Media Misinformation and JP Morgan

The New York Times' Andrew Ross Sorkin (above, Credit/David A.Grogan) and Jim LaCampJP Morgan Chase’s “terrible, egregious mistake” has touched off a firestorm of utter nonsense, ignited by the Jamie Dimon’s subtle spinning and fanned by the misinformation parroted by the media. Calling out these false statements benefits the public (and people like me who have been far too involved in the fight to preserve the Volcker Rule and other financial market reforms for our own health and sanity).

Fox News, of course, sets the standard for nonsensical rants. The most non-informative work is probably an interview by noted journalist Neil Cavuto of Jim LaCamp, a portfolio manager at Macroportfolio Advisors, but better known for his ready availability for conservative talk show appearances. Cavuto and LaCamp turned reality on its head by asserting that the JP Morgan SNAFU proves that Dodd-Frank Wall Street reform legislation does not work.  They agreed that reinstatement of Glass-Steagall would have been a better solution, “but that would have been too easy.”

That alone would have sent Jamie Dimon spinning in his grave, but for the fact that he is still alive (and well paid, thanks to the approval of his employment agreement by the JP Morgan Chase shareholders). One way to look at the Volcker Rule is as Glass-Steagall with far too many exceptions. The Cavuto/LaCamp proposition is not the kind of trade Dimon and his London traders would go for.

But Fox’s dynamic duo pushed on. They opined that the law merely put vague power in the hands of faceless regulators, increasing the number of cops on the beat that were so ineffective that they failed to spot the impending Morgan fiasco. First of all, I have had the pleasure of meeting many of the regulators and they each have faces. Many have families and pets and professional integrity, as well. But the ugly truth is that the congressional Republicans, with the help of some infuriatingly passive Democrats, have actually cut the budget of the CFTC -- an agency that is newly tasked with regulating the $30 trillion-per-year derivatives markets, among other things. This new work is a multiple of their prior responsibilities. The cynical tactic of starving the agency (whose incremental needs are actually quite modest, about 8 hours of cost of the war in Afghanistan) is designed by the heroes of Fox News to make certain that there will not be cops on the beat.

And how did Fox’s expert team ever get the idea that financial reform has ever gone into effect in any way meaningfully related to the shenanigans of JP Morgan Chase’s “Chief Investment Office?” The implementing rules are largely stalled because of the in terrorem tactics of the congressional budget process and the real and threatened lawsuits over picayune issues, each to be heard in the Bush-packed DC Circuit Court of Appeals. The banks’ bottomless pit of funds for lobbyists and litigators assures a slow and painful path to implementation.

Fox News is one thing, but the New York Times is quite another. It is true that the Times would never have put forth the bizarre rationale favored by Cavuto and his colleagues. But sometimes a lesser mischaracterization of the truth by a truly credible source can be far more damaging than a transparent rant.

Which brings us to the example of an article by Andrew Ross Sorkin. Since Mr. Sorkin has done some fine work in the past, I hope that he takes this as a compliment in that his missteps are particularly startling and so serve as effective pedagogical devices. He published an article that described the JP Morgan Chase trades in the context of the restrictions that would apply if the Volcker Rule legslation had been implemented already. The problem is that he seems to have accepted the widespread characterizations of the Volcker Rule naysayers rather than digging into the minutiae of the rulemaking.

In particular, he writes that the so-called “hedging” activity that was the source of JP Morgan Chase’s loss and embarrassment is inescapably preserved by the Volcker Rule’s exception for risk reducing hedges from the proprietary trading prohibition. Under the statute, a bank can hedge a risk position that was permissibly entered into originally. Sorkin approvingly quotes a former Morgan chief financial officer: “I don’t think you can hedge without taking a risk…The notion that you can very clearly draw a line between propriety risk-taking and hedging is a very difficult notion to implement.”

The proposed regulations do just that. There are three kinds of transactions that can logically be characterized as a hedge.

• A transaction can be the precise inverse of a position held by the bank. In this case, after the transaction is entered into, the bank would have no exposure under the original position.

• A transaction can offset some, but not all, of the risks associated with the original position and add no additional risk to the bank. The remaining risk is not new, but was on the books of the bank prior to the transaction.

• A transaction can offset some or all of the risks associated with the original position and add additional risk to the bank. This additional risk is also an opportunity to make profit. This additional risk and reward constitutes a new proprietary position, nothing more or less.

The Volcker Rule proposed regulations permit the first two activities but not the third. A permitted risk can be “hedged, but only of the purported hedge:

[d]oes not give rise, at the inception of the hedge, to significant exposures that were not already present in the individual or aggregated positions, contracts, or other holdings of a covered banking entity and that are not hedged contemporaneously…

As long as this principle survives the onslaught of bank lobbyists (and “significant” is not warped into another meaning through interpretation), it would be virtually impossible to lose money on a hedge. This is a massively important feature of the Volcker Rule regulations and the regulatory agencies should be complimented on their effort, not have their effort belittled.

