1938. That’s $2.00/day compared to the $5/day that Henry Ford was paying in 1910. The fact that Republicans don’t think anybody who works for a living is worthy of even 1938 starvation wages should tell you everything you need to know.

The corporate media is cluck-clucking about how Walmart has no choice but to do this given rising health costs and the bad economy. The funny thing is that in most markets where Walmart operates they have a virtual monopoly, they can charge any price they want to and do. When a Walmart comes into a community they selectively cut prices until all of their competition is gone. Even in larger communities they only share the market with other big box stores who operate much the same way.

Walmart is experiencing diminishing returns because they not only eliminate the retail merchants in the communities they establish their iron fisted occupation, but they do away with the private sector middle class entirely. Accountants, lawyers, bankers, pharmacists, doctors, dentists, hairstylists, automotive shops and tradesmen of all types are driven out as Walmart either competes directly and unfairly, or Walmart eliminates their markets by sucking the money out of the local economy.

All that is left to shop at the ideal Walmart are government workers, prison guards, illegals working at the packing plant and retired people. Enter Republican austerity, government jobs are eliminated, prisons while growing are paying lower wages to a smaller staff, even the packing plants are cutting back because of out sourcing and falling demand from a declining economy, and retirement benefits are being slashed while the wealth accumulated by a lifetime of hard work by those retirees is destroyed by Wall Street.

Not to fear for Walmart, the billionaire owners are doing better than ever, the workers can still be made to work even harder for ever less pay. The worse the economy gets, the more incentive workers have to comply. If they won’t, any job posting brings thousands of hungry applicants.

The goal of course isn’t to destroy the economy but to convert it to a “full employment” Neo-feudalism model where there are plenty of  incentives to work harder and to comply. All assets whether now private or in the public commons will become corporate assets. If you work hard enough, comply with the boss’s every whim and are just plain lucky you will be rewarded with almost enough of the things that make your life bearable like food and heat, right up until your luck runs out. Time to start making your own luck.

Thursday, October 20, 2011

Stop feeding the one percent

Initial unemployment claims fell last week closing in on the “magic” 400,000 level that is supposed to indicate jobs are being created. The number of layoffs remains this high not because no jobs are being created but because the workforce is being churned by corporate America to drive down wages.

It’s obvious the official unemployment rate is a far rosier number than the reality.  The participation rate among the civilian workforce is now under 65% and the truth it’s been in decline ever since the election of George Bush. As outsourcing of jobs accelerated at the start of the Republican’s American Century the percentage of Americans with jobs has steadily declined.

This is not the worst news, even if you have a job your standard of living is falling fast. The numbers show that the last three years of economic decline produced the longest and steepest drop in standard of living since statistics have been kept. In fact the only reason that household income remained constant for most of the last 30 years was that the increase in number of jobs in a household went from 1.1 prior to Reagan to 1.8 just before the crash in 2008.

Americans have a irrational belief in individual achievement and tend not to grasp that their own decline is really a result of the decline the 99%. It took three years from the crash of 1929 until 1932 before people really started to demand change. The current crash is now three years old and people are again starting to wake up.

The next big hurdle to overcome is the widespread belief that the problems are “natural” and can’t be fixed. Republicans have all the talking points about job creators, too few millionaires to produce any significant revenue and simultaneously that they pay most of the taxes now, the rich will leave if we tax them or the rich will simply get out of paying the taxes so why bother.

The one talking point that I really like is that corporations will pass along the taxes to us anyway if we dare to raise them. This is of course a simple impossibility as income taxes are only a percentage of profits and to “pass them along” would directly increase those taxable profits resulting in more revenue for the government on those additional profits.

The classical economic theory is that prices are basically what market competition will allow, but with the domination of the economy by fewer and larger corporations tapping an ever shrinking middle class you are really seeing the disappearance of classical economics. It’s more like a study of predator to prey ratios during a drought on the savannah. So much so that the people who chart the course of the retail economy in the US have completely abandoned the middle class as a market at all. The share of retail spending by top ten percent is now closing in on 40% and climbing fast as they harvest an ever bigger share of the prey available.

Wildebeests stand shoulder to shoulder in a circle with horns facing out to keep the predators at bay. Are Americans that smart? Or will they continue to feed the top 1%?

