California Attorney General Kamala Harris

California Attorney General Kamala Harris announced a tremendous victory for the state of California in the national mortgage settlement deal. Her complete statement can be seen and heard in the video below. Harris, who became California’s first female Attorney General in 2010, has been reported to be one of the key reasons the bank negotiations were settled as favorably as they were. The negotiations, which kicked off 13 months ago ,were stalled partly because Harris walked away from the original offer.

California, the state that suffered the most in terms of foreclosure, was a key player in the negotiation process. The Attorney General announced that the deal put before her last year didn’t offer enough in terms of relief to the people harmed and it immunized the banks from further liability. Standing firm on her decision to not allow the people of California to be given short shrift, A.G. Harris demanded that the deal include “meaningful relief but not at the expense of meaningful investigation” before she would consider signing it.

So, yesterday, in a settlement that represents one of the largest in California’s history, the people of California were awarded $18 billion of the national $45 billion pot. This is set to be provided over a three-year period.

Explaining that California was given special consideration in the national bank settlement, Kamala Harris laid out how the “California Commitment” differs from the other states. Aside from getting the lion’s share of the pot,  Harris said the California Commitment:

• Insures that Californian’s will be able to get $12 billion in principal reduction and short-sale relief
• Prioritized the communities that were the hardest hit like Boyle Heights and Stockton
• Provides restitution in the amount of $279 million  to families that have already been foreclosed on

The earlier settlement discussions included the various states attorneys general, the Department of Justice and HUD, but Kamala Harris found it more effective to talk directly to the banks as well. Speaking of her return to the settlement talks, Harris said, “We returned and talked directly with the banks about the 2 million homes that are under water.”

Then she went directly to the people in some of the hardest hit communities. She says she sat down and talked with families in East Los Angeles and Stockton. It was through these talks that the AG was able to see their vulnerability and embarassment.

The attorney general emphasized the need to continue to chip away at the forces behind this crisis, stating that she and her team have instituted a Mortgage Fraud Strike Force which has been created to protect innocent homeowners and bring to justice those who defraud them.

Sharon Kyle
Publisher, LA Progressive

The economic crisis we have been living through for the past six years had its origins in an economic “bubble,” involving mortgage rates and real estate trading, that started in the United States in 2001 and ended in mid-2006.

An economic “bubble” is a distortion in the economy that occurs whenever a major commodity or service becomes such an object of speculation that its price hyper-inflates far beyond its actual value. Such a trend will only continue for a certain amount of time before the bubble bursts, and prices begin to fall. Unfortunately, one of the characteristics of a true economic bubble is that it often sets off a chain reaction throughout the economy, causing unusual expansion while it is still growing, and massive losses when it implodes. That is exactly what happened with the real estate market.

Frenzied buying and selling of homes, combined with a shortage of available housing plus easy credit, led to rapid increases in the market prices on all available housing in the U.S.

For years the banks, real estate agents and investors in real estate securities on Wall Street were making money hand-over-fist. During that period, most ordinary people who owned a home, or at least were buying one, felt that they were also beneficiaries of this process

In the years leading up to the crisis, significant amounts of foreign money flowed into the U.S. from fast-growing economies in Asia and oil-producing countries. This inflow of funds combined with low U.S. interest rates from 2002-2004 contributed to easy credit conditions, which fueled both housing and credit bubbles. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load.

As part of the housing and credit booms, the amount of financial agreements called mortgage-backed securities (MBS), which derive their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors around the world to invest in the U.S. housing market.

As more and more investment poured into the housing market, especially into mortgage-backed securities, the competition between banks and investment firms heated up. Soon, the banks opened up credit on loans to more and more “sub-prime” borrowers—that is, borrowers who would not ordinarily qualify for loans because they didn’t have enough financial resources on hand to guarantee their ability to pay a loan off.

The banks felt secure that the seemingly endless flow of investment funds and the constantly expanding economy would cushion them against the likelihood of numerous defaults on these loans. Meanwhile, they would milk these sub-prime borrowers for every penny they could get. At the same time, by increasing the number of buyers on the market for homes, the banks artificially pushed up the prices on ALL available properties by adding more pressure to the balance of supply versus demand.

They did all this while pretending to break from their previous established history of gross discrimination and red-lining against the disproportionately non-white borrowers whose limited financial resources forced them into “sub-prime” status in the first place.

Approximately 80% of U.S. mortgages issued  to sub-prime borrowers in the 2001-2006 years were adjustable-rate mortgages. Adjustable-rate mortgages usually allow the homeowner to pay low monthly rates for a specified period of time (usually 1-3 years); after that, the monthly rates go up. The increased rates are usually based on increases in the general interest rates on the market. The borrower is the one taking the greatest risk in these kinds of loans, because even a small increase in interest rates can translate into a major increase in their monthly payment.