Even Mitt Romney has overtly called for the repeal of the Dodd-Frank Act. This is irresponsibly dangerous. It is no trivial matter when the tireless efforts of the regulators are described as futile or impossibly cumbersome. There are plenty of defects in the new regulatory framework, but it beats the heck out of the dangerous deregulation that existed before.

Meek in the Land of the Plutocrats

The youngsters filed into the large conference room at the Community Service Society in Manhattan. Each picked up a slice of pizza and a can of soda from a small table that had been set up along one wall, then took a seat at the large table in the center of the room. They were from a public school in the Bronx, about 20 of them, 13 and 14 years old, and they’d agreed to talk to me about their lives.

One of the girls, noticing the bright sunlight streaming through the tall windows of the venerable office building, said, “I like it down here in Manhattan. I’d like to live here someday.”

And then they began talking, raising their hands politely when they wanted to be heard. As they spoke, there was an undercurrent of emotion that was disturbing. So I asked if they were generally happy with their lives. Only five raised their hands. When I asked the others why they were unhappy, they said because their neighborhood was not safe, because one or both of their parents had died, because there was no father in many of their lives, because their families were poor.

Several began to cry. One girl said she’d been raped when she was three years old. She looked down at the table and murmured, “I never feel safe.” Another said, “I saw someone on my block get shot. After that I didn’t want to go outside. When I go to school I always look at that spot where he was laying on the ground. It hurts to think about it.”

The kids spoke of drug dealers and gang members and people they had known who’d been shot and killed. Several of the youngsters, boys and girls, said they never wanted to get married because they saw domestic life as never-ending strife and grief. They spoke of 16-year-olds who were parents and adults without jobs and parties ruined by shootouts, with people running for cover as if they were in the Wild West.

“I don’t like my life,” said one girl. Another said she felt there was no purpose to her existence. One child who was weeping said she didn’t want to say why. “It’s too personal,” she whispered. “I can’t talk about it.”

We’ve failed these youngsters in so many ways. Too often their own parents have failed them, and the politicians at every level of government, and the general public, which is monstrously indifferent to the plight of the poor. There was nothing unusual about that group of youngsters from the Bronx. You’ll hear the same stories of grief and violence and deprivation on the South Side of Chicago, in South Los Angeles, in East St. Louis and Atlanta and Philadelphia and Newark. But the movers and shakers in media and government would rather swallow strychnine than confront this catastrophe head-on.

You won’t hear about it in the presidential race. Barack Obama can barely bring himself to say the word "poor." And Mitt Romney was famously dismissive about even the deepest concentrations of poverty. “I’m not concerned about the very poor,” he said. “We have a safety net there. If it needs a repair, I’ll fix it.” He later described his comment as a “misstatement.”

Fifty million Americans are poor and another 50 million have been characterized as “near poor,” which means they can feel the awful flames of poverty licking at their heels. That’s almost a third of the entire U.S. population. You’d think, in that context, it would be disconcerting to see the president yukking it up at the White House correspondents dinner with the likes of Lindsay Lohan, Kim Kardashian, Kate Hudson and George Clooney in the audience, and later raking in the dough at a $40,000-a-plate fundraiser at Clooney’s home in Los Angeles.

But that’s standard procedure in a country that has given up on its great promise of upward mobility and widely-shared prosperity. The Obama and Romney camps are planning to spend a billion dollars each, a truly obscene amount, in their fight for the presidency of a nation that is now unabashedly of, by, and for the rich.

Poor kids don’t stand a chance in this land of the plutocrats.

The Missing Information on Fracking

Credit: Helen Slottje for ShaleshockNPR is currently running a series on the fracking boom that highlights the vast landscape of unanswered questions. Today’s story looks at the medical issues that are plaguing people living near fracking wells, including headaches, rashes and other symptoms. Of the many troubling aspects, doctors in these areas don’t know how to help people with these mysterious symptoms. The natural gas industry claims there is no evidence that drilling is causing health problems and the community profiled also has a metal smelting plant and old coal mines everywhere. Without a massive study, community members won’t know the source or magnitude of the problem.

The case study profiled on NPR highlights a number of issues. One, because cumulative impacts are not taken into consideration during the permitting process, communities end up with multiple polluting industries. In other words, each polluting industry is evaluated as if it were the only industry in a community and not by taking stock of all industries in the community. The result is that while each individual plant may not be creating an environmental burden, the cumulative impact of all the plants often result in significant environmental burdens. This flaw has long been highligted by environmental justice critiques of EPA procedures and makes it difficult, as in this case, to isolate what is causing the health problem.

At the same time, while it is true that there are several polluting industries in the community, the newness of the symptoms and health problems suggests that something toxic was recently introduced, like the new fracking wells. The negative environmental impact of fracking is well documented, from flammable tap water to contaminated groundwater supplies to earthquakes. Fracking uses a mix of chemicals, including ones that have proven to be toxic to animals and humans. And the problem is that we don't know what impact these chemicals are having. Federal rules for fracking have not been updated since 1988, which is long before the industry began using the high-volume fracking that is now so popular. States with high-volume fracking, like Wyoming, only began regulating the practice less than two years ago.