Wednesday, October 19, 2011

Disturbing numbers from the OCC, radio talk host version: Run, Run, Hide!

The first domino in the next big crash appears to be leaning toward the taxpayers and it‘s a monolith of immense proportions. Bank of America that was until recently the world’s largest bank, has moved $75 trillion worth of derivatives from its Merrill Lynch division to a division with FDIC insured deposits. They did this following a downgrade of their credit rating last month. The only reason to do such a thing is to try to shift the deck chairs around to make up for the hard list the ship is having after hitting that pesky iceberg.

Reports are that the FDIC is beside itself about the risk this poses for taxpayers who would be on the hook to cover deposits should the old rust bucket head for the bottom. We wouldn’t be on the hook for anything like $75 trillion of course, only for the insured deposits. However, BoA holds 14% of all US bank deposits, how much of this would be covered isn’t clear. Nor can we guess how much damage the loss of the remaining “un-insured” deposits would do to businesses, municipalities and the like who would exceed FDIC limits. To cover all deposits would take a new act of Congress.

In a normal insured default, the bank itself would be seized, the stock holders wiped out and the management fired. BoA management has already allocated billions in bonuses, even as company hemorrhages an equal number of billions. Here’s term from contract law, “claw back” or the principle of not letting the bastards get away with the money. This wasn’t done after the last crash because the Bush Crime Family wasn’t interested. The new at the time Obama Administration couldn’t or wouldn’t do anything about it, but instead let the banks pretend to pay back the TARP money so that they were out from under government scrutiny.

The whole scam appears about to repeat itself. It’s hard to say how long this could take to play out, but if like Lehman Brothers there is a demand for payment by the counter parties of the $75 trillion in derivatives or even a small fraction of that as collateral, then BoA would cease to exist. It could happen over a single weekend the way JP Morgan ate Lehman’s lunch and they have now passed BoA to become the largest of the too big to fail banks. Coincidently the report from the Office of the Comptroller of the Currency (OCC) shows that JP Morgan currently has $79 trillion in derivatives.

Under the Dodd-Frank Act there is supposed to be an orderly wind down of these big banks when they fail, this is to be conducted by the FDIC the same as they do it with small banks. It’s questionable if they are in any position to make it work in a timely fashion as the framework under the Dodd-Frank Act for this hasn’t been completed (and it’s never been done before on such a monster, banks a fraction of this size have created panic) or even if the FDIC has enough money to pay the depositors. There are calls to simply break up BoA and not wait for it to fail, but I suspect that doomed ship sailed long ago.

As far as the FDIC being capable, the Congress did authorize a $500 B line of credit for the FDIC a couple of years ago. This may not be enough, especially if the contagion spreads to the other big four banks that account for something like 2/3 of bank assets. Who knows what the tea bag Congress might choose to do if regulators show up with their begging bowl wanting some serious pocket change. If Republicans treat the country to the sort of nonsense they put on display during the debt ceiling default crisis, they would certainly trigger a worldwide bank panic or worse.  Run, run, hide!

Tuesday, October 18, 2011

Learning to Fly the Hard Way

The Commodities Futures Trading Commission has finally approved rules that will sharply restrict the banks and hedge funds ability to manipulate commodity prices. The rule making process has been held up for a year by lobbying but mostly thanks to one corporate Democrat on the CFTC that sided with the two Republican Commissioners to slow walk and water down the changes mandated by the Dodd-Frank Act.

The Act requires the Commission to ban trading by those who do not produce or use commodities, but the law allowed for “rule making” and the devil is in the details. There is some concern that the rules are so full of loopholes as to have no effect. The rules were only grudgingly approved by the swing vote of  Michael Dunn (he says, “only to comply with the Law”) and while a Democrat, Dunn was appointed to the five person Commission by George Bush. He sides with Republicans in the belief that no such rules are necessary, and the CFTC has more important work to do. Dunn’s term is ending but his replacement requires Senate approval, so a progressive replacement is not likely to be confirmed under the current filibuster rules, even if Obama appoints one.

The new rules do limit banks to holding no more than relatively small number of futures contracts in a single commodity in the 25 areas that are regulated by the Act. That is if the banks aren’t allowed to skirt the rules by carrying on the pretense that each trading desk is a separate entity, negating any real effect. Republicans are incensed that any restrictions are being placed on the “free market” and suggest there could be a Court challenge. They conveniently forget that these activities were only de-criminalized in the 90s. Of course for the current Supreme Court, reversing long standing precedent to favor their rich cronies is their bread and butter. Oh and by the way, these rules could take another year (or more) to come into full effect.