The borrowers usually convince themselves that they’ll be able to handle the increased rates by working more, cutting corners, or whatever. And, as long as the market value of homes keeps shooting up year by year, they may have the option of refinancing their original loan or taking out an “equity line of credit” (borrowing more money from the bank based on the increased value of the home, in order to help cover their costs), or, push-come-to- shove, selling the home based on its increased value, then re-buying a cheaper home with the profits, while paying off the original mortgage. This was how the game was really played—for those smart enough to figure out all of “the rules”.

Kwazi Nkrumah

Note: This is a revised version of a document Kwazi Nkrumah  wrote  for the Coffee Party of Los Angeles. It is posted here with the author’s permission. The Coffee Party has been organizing against mortgage foreclosures in North-East and North-Central L.A. Kwazi Nkrumah is an organizer who is active in the Coffee Party, co-founded Occupy the Hood, and supports other grass roots organizations. This is the first in a series of 5 that will be posted over several weeks.

Kwazi Nkrumah

January’s increase in hiring is good news, but it masks a bigger and more disturbing story – the continuing downward mobility of the American middle class.

Most of the new jobs being created are in the lower-wage sectors of the economy – hospital orderlies and nursing aides, secretaries and temporary workers, retail and restaurant. Meanwhile, millions of Americans remain working only because they’ve agreed to cuts in wages and benefits. Others are settling for jobs that pay less than the jobs they’ve lost. Entry-level manufacturing jobs are paying half what entry-level manufacturing jobs paid six years ago.

Other people are falling out of the middle class because they’ve lost their jobs, and many have also lost their homes. Almost one in three families with a mortgage is now underwater, holding their breath against imminent foreclosure.

The percent of Americans in poverty is its highest in two decades, and more of us are impoverished than at any time in the last fifty years. A recent analysis of federal data by the New York Times showed the number of children receiving subsidized lunches rose to 21 million in the last school year, up from 18 million in 2006-2007. Nearly a dozen states experienced increases of 25 percent or more. Under federal rules, children from famlies with incomes up to 130 percent of the poverty line, $29,055 for a family of four, are eligible.

Experts say the bad economy is the main factor driving the increase. According to an analysis of census data by the Center for Labor Market Studies at Northeastern University, 37 percent of young families with children were in poverty in 2010. It’s likely that rate has worsened.

Mitt Romney says he’s not concerned about the very poor because they have safety nets to protect them. He says he’s concerned about the middle class. Romney doesn’t seem to realize how much of the middle class is becoming poor.

But Romney doesn’t like safety nets to begin with. He’s been accusing President Obama of inviting a culture of dependency. “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society,” he says over and over, arguing that our economic problems stem from a sharp rise in dependency. Get rid of these benefits and people will work harder.

He and other Republicans point to government data showing that direct payments to individuals have shot up by almost $600 billion since 2009, a 32 percent increase. And 49 percent of Americans now live in homes where at least one person is collecting a federal benefit such as food stamps or unemployment insurance, up from 44 percent in 2008.

But Romney and other Republicans have cause and effect backwards. The reason for the rise in benefits is Americans got clobbered in 2008 and many are still sinking. They and their families need whatever help they can get.

The real scandal, as I’ve said before, is America’s safety nets are too small and shot through with holes. Only 40 percent of the unemployed qualify for unemployment benefits, for example, because they weren’t working full time or long enough on a single job before they were let go. The unemployment system doesn’t recognize how many Americans work part time on several jobs, and move from job to job.

And even those who are lucky enough to be collecting employment benefits are about to lose them. A record and growing percent of the unemployed have been jobless for six months or more, and Republicans in Congress are unwilling to extend their benefits.

Romney’s budget proposals would shred safety nets even more. According to an analysis by the Center on Budget and Policy Priorities, his plan would throw 10 million low-income people off the benefit rolls for food stamps or cut benefits by thousands of dollars a year, or some combination. “These cuts would primarily affect very low-income families with children, seniors and people with disabilities,” the Center concludes.

At the same time, Romney’s tax plan would boost the incomes of America’s most wealthy citizens, who are already taking home an almost unprecedented share of that nation’s total income. Romney wants to permanently extend George W. Bush’s tax cuts, reduce corporate income tax rates, and eliminate the estate tax. These tax cuts would increase the incomes of people earning more than a million dollars a year by an average of $295,874 annually, according to the nonpartisan Tax Policy Center.

By reducing government revenues, Romney’s tax cuts would squeeze programs for the poor even further. Extending the Bush tax cuts will add $1.2 trillion to the nation’s budget deficit in just two years. That’s the same as the amount that’s supposed to be saved by automatic spending cuts scheduled to start next year – which, by the way, will hit the poor especially hard.

Oh, I almost forgot. Romney and other Republicans also want to repeal of Obama’s health care law, thereby leaving 30 million Americans without health insurance.