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Dimon Makes the Case for the Volcker Rule

The JP Morgan Chase fiasco in which it lost $2 billion (so far) on a “hedge” of the bank’s global exposures to corporate risks bristles with implications for the push to implement the reforms of the Dodd-Frank Act -- and the effort to strangle reform in its crib.

First of all, we must ask: how on earth could JP Morgan Chase have lost money on a hedge? Hedges are logically used to reduce risk. The bank might have lost money on the underlying risk because it did not completely hedge it. But, since it lost money on the hedge itself, the reported loss means that the transactions it calls “hedges” in fact added risk to the bank, over and above the underlying risk it started with. This incremental risk means that the purported “hedge” constituted a new risk position, even though it may have offset some (or even all) of the underlying risk.

The proposed rules implementing the Volcker Rule provision of the Dodd-Frank Act prohibit proprietary trading by banks that benefit from FDIC insurance and access to the Fed window for liquidity. The rules make an exception for a “risk reducing hedge” so long as the hedge “does not give rise, at the inception of the hedge, to significant exposures that were not already present in the individual or aggregated positions, contracts, or other holdings of a covered banking entity and that are not hedged contemporaneously.” If the JP Morgan Chase transactions conformed to this principle, the hedging transactions could not generate a loss on their own.

The only conclusion that can be drawn is that the transactions that JP Morgan Chase calls hedges actually piled more risk on the bank, and quite a great deal more risk it seems.

Opponents of the Volcker Rule, like Jamie Dimon, ridicule the concept that hedges must be risk reducing, not risk adding. This episode not only shows that they are dead wrong, but also provides an insight into the vehemence of their objections. If you can lose $2 billion on a position, it is clear that you can make similar amounts under different circumstances. The growing spotlight on the bank’s “chief investment office” illuminates the massive profits previously recorded by this operation, even though its mission was to mitigate risk, not to turn a profit. In fact, turning a profit should be seen as an indication that it was taking risk on board rather than mitigating it. Without risk, there is no reward.

Which brings us to the second broad implication of these events. Dimon’s crew has pounded on the complexity of the Volcker Rule implementation proposal. Almost all of the complexity relates to proposed rules’ required processes that monitor bank business units that are supposed to be non-risk taking. Monitoring is needed because the largest banks have turned these business lines into virtual hedge funds in their frenzy to exploit their oligopolistic dominance of markets. With these advantages, they can extract massive profits until, inevitably, hubris and greed entice them across the line of prudency. The symmetry of risk and reward means that large profit means that disastrous loss is just around the corner.

That is exactly what happened here. The first indication of the massive position taken on by the London Morgan trader Bruno Iskil, known in the market by his nom de guerre, “Voldemort,” was the widespread complaint by hedge funds that Voldemort was distorting certain credit default swap prices by dominating the market. (Which I wrote about last month.) Now, the hedge funds have exacted their revenge, trading furiously against JP Morgan Chase’s “chief investment office.”

Closing down specific trading desks that employ the word “proprietary” in their names is simply not enough. The risk-taking corporate culture permeates every area of the big banks. How else could a bank employee assigned to the boring task of reducing risk or serving the needs of customers make a bonus like their prop trader colleagues? Rigorous and comprehensive monitoring is essential, given the imprudent business practices to which the big banks are addicted.

And Dimon has relentlessly lobbied to restrict the reach of financial reform from non-U.S. operations. He argues that these operations do not affect the U.S. company and are sufficiently regulated abroad. That seems far fetched now.

Finally, the banks (along with a number of academics who are naïve or worse) smugly suggest that prohibiting specific bank activities is an outdated approach, rooted in the financial system of the 20th Century rather than the modern, high-tech global markets. They argue for allowing all forms of risk-taking, but making certain that the banks keep capital reserves on hand to cover the inevitable meltdown. These people are, to put it mildly, the overly simplistic thinkers. In order to calculate the amount of capital that must be reserved, the regulators must be able to measure the risk exposures created by bank activities. Professor Simon Johnson points out that JP Morgan Chase passed its stress test with flying colors and that the regulators had no inkling of the time bomb ticking away in Voldemort’s positions. No less an expert on the fiasco than Jamie Dimon himself characterized the trading tactic used by Voldemort as a “terrible, egregious mistake.” It should be noted that no one claims that Voldemort engaged in a rogue act. The mistake was the bank’s, not his alone.

It is abundantly clear that the megabanks routinely engage in trading activity, throughout their operations, that expose them to risks that neither they nor the regulators can possibly measure. It must be pointed out that it is widely believed that JP Morgan Chase’s risk management systems are the best in the business. To rely on the internal risk management systems of these banks or on the ability of the far less sophisticated measurement capabilities of the regulators who establish capital reserve requirements means that the next financial crisis will look like 2008, except that the resources needed to avoid complete failure no longer exist. It also means that the next crisis will happen soon.

The Volcker Rule, or the alternative approach of the SAFE Bank Bill introduced by Senator Sherrod Brown last Wednesday, simply must go into effect. Why on earth would anyone consider following the wisdom of Jamie Dimon on this question?