Bank earning reports are out and Goldman Sachs lost a half billion last quarter, but the big headline is that Bank of America, until recently the largest bank, made a cool 6.2 billion. Except they didn’t, the entire “profit” came from the write down of their outstanding debt by creditors. It's sort of like when BoA settles a delinquent credit card by taking only half of the balance, the customer gets a 1099 for the other half as the IRS treats that unpaid debt as a windfall. It doesn’t mean you are making money and neither is BoA.

BoA also took in 3.6 billion from selling its stake in China Construction Bank but this was just enough to offset a loss of 2.2 B in its private equity business and losses of $1.1 B in consumer real estate. The biggest zombie bank (well, now second biggest) really lost 9.8 B dollars in just three months. Nearly half of American households do business with BoA and as the 99% decline so do the zombie banks. There is a certain satisfaction in this, except that they’ve already crippled this country so badly that we may not recover. We are close to edge, get used to falling or learn to fly.

Monday, October 17, 2011

Zombies are on the move, check your brains

The stock market fell more than 2% today, killing last week’s rally. This happened despite generally good corporate earnings reports but bank stocks dropped sharply, and this dragged the markets down. The clever saying in the news today is that stock pickers “may forced to join the protesters on Wall Street“ , the implication is that it’s becoming impossible to identify a predictable stock (going up or down).

The stock market is currently at a level that negates the last ten years of investing, and the market shows no sign of doing anything but preparing for the big plunge. Of course, if you are a Wall Street bank executive or a hedge fund manager, you made billions without producing a single thing of value. Isn’t capitalism grand? When I say billions, I don’t mean as a group, many made billions as individuals and paid a maximum 15% tax. Herman Cain, Mitt Romney and the rest of Republicans would take the tax on that type of income down not to just 9% but to zero.

The number of home mortgages classified as delinquent rose last month for the first time in nearly two years. Re-defaults on modified mortgages are starting to happen in significant numbers according to the banks, but they give no numbers and are probably trying to justify their failure to refinance mortgages at the record low interest rates now available. Banks say that the loans currently going bad are prime mortgages and not the so called sub-prime loans. The layoff of 500,000 government workers by Republican governors might have something to do with the surge in defaults, but shrinking government was supposed to be a good thing, right?

US Treasury Bonds and the German Bund are again gaining favor as a safe haven with yields on ten year notes again falling to barely 2% as investors bid the selling price up. It is supposedly the uncertainty about the bailout of euro bond holders that is making the US zombie banks a dodgy investment, as conventional wisdom states that the US banks have a heavy exposure to the European banks. A more accurate way of looking at it is that Wall Street caused the problem in Europe by looting an pillaging their way across the continent. In fact they are still doing so, and they are causing the crisis.

Credit insurance markets are getting increasing jumpy with the cost of insuring bank debt through Credit Default Swaps rising sharply.  The CDS on Citigroup debt is being particularly hard hit rising 16 basis points to 261 and you see similar rates for the other big zombie banks. It was a credit freeze up that made obvious the banking collapse of 2008, but it had been coming for years. Nothing about these banks has been fixed, they instead have been allowed to siphon funds from the stock market and to gouge consumers. This is coming to an end however and it will be ugly. It could happen anytime but more than likely it will be sometime next year. It depends on what happens in the Eurozone, as this will likely determine how quickly it all comes to a head. Hide your brains where the zombies can’t find them.

Sunday, October 16, 2011

Big Government works for some

Much is made by Republicans of Rick Perry's humble beginnings as the son of a share cropper. Thanks to New Deal land reform, the share cropper became middle class. For the last thirty years however, cotton farming has become big business making the Perry family millionaires. The thing is that cotton farming in the US is a money losing proposition, you can't compete with foreign producers, and there are no longer tariffs protecting US producers, "free trade is good for everybody" (remember that slogan). Step in big government, Republican style. Billions in taxpayer subsidies to grow cotton, even as the US textile worker became extinct. (they were union after all, and not good Republicans) Republicans love big government, but only for them. Not for the 99%. Get used to it or fight back.