The downward mobility of America’s middle class is the big news, but the GOP apparently hasn’t heard about it. Maybe it’s too hard to hear about from that far away – and Mitt Romney is certainly far away. His unearned income last year was more than $20 million. That’s about as much as the combined earnings of a thousand American families at or just above the poverty line.

Robert Reich
Robert Reich’s Blog

A foreclosure settlement between five major banks guilty of “robo-signing” and the attorneys general of the 50 states is pending for Monday, February 6^th; but it is still not clear if all the AGs will sign.  California was to get over half of the $25 billion in settlement money, and California AG Kamala Harris has withstood pressure to settle.

That is good.  She and the other AGs should not sign until a thorough investigation has been conducted.  The evidence to date suggests that “robo-signing” was not a mere technical default or sloppy business practice but was part and parcel of a much larger fraud, the fraud that brought down the whole economy in 2008.  It is not just distressed homeowners but the entire economy that has paid the price, resulting in massive unemployment and a shrunken tax base, throwing state and local governments into insolvency and forcing austerity measures and cutbacks in government services across the nation.

The details of the robo-signing scam were spelled out in my last article.  The robo-signing fraud and its implications are expanded on below.

Why All the Robo-Signing?

Over half the homes in the country are now held in the name of an electronic database called MERS—Mortgage Electronic Registration Services.  MERS is a smokescreen behind which these mortgages were sold to trusts that sold them to investors.  The mortgages were chopped into pieces and sold as “mortgage-backed securities” (MBS), which traded in a supposedly liquid market.  That meant the investors could sell them in the money market at any time on a day’s notice.  Yale economist Gary Gorton gives this example:

Suppose the institutional investor is Fidelity, and Fidelity has $500 million in cash that will be used to buy securities, but not right now. Right now Fidelity wants a safe place to earn interest, but such that the money is available in case the opportunity for buying securities arises. Fidelity goes to Bear Stearns and “deposits” the $500 million overnight for interest. What makes this deposit safe? The safety comes from the collateral that Bear Stearns provides. Bear Stearns holds some asset‐backed securities [with] a market value of $500 millions. These bonds are provided to Fidelity as collateral. Fidelity takes physical possession of these bonds. Since the transaction is overnight, Fidelity can get its money back the next morning, or it can agree to “roll” the trade. Fidelity earns, say, 3 percent.

That is where the robo-signing came in.  Foreclosure defense attorneys armed with the tools of discovery have discovered that robo-signing — involving falsified signatures assigning mortgages back to the trusts allegedly owning them — occurred not just occasionally or randomly but in virtually every case.  Why?  Because the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors.  The investors are not interested in making 30 year loans.  They want something short-term with immediate rights of withdrawal like a deposit account.

The Hazards of Borrowing Short to Lend Long

The problem is that when panicked investors all exercise that right at once, there is no cheap funding available to back the 30-year mortgage loans, rendering the banks insolvent.  And that is what happened on September 15, 2008, when Lehman Brothers, a major investment bank like Bear Stearns, went bankrupt.

According to Representative Paul Kanjorski, speaking on C-SPAN in January 2009, the collapse of Lehman Brothers precipitated a $550 billion run on the money market funds.  A report by the Joint Economic Committee pointed to the fact that the $62 billion Reserve Primary Fund had “broken the buck” (fallen below a stable $1 per share) due to its Lehman investments.  The massive bank run that followed was the dire news that Treasury Secretary Henry Paulson presented to Congress behind closed doors, prompting Congressional approval of Paulson’s $700 billion bank bailout despite deep misgivings.

The sleight of hand that brought the banking system down was that the mortgages backing the money market were supposedly held by trusts that had lent money to homeowners for 15 years or 30 years.  It was the classic “borrowing short to lend long,” a shell game in which banks have engaged for hundreds of years, routinely precipitating bank panics and bank runs when the depositors or the investors all pull their short-term money out at the same time.

The Shadow Banking System Is Still Unregulated

Periodic bank panics were averted in the conventional banking system only when the government agreed to insure the deposits of individual depositors in 1933.  But FDIC insurance covered only $100,000 (now $250,000), and large institutional investors had far more than that to invest.  The shadow banking system, in which deposits were “insured” with mortgage-backed securities, developed in response.  But the shadow banking system is unregulated and is just as prone to another collapse today as it was in 2008.  The Dodd-Frank banking “reforms” barely touched it.  As noted in an article titled “Risky Debt Use on Repo Market Hits 2008 Levels” in today’s Financial Times:

In the repo market, banks pledge their securities as collateral for short-term loans from money managers and other investors.  The market played a key role in the build-up to the 2008 financial crisis. Banks used toxic assets, such as repackaged subprime loans, to secure trillions of dollars worth of cheap funding.

When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted.