The GOP's Continued EPA Witchhunt

It’s hard to imagine that an industry that has spent over $28 million on federal and state campaign contributions this election cycle alone would be victimized by government regulation, but that is the cry coming from the oil and gas industry. Well, more accurately, that is the cry coming from politicians in the pockets of those industries.

A few weeks ago, a senior EPA official resigned after video surfaced from two years ago in which he used a poorly worded analogy likening environmental law enforcement to the Roman crusades. In remarks to a small Texan town concerned about the environmental damage from fracking, the regional administrator for the South Central region, Alfredo Armendariz, stated that the Romans would conquer villages by crucifying individuals and instilling fear, and likewise, companies could be prodded into obeying environmental laws by making examples out of people who are not complying with the law.

Was it the best use of words? No. Was it the sign of an administration-wide conspiracy against the oil and gas industry? Definitively not. Yet, predictably, the Right was up in arms. Texas Governor Rick Perry’s spokesman stated, “This isn’t just one person, this is an entire agencywide philosophy. He stepped down, but unfortunately the agency is still there and that whole mind-set is still there.” I would expect nothing less from Perry’s spokesperson given that he is the top recipient of money from individuals within the oil and gas industry.

Likewise, the calls for a broader witch hunt are led by Senator James Inhofe, whose top contributor is the oil and gas industry-- which contributes more than three times the amount as his next highest contributor. Inhofe, by the way, is one of the leading climate deniers. In total, the oil and gas industry has spent over $28 million in political contributions in this election cycle alone. Eighty-six percent of it went to Republicans. On top of that, the industry spent more than $110 million in lobbying.

The Sunlight Foundation’s Influence Explorer shows the extent to which money has permeated politics and policy. Exxon Mobil, for instance, has not only spent over $10 million on lobbying (again, just this year alone), but they also sit on 11 congressional committees as “advisors.” At the same time, they have five contractor misconduct fines, including one for over $25 million for asbestos exposure, and three EPA violations. Yet, they still received 10 government contracts—one for nearly $70 million. Given Exxon received over $270 million in contracts, the money it spent on campaign contributions and lobbying paid off extremely well.

This fits a broader pattern of an energy industry that uses its money and political muscle to evade accountability. As reported by Greenwire last year:

Oil and gas drillers who pollute groundwater, spill toxic chemicals or break other rules have little to fear from the inspectors and agencies regulating the surge in American petroleum production.

A Greenwire review of enforcement data from the largest drilling states shows that only a small percentage of violations result in fines, and the fines that are levied often amount to little more than a rounding error for billion-dollar companies.

In Texas, 96 percent of the 80,000 violations by oil and gas drillers in 2009 resulted in no enforcement action. West Virginia, a state with 56,000 wells, issued 19 penalties last year. And Wyoming, the center of Rocky Mountain energy, collected $15,500 in fines in 2010.

Pennsylvania, the most aggressive about fining violators, sought penalties for more than a quarter of the violations found last year. It levied fines for 4 percent of the violations, with the penalties totaling $3.7 million. The largest of those was a $900,000 fine against a drilling company that contaminated the water of 16 homes.

That was less than the profits the company makes in three hours.

Some states don't even track key enforcement data, so regulators don't know which companies have already been fined repeatedly.

Judging by these facts, Armendariz was spot on: we do need to make some examples of companies that break the rules, since the current strategy of enforcement is not working.

Armendariz will testify before a House panel in June about EPA enforcement priorities and practices. Besides being a total waste of time and taxpayer money, the more frustrating aspect of this witch hunt is that Armendariz was doing his job. Yes, the words he chose were terrible. But, one of the main roles of the EPA is to crack down on polluters. It is called the Environmental Protection Agency. Its purpose is not to coddle industries and ignore their environmental violations. It is a pretty sad indictment of our current political environment that people are being persecuted for doing their jobs. Sad but not surprising given the massive amount of money pouring into our political system.

Fiscal Folly from the Peterson Foundation

On Tuesday, the Peter G. Peterson Foundation will hold its third annual fiscal summit. We need this event like we need a mass outbreak of sado-masochism.

If you wonder why all right-thinking people seem to have concluded that austerity is the royal road to economic recovery from a severe financial collapse made on Wall Street, look no further than the Peterson Foundation. Pete Peterson, a Republican with prodigious Democratic and media connections, who made his fortune in private equity, has committed a cool billion dollars to the task of persuading less affluent Americans to tighten their belts. He is the cynical center's answer to the Koch Brothers.

The Bowles-Simpson commission on deficit reduction, the idea of automatic triggers to cut deficits in a recession, the goal of a grand bargain to raise taxes and slash Social Security, the covey of bipartisan deficit hawks, the blurring of the issue of long term solvency for Medicare and Social Security with the issue of a recovery strategy, are all part of the Peterson Foundation's grand design. The Washington Post's Lori Montgomery faithfully echoes Peterson's line, as do one tedious column after another by the likes of Tom Friedman on the center-left and David Brooks on the center-right.

The Peterson Foundation has relentlessly promoted the idea that the main economic challenge today is to set a target ten years down the road for a reduced ratio of public debt to GDP, on the premise that this will somehow restore economic growth. President Obama has dutifully obliged, targeting ten year cuts of $4.4 trillion in his FY 2013 budget. The House Republicans, using far more inventive accounting, target $5.3 trillion. The two budgets are far apart in how they treat taxes and social spending. Obama would raise taxes and defend social outlay, while the Republicans would cut both. Yet, at a time when Democrats and Republicans agree on nothing else, they bizarrely agree on belt-tightening in a recession.

However, the fact remains that the very idea what we can specify budget cuts in a deflationary recession, and imagine that they will lead is to a predictable debt ratio, is economic fantasy. Why? Because the budget cuts themselves will reduce the economy's overall purchasing power, leading to slower growth and reduced revenues -- and larger deficits. (That's the real analogy with Greece.) The reduced debt ratio thus is a mirage.

Yet the Peterson Foundation has succeeded brilliantly in creating the sense that every right-thinking person agrees that the top priority is to reduce the debt ratio, and we're just arguing about the details.

At Tuesday's summit, Bill Clinton will offer his version of a deficit reduction plan. Tim Geithner will offer his. Likewise Rep. Paul Ryan, and Democratic Congressmen Chris van Hollen and even Xavier Becerra of the House progressive caucus, and, inevitably, Alan Simpson of the late Bowles-Simpson Commission. Clinton, who will be interviewed by Tom Brokaw, has partnered with the Peterson Foundation on other initiatives. Another speaker is economist Carmen Reinhart, an expert on debt crises, who works at yet another institute named for Peterson. Also speaking will be Foundation's president and CEO, Michael Peterson, son of the benefactor. (The entire board of directors is Pete Peterson, his wife, and son.)

What you don't get to say at a Peterson Foundation summit is that the whole premise is insane; that we need to target growth and jobs first, with larger deficits as necessary, and that deficit reduction will eventually follow as the economy recovers. The press coverage of these events invariably reinforces the Peterson script that everyone's for deficit reduction first, even people like Paul Ryan and Chris van Hollen, who agree on nothing else.

Democrats, it seems to me, should boycott these events, instead of giving aid and comfort to one of the era's great propaganda machines and allowing themselves to be window-dressing for a conservative agenda that is anti-jobs, anti-recovery, anti-social insurance, and just plain wrong-headed economics.

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JPM Chase Chairman, Jamie Dimon, the Whale Man, and Glass-Steagall

Chase Tower in Rochester, New York/Flickr: kricav

It was fitting that while President Obama and his Hollywood apostles broke fundraising records at a sumptuous $40,000 per plate dinner at George Clooney’s place, word of JPM Chase’s ‘mistake’ rippled through the news. Not long ago, Dimon’s name was batted about to become Treasury Secretary.  But as lines are drawn and pundits take sides in the Jamie Dimon ego deflation saga – or, as I see it - why big banks should be made smaller and then, broken up into commercial vs. speculative components ala Glass Steagall – it’s important to look beyond the size of the $2 billion dollar (and counting) beached whale of a trading loss.

Yes, $2 billion in the scheme of JPM Chase’s book and quarterly earnings is tiny, a ‘trading blip’ as it’s been called by some business press. But that’s not a mitigating factor in what it represents. In this era dominated by a few consolidated and complex banks, the very fact that it’s a relatively small loss IS the red flag. 

First - because the loss could grow. Second, because even if it doesn’t, it’s a blatant example of a big bank incurring un-due risk within a barely regulated, highly correlated financial markets. It only takes another Paulson hedge fund, or a trading desk at Goldman Sachs, to short the hell out of the corporates that JPM Chase is synthetically long, or take whatever the other side really is, to create a liquidity crisis that will further screw those least able to access credit – individuals, small businesses, and productive capital users.

We know this. We’ve seen this. We're in this. There’s no such thing as an isolated trading loss anymore. And yet Jamie Dimon, seated atop the most powerful bank in the world, has smugly led the charge to adamantly oppose any moves to alter the banking framework that allows him, or any bank, to call a bet - a hedge or client position or market-making maneuver  - with central bank, government official, and regulatory impunity.

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Credit Checks, Like Stop and Frisk, Hurt Minorities Most

The debate over the NYPD's controversial stop and frisk policy is an important reminder about the unjust reality young male African American men face. Stop and frisk has been thrust back into the media with new findings by the NYCLU that in 2003, the NYPD stopped 266 people for every gun recovered, but in 2011, cops had to stop 879 New Yorkers to recover a single gun

While stop and frisk is a high-profile and particularly egregious form of discrimination, there are other serious and unfair practices that garner far less public attention. One issue that receives far too little attention is the the problem of racial disparity in credit checks. As Amy Traub, author of "Discrediting America," explained:

The reality is that employment credit checks disproportionately impact Latinos and African Americans, whose credit histories have suffered as a result of discrimination in lending, housing and employment itself. Employment credit checks can perpetuate and amplify this historic injustice. For this reason organizations including the Lawyers Committee for Civil Rights, National Council of La Raza, and the NAACP have taken repeated stands against employment credit checks. 