However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels.

Using the repackaged loans can increase risk in the repo market, the rating agency says. This is because the securities may be prone to sudden pullbacks such as the one experienced in 2008.

We could be looking at another banking collapse at any time; and to fix the problem, we first need to know what is going on.  The AGs should not agree to drop the curtain on the robo-signing scandal until all the evidence is on the table.  It is not just a matter of punishing the guilty; it is a matter of a banking scheme based on fraud, one that ultimately does not work and has jeopardized the homes, savings and investments of the public not just recently but for hundreds of years.

The Way Out 

There is another way to design a banking system.  The deposits of large institutional investors do not need to be backed by sliced and diced pieces of our homes to be “safe” (something that has proven not to be safe at all).  The large institutional investors seeking safety are largely “us” – the pension funds and mutual funds in which we have stored our savings and on which we rely for support when we can no longer work.  Hundreds of years of history have demonstrated that the only reliable guarantor is the government itself.

Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do.  But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money.  Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.

Ellen Brown
Web of Debt 

Labor Secretary Hilda Solis with President Obama

America’s Jobs Deficit, and Why It’s Still More Important than the Budget Deficit

The most significant aspect of January’s jobs report is political. The fact that America’s labor market continues to improve is good news for the White House. But as a practical matter the improvement is less significant for the American work force.

President Obama’s only chance for rebutting Republican claims that he’s responsible for a bad economy is to point to a positive trend. Voters respond to economic trends as much as they respond to absolute levels of economic activity. Under ordinary circumstances January’s unemployment rate of 8.3 percent would be terrible. But compared to September’s 9.1 percent, it looks quite good. And the trend line – 9 percent in October, 8.6 percent in November, 8.5 percent in December, and now 8.3 percent – is enough to make Democrats gleeful.

But the U.S. labor market is far from healthy. America’s job deficit is still mammoth. Our working-age population has grown by nearly 10 million since the recession officially began in December 2007 but many of these people never entered the workforce. Millions of others are still too discouraged to look for work.

The most direct way of measuring the jobs deficit is to look at the share of the working-age population in jobs. Before the recession, 63.3 percent of working-age Americans had jobs. That employment-to-population ratio reached a low last summer of 58.2 percent. Now it’s 58.5 percent. That’s better than it was, but not by much. The trend line here isn’t quite as encouraging.

Given how many people have lost their jobs and how much larger the total working-age population is now, we’ve got a long road ahead. At January’s rate of job gains – 243,000 – the nation wouldn’t return to full employment for another seven years.

When they’re not blaming Obama for a bad economy, Republicans are decrying the federal budget deficit and demanding more cuts. But America’s jobs deficit continues to be a much larger problem than the budget deficit.

In fact, we can’t possibly achieve the growth needed to reduce the budget deficit as a proportion of the total economy unless far more people are employed. Workers are consumers, and consumer spending is 70 percent of economic activity. And cutting the budget means fewer workers, directly (as government continues to shed workers) and indirectly (as government contractors have to lay off workers) and therefore fewer consumers.

Yet deficit hawks continue to circle. State and local budgets are still being slashed. The federal government is scheduled to begin major spending cuts less than a year from now. Republicans are calling for more cuts in the short term. Austerity economics continues to gain traction.

Meanwhile Congress is debating whether to renew extended unemployment benefits. This should be a no-brainer. The long-term unemployed, who have been jobless for more than six months, comprise a growing share of the unemployed. (In January they rose from 42.5 percent to 42.9 percent).

Republicans say unemployment benefits are prolonging unemployment, that people won’t get jobs if they get unemployment checks from the government. That’s claptrap, especially when there’s only 1 job opening for every 4 people who need a job. Republicans also say we can’t afford to extend jobless benefits. Also untrue. Jobless workers spend whatever money they get, and their spending keeps other people in jobs.

Government should extend unemployment benefits, and not cut spending until the nation’s rate of unemployment is down to 5 percent. Then, and only then, should we move toward budget austerity.

The job situation is better than it was but it’s still awful. The jobs deficit is still our number one economic problem. Forget the budget deficit until we tame it.

Robert Reich
Robert Reich’s Blog 

In his standard stump speech Romney charges Obama with creating a nation of dependents. “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society.”

Gingrich calls Obama “the best food-stamp president in American history.”

What’s their evidence? Both rely on federal budget data showing direct payments to individuals shot up by almost $600 billion, a 32 percent increase, since the start of 2009.

They also point to Census data showing that 49 percent of Americans now live in homes where at least one person is collecting a federal benefit – Social Security, food stamps, unemployment insurance, worker’s compensation, or subsidized housing. That’s up from 44 percent in 2008.

Finally, they trumpet Social Security Administration figures showing that the number of people on Social Security disability jumped 10 percent in Obama’s first two years in office.

They argue our economic problems stem from this sharp rise in “dependency.” Get rid of these benefits and people will work harder.

But they have cause and effect backwards. The reason for the rise in food stamps, unemployment insurance, and other safety-net programs is Americans got clobbered in 2008 with the worst economic catastrophe since the Great Depression. They and their families have needed whatever helping hands they could get.

If anything, America’s safety nets have been too small and shot through with holes. That’s why the number and percentage of Americans in poverty has increased dramatically over the past three years. According to a study by Northeastern University,  a third of families with young children are now in poverty.

This is the real scandal. For example, only 40 percent of the unemployed qualify for unemployment benefits because they weren’t working full time or long enough on a single job before they were canned. The unemployment system doesn’t take account of the fact that a large portion of the workforce typically works part time on several jobs, and moves from job to job.

Republicans also object to Obama’s health care law, which covers 30 million more Americans than were covered before. That law still leaves over 20 million without health insurance. They’ll get emergency care when they’re in dire straights — hospitals won’t refuse them — but we all end up paying indirectly.

Regressive Republicans pretend they’re about opportunity. In reality they’re back at what they’ve been doing for years — promoting Social Darwinism.

Robert Reich
Robert Reich’s Blog 

Then last week, the banks sweetened the deal for California but. A.G. Harris took a stand no other state attorney general has taken. According to David Dayen of FireDogLake.com, she rejected a guaranteed 60% of the foreclosure deal. In other words, California’s A.G. turned down $15 billion to settle with the banks. This was a deal no other state was offered. She has conceded that her unwillingness to accept the deal, as offered, may prolong the foreclosure crisis for some, but in the long run she maintains that a better deal would benefit Californians affected by the crisis.

Harris told the Los Angeles Times that she removed herself from talks involving a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation’s five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered.  Harris has made it clear that she believes the deal on the table is “inadequate.”  As a key player in the coalition to settle with the banks, Kamala Harris‘ firm stand comes as a blow to her fellow attorneys-general but progressives view her decision positively, touting it as one that was made in the best interest of the people.

The settlement, as it stands today,  would release Bank of America, JPMorgan Chase., Citigroup, Wells Fargo, and Ally Financial from liability as it relates to the harm resulting from the way their mortgages were constructed or originated.

In an email blasted to large segments of the California progressive community, long-time progressive activist Kwazi Nkrumah voiced support for Harris’ stand, maintaining that Harris must stay the course and negotiate for a deal that compensates the victims. Said Nkrumah,

“We want to encourage her to remain strong and to do the right thing for all Californians. The State has been one of the hardest hit during the housing/foreclosure crisis. The crimes that the financial institutions have committed are massive and we want to make sure that our A.G. remains a leader in the fight against the abuses of those who created the crisis. First, we are demanding a moratorium on all foreclosures; second we want banks to be held accountable for what they created; and thirdly, we want the system to be corrected, to include those who are underwater in their mortgages by no fault of their own.”

Nkrumah, who is also active in Occupy the Hood where foreclosures have been a core issue, says we should “demand compensations to the millions of victims,” maintaining that if we do nothing, the crisis will only continue to hurt families. There will be a rally on Friday, February 3, 2012 at 10:00 am at 300 South Spring Street, Los Angeles, CA to show support for Ms. Harris. Click here for rally information.

Note that although Harris has maintained that she will not agree to the settlement, it is reported that she has until February 3 – this Friday — to make that her final decision, giving the supporters of this move more of a reason to contact the A.G.’s office and urge her to continue to stand firm.

President Obama, in his most recent State of the Union address, emphasized the need for economic fairness and a sharing of the financial burden. In the video shown here, Rolling Stone contributing editor Matt Taibbi discussed the long-anticipated foreclosure settlement, calling it a “much better deal than anybody ever anticipated”. Taibbi credits attorneys-general Kamala Harris of California and Eric Schneiderman of New York for forcing what a few months ago was the unthinkable — the Wall Street bankers and mortgage lending industry, whose irresponsibility and greed wrecked so much havoc, may actually be held responsible.

Sharon Kyle
Publisher, LA Progressive

Treasury Secretary Tim Geithner, speaking at the World Economic Forum in Davos a few days ago, said the “critical risks” facing the American economy this year were a worsening of Europe’s chronic sovereign debt crisis and a rise in tensions with Iran that could stoke global oil prices.

What about jobs and wages here at home?

As the Commerce Department reported Friday, the U.S. economy grew 2.8 percent between October and December – the fastest pace in 18 months and the first time growth exceeded 2 percent all year. Many bigger American companies have been reporting strong profits in recent months. GE and Lockheed Martin closed the year with record order backlogs.

Yet the percent of working-age Americans in jobs isn’t much different than what it was three years ago. Yes, America now produces more than it did when the recession began. But it does so with 6 million fewer workers.