Credit checks are a proven form of discrimination. Bank of America, for example, was excluding a significantly higher proportion of African-American candidates (11.5 percent) because of the credit check than white candidates (6.6 percent). Kaplan is facing a similar charge in a pending case.

 

The courts, like minority rights groups, are beginning to see take on this problem. The time has come to put the pressure on legislators to question credit checks, like they're questioning stop and frisk. Neither is justifiable and both should be abolished. 

America the Possible: Gus Speth's Roadmap To A New Economy

If you could implement your ideal vision of the U.S. in 2050, what would it look like? Demos’ Distinguished Senior Fellow, Gus Speth, answers this question in his new book America the Possible: Roadmap to a New Economy, which will be released in September of this year and has been previewed in two excerpts, America the Possible: A Manifesto, Parts I and II in Orion Magazine.

In the first excerpt, Speth details how America is exceptional for all the wrong reasons, ranging from staggering levels of poverty and income inequality to deep environmental degradation to misplaced priorities that result in a continually increasing military complex, rather than focusing on nurturing our communities and families. These realities are a result of,

“[c]onscious political decisions made over several decades by both Democrats and Republicans who have had priorities other than strengthening the well-being of American society and our environment.”

Beyond political decisions, Speth argues that the political system is in trouble because it is moving from democracy to a system of plutocracy and “corporatocracy” through the ascendancy of market fundamentalism and a strict antiregulation, antigovernment, antitax ideology. This change leaves us fundamentally incapable of solving the problems we face. This new ideology also thrives on a growth-above-all strategy that has prioritized economic growth over the greater well-being, an issue that is at the heart of Demos’ recent Beyond GDP report and infographic series looking at how growth doesn’t equal progress.

In the second excerpt, Speth paints a picture of an America where the reigning ideology is equality and the focus is on inter-generational planning, and not on short-term gains. He sets out a path to achieve a fundamental rethink of our underlying values-- moving from seeing humanity as separate from nature to seeing how humans are inextricably intertwined with the planet, from hyperindividualism to community and social solidarity, from prioritizing materials goods to placing importance on personal and family relationships and other experiences. These gains can be achieved through social movements, a change in narrative and leadership, and adopting innovative, instructive economic models.

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Work-Family Policy: Before, During and After Mother’s Day

Mother’s Day won’t arrive until Sunday, but the U.S. Senate Committee on Health, Education, Labor and Pensions is already looking beyond it. And rightly so: this morning’s committee hearing, “Beyond Mother’s Day: Helping the Middle Class Balance Work and Family”  takes an expansive view of how public policy and business practices succeed and fail to support the important work that mothers, fathers and other caregivers do to sustain their families. “A secure family,” as Committee Chair Tom Harkin announced at the start of the hearing, “is a very important piece of the American dream for our middle class. This means more than financial security. It means having a good family life and being able to spend time together.  It means being able to care for your children and your parents when they need you, and to know they are well-taken care of when you can’t be with them.”  

Ann O’Leary, of the Center for the Next Generation in San Francisco, framed the issue powerfully: family work patterns are changing as the vast majority of families depend on the earned incomes of mothers; the needs of children are changing as they increasingly face health and educational challenges that demand greater time and attention from parents; and the demographics of our society are changing to leave working people with increased responsibilities to care for ailing and elderly parents; America’s workplace policies have not kept pace.

Workers and their families need paid sick days to protect their health and economic security, explained Judith Lichtman of the National Partnership for Women and Families. Two out of three low-wage workers in the U.S. – the employees who can least afford to miss a paycheck – do not have a single paid sick day to recover from illness or take care of sick child or relative. These workers must choose between losing a day’s pay or coming to work sick, endangering their own health and the public. Many low-wage workers even risk losing their jobs and health coverage if they call in sick. According to one survey, one in six Americans says that they or a family member have been fired, suspended, punished, or threatened by an employer for missing work due to illness. The result is a more fearful and precarious low-wage labor force, just one illness away from slipping into poverty.

An excellent first step would be the Healthy Families Act, which would enable working people to earn up to seven paid sick days a year to recover from illness, care for a sick family member, visit a doctor or seek assistance related to domestic violence. The bill, introduced as stand-along legislation as (S. 984/H.R. 1876), is also incorporated into Senator Harkin’s Rebuild America Act.

Paid family and medical leave is another critical policy component. The Family and Medical Leave Act,  passed in 1993, was intended to provide some security to families facing a sudden illness, providing family care, or welcoming a new child. The law guarantees 12 weeks of unpaid leave to Americans working at businesses with 50 or more employees. Employers cannot replace workers on FMLA leave or retaliate against them in any way. Since its implementation, workers have used FMLA leave more than 100 million times. But four in ten American workers are not eligible because they work for smaller companies or have not been on the job long enough, and millions of Americans cannot afford to take leave without pay. Because only a small proportion of employees receive paid leave benefits directly from their employers, working Americans are still forced to risk their incomes and jobs to maintain their families.  Employees of small companies lack any federal protection whatsoever. The solution is to broaden the reach of the Family Medical Leave Act and establish an insurance system to offer paid family leave based on the successful models in California and New Jersey.