Average after-tax incomes adjusted for inflation are moving up a bit. (They increased at an annual rate of .8 percent in the last three months of 2011 after falling 1.9 percent in prior three-month period. For all of 2011, incomes fell .1 percent.)

But beware averages. Shaquille O’Neal and I have an average height of six feet. Exclude Mitt Romney’s $20 million last year — along with everyone else securely in the top 1 percent — and the incomes of most Americans are continuing to slip.

Consumer spending picked up slightly in the fourth quarter mainly because consumers drew down their savings. Obviously, this can’t last.

Meanwhile, government is spending less on schools, roads, bridges, parks, defense, and social services. Government spending at all levels dropped at an annual rate of 4.6 percent in the last quarter – and that’s likely to continue.

Some economists worry this drop is a drag on the economy. But it also means fewer public goods available to all Americans regardless of income.

Congress still hasn’t decided whether to renew the temporary payroll tax cut and extend unemployment benefits past February. If it doesn’t, expect another 1 percent slice off GDP growth this year.

Tim Geithner is surely correct that the European debt crisis and Iran pose risks to the American economy in 2012. But they aren’t the biggest risk. The biggest risk is right here at home – that most Americans will continue to languish.

All of which raises a basic question: Who or what is the economy for? Surely not just for a few at the top, and not just big corporations and their CEOs. Nor can the success of the economy be measured by how fast the GDP is growing, or how high the Dow Jones Industrial Average is rising, or whether average incomes are turning upward.

The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles – even though the lion’s share of consuming and investing is done by the wealthy – the real crisis centers on the increasing efficiency by which all of us as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens.

Modern technologies allow us to shop in real time, often worldwide, for the lowest prices, highest quality, and best returns. Through the Internet and advanced software we can now get relevant information instantaneously, compare deals, and move our money at the speed of electronic impulses. We can buy goods over the Internet that are delivered right to our homes. Never before in history have consumers and investors been so empowered.

Yet these great deals increasingly come at the expense of our own and our compatriots’ jobs and wages, and widening inequality. The goods we want or the returns we seek can often be produced more efficiently elsewhere around the world by companies offering lower pay, fewer benefits, and inferior working conditions.

They also come at the expense of our Main Streets – the hubs of our communities – when we get the great deals through the Internet or at big-box retailers that scan the world for great deals on our behalf.

Some great deals have devastating environmental consequences. Technology allows us to efficiently buy low-priced items from poor nations with scant environmental standards, sometimes made in factories that spill toxic chemicals into water supplies or pollutants into the air. We shop for great deals in cars that spew carbon into the air and for airline tickets in jet planes that do even worse.

Other great deals offend common decency. We may get a great price or high return because a producer has cut costs by hiring children in South Asia or Africa who work twelve hours a day, seven days a week. Or by subjecting people to death-defying working conditions.

As workers or as citizens most of us would not intentionally choose these outcomes but as seekers after great deals we are indirectly responsible for them. Companies know that if they fail to offer us the best deals we will take our money elsewhere – which we can do with ever-greater speed and efficiency.

The best means of balancing the demands of consumers and investors against those of workers and citizens has been through democratic institutions that shape and constrain markets.

Laws and rules offer some protection for jobs and wages, communities, and the environment. Although such rules are likely to be costly to us as consumers and investors because they stand in the way of the very best deals, they are intended to approximate what we as members of a society are willing to sacrifice for these other values.

But technologies for getting great deals are outpacing the capacities of democratic institutions to counterbalance them. For one thing, national rules intended to protect workers, communities, and the environment typically extend only to a nation’s borders. Yet technologies for getting great deals enable buyers and investors to transcend borders with increasing ease, at the same time making it harder for nations to monitor or regulate such transactions.

For another, goals other than the best deals are less easily achieved within the confines of a single nation. The most obvious example is the environment, whose fragility is worldwide. In addition, corporations now routinely threaten to move jobs and businesses away from places that impose higher costs on them – and therefore, indirectly, on their consumers and investors – to more “business friendly” jurisdictions. The Internet and software have made companies sufficiently nimble to render such threats credible.

But the biggest problem is that corporate money is undermining democratic institutions in the name of better deals for consumers and investors. Campaign contributions, fleets of well-paid corporate lobbyists, and corporate-financed PR campaigns about public issues are overwhelming the capacities of Congress, state legislatures, regulatory agencies, and the courts to reflect the values of workers and citizens.

As a result, consumers and investors are doing increasingly well but job insecurity is on the rise, inequality is widening, communities are becoming less stable, and climate change is worsening. None of this is sustainable over the long term.

Blame global finance and worldwide corporations all you want. But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.

Robert Reich
Robert Reich’s Blog 

Arturo De Los Santos and his family. (KTLA-TV)

Arturo De Los Santos and his family. (KTLA-TV)Arturo de los Santos, a 46-year-old ex-Marine who lives in Riverside, California, doesn’t usually listen to National Public Radio, but a friend told him to pay attention to a disturbing report broadcast Monday on NPR’s “Morning Edition.” The report disclosed that Freddie Mac, the government-sponsored mortgage company, whose mission is “to expand opportunities for homeownership,” invested billions in mortgage securities that profited when homeowners were unable to refinance.

De los Santos is one of those homeowners that Freddie Mac bet against. Sunday night he got a court summons at his door from Freddie Mac stating that the mortgage giant was going to evict him.

But he’s fighting back, pledging to get arrested rather than leave voluntarily if Riverside County sheriff’s deputies try to remove him, his wife and four children from the home they’ve lived in for almost a decade. He is part of a growing movement of Americans inspired by Occupy Wall Street to stop banks and other lenders from foreclosing on their homes. On Thursday at noon, de los Santos, his friends and neighbors, and activists from the Alliance of Californians for Community Empowerment(ACCE) will protest at Freddie Mac’s west coast headquarters (444 South Flower St.) in downtown Los Angeles. They will call on Freddie Mac CEO Charles Haldeman to get the mortgage giant to renegotiate a fair modification of de los Santos’ loan, including reducing the mortgage principal.

The NPR investigation of Freddie Mac, done in cooperation with ProPublica (an independent, nonprofit newsroom), uncovered another aspect of the unfolding scandal of Wall Street abuse of struggling homeowners that has led to a nationwide epidemic of foreclosures.

De los Santos and his family moved into their modest three-bedroom house on a cul de sac in Riverside’s La Sierra neighborhood in 2003. It was their first home and represented the American dream they had worked their whole lives for. He has worked for over 21 years as a supervisor at a Santa Ana metal finishing company that makes parts for the aerospace industry.

In 2009, the economic crisis led the factory to reduce his work hours, reducing his income and making it harder to make his monthly payments. He applied for a loan modification with JP Morgan Chase, the giant Wall Street bank that services many of Freddie Mac ‘s loans. Chase told de los Santos that in order to negotiate a loan modification he had to be in default on his loan. Chase notified de los Santos that it was rejecting him for a permanent modification, that they would refuse to accept further payments, and that they intended to foreclose on his home, even after he provided the bank with evidence showing that his income had recovered to its previous level. De los Santos was caught in a Catch-22, but it turns out that — according to the NPR/Pro-Publica investigation — this was not an anomaly but part of Freddie Mac’s strategy.

Last June, the family was evicted from their home and moved to an apartment in Orange County. The bank put the house up for sale, but in Riverside County’s devastated housing market, found no buyers. Seeing his home sit empty infuriated de los Santos. He continued contacting Chase, hoping to persuade the bank to renegotiate the mortgage. After the Occupy Wall Street movement spread to California, de los Santos heard about other homeowners who faced similar abuses and contacted ACCE, a community organizing group that has been helping homeowners throughout California and is part of a national effort to get Congress and the Obama administration to force banks to modify “underwater” mortgages, especially for homeowners victimized by lender manipulation, such as predatory loans.

On December 6, de los Santos took the courageous step of re-occupying his Riverside home, where he has been living since then. He was one of many homeowners around the country who took similar actions that day as part of a nationwide “Occupy Our Homes” campaign. On December 24, de los Santos moved his wife and children back into the house. That day he was joined at a media event by local clergy, members of ACCE and the Service Employees International Union, and other supporters.

“We’re glad to be back in the house,” de los Santos told the Valley News, a local paper. “My kids are happy. They have a place to ride their bikes and play. Their school is just around the corner. They don’t understand what’s going on.”

“The foreclosure crisis has been devastating to the Inland Empire,” said Reverend Matthew Crary of Inland Congregations United for Change, referring to the Riverside and San Bernardino County area that has one of the nation’s highest foreclosure rates. “As faith leaders it is our responsibility to stand with the residents of our community to force Wall Street to take action to help people stay in their homes.”

Rosanna Cambron, a national executive board member of Military Families Speak Out, also spoke at the Christmas Eve protest:

Art de los Santos served this country as a marine and he is again serving this country by standing up to Wall Street greed. My son just returned from his third tour of duty in Iraq fighting to protect the principles of justice and democracy. But I think that the greed of Wall Street bankers like (Chase CEO) Jamie Dimon is more of a threat to our country in many ways than any foreign power. We will stand up to them as long as it takes to create a fair society for all Americans.

“We have celebrated Christmas in our home since 2003 when we bought it,” de los Santos said at the same event. “I wasn’t going to let this holiday season be any different. I owed it to my kids. If JPMorgan Chase and Freddie Mac had dealt with us fairly at the beginning of the loan modification process, we wouldn’t be in this situation.”