Scholarly and policy perspectives aside, by far the most moving testimony was offered by New York City retail worker and mother Kimberly Ortiz. Describing her life as the low-wage single parent of two autistic boys, Ms. Ortiz asserted:  “ A few paid sick days a year, a set schedule, and wages that keep up with the rising cost of living would make a tremendous difference in my family’s life.  As a single mother, I need to be present for [my children] Ethan and Aiden, and provide for them. This is what middle class means to me.”

Teachers Need to Advocate for Themselves

Secretary of Education Arne Duncan visits a DC school to thank teachers Credit: ed.govNational Teacher Appreciation Week (May 7-11) ends tomorrow. The National PTA established teacher appreciation week back in 1984 "to honor the men and women who lend their passion and skills to educating our children."

There has been an outpouring of thanks and praise for former teachers, the resurgence of #thankteacher on Twitter, talk about the irony of celebrating teacher appreciation while sending pink slips to 333 educators in Washington DC schools, and much ado about Secretary of Education Arne Duncan's hectic schedule this week. 

Duncan and other Department of Education staffers have indeed been busy. On Monday, Duncan met with 80 individuals from the South Carolina Teaching Fellows program to talk about the RESPECT project, an effort meant to renew and transform the teaching profession. Duncan also met on Monday with "dozens" of other Department of Education staffers who are former teachers to honor their time in the classroom and discuss how it has impacted their work.

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Financial Reform Confronts Not-So-Blind Justice

Pres. Obama signs Dodd-Frank in July of 2010Everyone with a sufficiently strong constitution to follow the Republican primary campaign and Mitt Romney’s sequel is well-versed on the theory that burdensome regulation hangs around the neck of the economy like a millstone. Rick Perry wanted to obliterate so many federal agencies that he simply could not keep the list in his spacious mind.

The corollary of this demagogic device can be found in the marbled courtroom of the D.C. Circuit Court, currently dominated by Republican appointees because of confirmation tactics in the Senate and mismanagement by the administration. Opinions abound on how the most important court in the land in matters of governance remains so skewed to the right, but these musings really do not matter to the immediate problem. Which is this: It seems that every single one of the 300-plus regulatory rules needed to implement the financial system reform embodied by the Dodd-Frank Act needs to go through some form of cost/benefit analysis performed by the promulgating agency. Inevitably, the applicable statutory provisions are not uniform and each agency’s duty is unique. Well-paid lawyers are able to assert shamelessly that the law applicable to each agency requires a massive economic cost/benefit analysis. Then again, a lawyer’s shame hurdle is fairly high, especially when his or hers client has the fee-paying capacity of Goldman Sachs, et al.

Yesterday, Americans for Financial Reform hosted an informative conference on the legal and quantitative issues of cost/benefit requirements. In summary, the law should require only consideration of costs and benefits focusing on public benefits and costs, and that the agencies have wide discretion in the process. Economists believe that quantitative analysis is difficult, especially as it pertains to benefits. Unfortunately, how things should work is not way the D.C. Circuit approaches the problem.

The cost/benefit challenge to the financial reform rules originated with a 2011 D.C. Circuit decision (Business Roundtable v. SEC) in which a proxy access rule authorized by Dodd-Frank was sent back to the SEC for inadequate cost/benefit analysis. The Court found no substantive problem with the rule or even the outcome of the cost/benefit analysis. The flaw was the omission of quantitative economic analysis of the costs of an obscure and unlikely potential outcome from the rule. Encouraged by their unlikely success, financial industry representatives have now challenged the CFTC’s position limit rules and have overtly threatened to challenge all significant rules.*

The effect of this ruling and the follow-on litigation has been profound. The SEC has ceased proposing and promulgating rules for all intents and purposes. It cowers in a corner contemplating how, given its limited resources, it can possibly undertake the massive enquiries required by the court in dozens of rulemakings on its agenda. The CFTC is far bolder, but perhaps more at risk since its rulemaking burden is much broader and it is far more impoverished. And the Republican CFTC Commissioners have taken to inserting disparaging statements regarding staff cost/benefit analyses in the record for every action on every significant rule. It is almost as if these commissioners were coordinating their efforts with the litigation teams employed by the Chamber of Commerce, SIFMA, ISDA and the Business Roundtable. What an unfortunate coincidence (and I use the term out of an abundance of generosity) for the public and for those who are fighting tirelessly to protect the public from dangerous and predatory banking practices!

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Public Servants to the Public Good

Being in favor of strong government means being forward-thinking. Literally. In expanding our current government, we are constantly looking ahead to the future of our country, to the repercussions of our actions, and to the best possible version of the United States that we can build. But this week, let’s set our obsession with the future aside.

Let’s not only focus on building stronger and larger government, but let’s laud the existing government employees who make do with our current system.

This week is an appropriate one for such a task, as it’s Public Service Recognition Week. This event is usually only celebrated internally in the public sector, but what with the difficulties government employees face, they certainly deserve more widespread recognition. True, public servants have been getting some bad press lately (to put it lightly).

What with Secret Service sex scandals and opulent overspending by the GSA, it’s easy to think of government employees as corrupt, greedy bureaucrats. Yet their needs and concerns make them more similar to private sector employees than one might think.

This week, let’s recognize the difficulties public servants face in their jobs, not only with a complex and often contentious system, but with problems that so many workers face: budget cuts, assaults on collective bargaining rights, the struggle to extend benefits to all spouses, and the increasing cost of retirement, to name a few.

Let’s take a moment this week to commend the individuals who keep our infrastructure running. Let’s remember New York City teachers, charged with the task of teaching incomprehensible tests to pink slime-fueled children; rural postal workers who are living in office closure limbo; even the lady behind the desk at your local DMV (you know the one). Their day-to-day jobs are difficult enough without widespread threats to their rights and benefits. Let’s let them know we’re grateful.

Gas Prices are Decreasing, but for How Long?

Earlier this year, when President Obama's critics were in overdrive trying to blame the White House for rising gas prices, we wrote that there were three main ways to bring gas prices down: end oil speculation to prevent market distortions, reduce tensions with Iran, and meaningfully increase investment in alternative energies to diversify our fuel supply. We also noted that if Americans drove more fuel efficient vehicles, fluctuations in gas prices would be less of a big deal. In short, there was little that the President could do by himself to lower gas prices.

In turn, the President cannot take credit for the last five weeks of falling gas prices given that he hasn’t implemented any of the policies that would decrease gas prices. Rather, gas prices are falling because the price of oil has fallen globally due in part to an increase in supply from OPEC countries, which offset the decreased output from Iran, and a perceived decrease in demand due to a weak U.S. jobs report and uncertainty around the Eurozone recovery. The decrease in gas prices is expected to continue through the peak summer months and the Energy Information Agency has decreased their forecasted price per gallon by ten cents from April. But again, there was little the President could, or did, do to impact these prices.

The rapid turnaround in gas prices is more proof that all the other explanations for high gas prices, like over regulation and not enough domestic drilling, are also incorrect. If the gas price spikes were a result of too much regulation or too much interference by the EPA, why would they be able to decrease so rapidly? Wouldn’t over-regulation make prices permanently high?

Likewise, more drilling has little impact on gas prices. During the time of the spiking prices, domestic oil production was at record levels, yet because oil is a global commodity, the high production levels did nothing to decrease gas prices. Not to mention that even if we drilled every last drop of available oil, it wouldn’t come close to meeting our oil demand because while we have two percent of the world’s oil reserves, we consume 20 percent of its supply.

All of these rapid fluctuations point to the inevitable conclusion that we need to significantly reduce our oil consumption and diversify our energy sources to reduce our dependence on oil. Even more than stopping oil speculation, reducing our demand for oil is the clearest and permanent solution to ensuring stability in gas prices. Let’s remember this the next time we go through the drama of a gas price spike.

Heartland Institute Faces Backlash over Equating Mass Murderers and Climate Change Supporters

What do Ted Kaczynski (the Unabomber), Charles Manson, and a large majority of Americans have in common? People who are not insane would say nothing. The Heartland Institute, a right-wing think tank, however, recently put up a billboard that equated the 62 percent of people that think the weather is changing (i.e. the climate is changing) to people like the Unabomber, Charles Manson, and Fidel Castro. Heartland’s press release announcing the billboards stated that, “some really crazy people use it (global warming) to justify immoral and frightening behavior.” Right. I must have missed that part of history that found that Charles Manson went on his murdering spree in the name of global warming.

It seems this time, Heartland went too far and in the subsequent days since the billboard went up, corporations have begun to pull their support due to pressure from groups like Forecast the Facts, who mobilized over 20,000 people to call for corporate sponsorship withdrawal from Heartland. This latest controversy comes just a few months after internal memos were leaked that showed Heartland’s plan to go all out on pushing a climate-denying message, including plans to teach corporate-funded curriculum to children about how climate change was “controversial.” As we pointed out at the time, there is nearly uniform consensus in the scientific community that not only is the climate changing, but also human produced climate change is a significant contributor.

Embracing the existence of climate change is not confined to the scientific community. A recent poll conducted by Yale University found that nearly 70 percent of those polled said that the U.S. should make either a large or medium-scale effort to reduce global warming, even if this has large or moderate economic costs (emphasis mine). In a time when the economy is still in recovery, the fact that a large majority of people support reducing global warming, even if there are costs, is huge. It could be that people are feeling more economically secure than reported so they are focused on broader issues than the economy. Or, it could be that the threats of global warming are becoming so great that people see addressing the issue with the same importance as the economy. And, rightfully so. As a recent set of reports released by Demos shows, there will be substantial personal and economic costs from climate change.

The Heartland backlash, combined with the backlash against another right-wing stalwart, ALEC, are strong indications that the right has gone too far with their over the top messaging and policies. As for me, I say keep the crazy coming. Exposing what the right really thinks is one of the best tools for progressives.