After de los Santos heard the NPR/Pro-Publica report on Monday, he understood why he was in this quagmire not of his own making. It strengthened his resolve to fight to keep his home.

“Nobody likes to get arrested,” said de los Santos. “I didn’t do anything wrong. I’m doing this for my family and for the millions of other families in similar situations. We can’t let the Wall Street banks and Freddie Mac get away with these kinds of practices.”

Last month in California alone, there were over 52,000 foreclosures. A recent report sponsored by bank reform groups reveals that if banks lowered the principal balance on all underwater mortgages to their current market value, it would pump over $70 billion per year back into the economy, allow millions of families to stay in their homes, and create over one million jobs. They want Congress and the Obama administration to pass legislation requiring banks to reduce the principal for homeowners facing foreclosure.

Peter Dreier

Republished with the author’s permission from Huffington Post.

The workers and management of GM led the world’s automakers in sales for 77 years, until 2007. But their inability to compete in the global market eventually caught up with Detroit’s Big Three. Then came the first depression of the 21st century, and demand for new cars disappeared.

When GM desperately needed capital in 2008, no private financial institution was able to take on the risk. That’s when the federal government implemented its last bipartisan economic venture. In December, President George Bush announced the Automotive Industry Financing Program, a government rescue of the entire industry with funds from the newly created TARP program.

After Obama became President, he refused to simply bail out GM, but demanded that they proceed with an orderly bankruptcy in 2009. The federal government then invested about $50 billion in GM stock, controlling over 60% of the firm.

The use of taxpayers’ money to save giant American corporations was not popular. In two December 2008 polls, 51% and 61% opposed giving financial help to the auto giants; by March 2009, 76% were against it. But economists, both Republican and Democratic, were very worried about the long-term effects of a crashing auto industry. Bush wrote in his memoir, “Decision Points”: “My economic advisers had warned me that the immediate bankruptcy of the Big Three could cost more than a million jobs, decrease tax revenues by $150 billion, and set back America’s GDP by hundreds of billions of dollars.”

Public worries that government funds would be wasted turned out to be wrong. In November 2011 the Treasury Department sold $13.5 billion of GM shares, and now owns about one-third of the corporation. Unless GM stock reaches $55 per share before the government sells the rest of hits holdings (share price is $25 now), the government will take a loss, but a much smaller one than most people thought.

There continues to be considerable argument about whether the bipartisan bailout was necessary to save GM. But the return of GM to #1 in the world, the renewed success of Chrysler and Ford, and the saving of hundreds of thousands of jobs in a time of massive unemployment are certainly positive developments. So why did Speaker of the House John Boehner sit stony-faced when President Obama mentioned that GM was again #1? Why did Senate and House Republicans not applaud the recovery of one of our largest manufacturers and the recent gain in automotive jobs?

Mitt Romney offered one clue in the Republican debate on November 9, when he said, “They gave General Motors to the UAW.” He has repeated this line in subsequent debates.

In the first place, that’s a lie. A trust which funds the health care of retired UAW workers bought 17.5% of GM stock at the same time as the federal government bought 60%. The Canadian government bought 12.5%, but nobody would say that we gave GM to the Canadians. Rather than get some special benefits for participating in saving GM, the UAW agreed not to go on strike over wages in contract talks.

The truth, however, is not important to Romney. He and other Republican politicians have been doing everything in their power to destroy unions. Saving union jobs is worse than saving no jobs.

Another reason that Republican politicians disdain the auto industry bailout is that they appear to oppose using taxpayers’ money to interfere in the free market. But the presidential candidates have fallen all over themselves promoting ways to use taxpayers’ money to help American manufacturers. Romney, Gingrich, and Santorum all advocate setting the corporate tax rate lower than the tax rate for individuals, which means that we taxpayers would be subsidizing the corporate profits of the wealthy. Santorum wants to eliminate all corporate taxes for manufacturing companies, so that we would pay their entire share of funding our public obligations.

Their version of the free market would be no freer than the current version, just tilted in a different way, toward wealthy investors, the 1%.

I suspect the real reason that Boehner couldn’t bring himself to clap for GM, or for 22 months of job creation, or for the falling unemployment rate, is that these achievements might help Obama. That would go against the most important Republican goal for 2012, more important than helping unemployed Americans survive, more important than creating new jobs now – make Obama a one-term President.

The level of official Republican hatred for our President was on display this Sunday, when Republican National Committee chairman Reince Priebus compared President Obama to the man responsible for crashing a cruise ship on the Italian coast, abandoning it and his passengers: “we’re going to talk about our own little Captain Schettino, which is President Obama, who’s abandoning the ship here in the United States.”

Calling our President an incompetent coward, a traitor to his country, is the official Republican Party position. In a land of 139 million jobs, Republican politicians care about only one – his.

Steve Hochstadt
Taking Back Our Lives