By Dean Baker
Co-Director, Center for Economic and Policy Research

Treasury Secretary Timothy Geithner wants to have the government lend up to a trillion dollars to hedge funds, private equity, funds and the banks themselves to clear their books of toxic assets. The plan implies a substantial subsidy to the banks. It is likely to result in the disposal of these assets at far above market value, with the government picking up the losses.

As much as we all want to help out the Wall Street bankers in their hour of need, taxpayers may reasonably ask whether this is the best use of our money. After all, the $1 trillion that is being set aside for this latest TARP variation is equal to 300 million SCHIP kid years. Congress has had heated debates over sums that were a small fraction of this size. To give another useful measuring stick, the Geithner plan could fund 1 million of the Woodstock museums that were the main prop of Senator McCain’s presidential campaign.

The core problem is that many of our big banks are bankrupt. If they had to acknowledge the losses that they have incurred on their housing related loans (and increasing their loans in commercial real estate) Citigroup, Bank of America, and many other large banks would be insolvent. Thus far, they have avoided reality by keeping these loans on their books at inflated prices.

The Geithner plan is an effort to rescue the banks by using government funding to prop up the price of these bad loans to levels that will allow the banks to stay solvent. It is not clear that the plan is big enough to accomplish this goal, but that is the basic intention. If it doesn’t work, then presumably Geithner will come out with another TARP permutation that involves giving the banks even more money.

There is an alternative. Rather than using government money to keep them alive, we could force the banks to go through a type of managed bankruptcy process like the one that is currently being proposed for General Motors and Chrysler.

Geithner has supposedly ruled out the bankruptcy option because when he, along with Henry Paulson and Ben Bernanke, tried letting Lehman Brothers go under last fall, it didn’t turn out very well. Of course, it is not necessary to go the route of an uncontrolled bankruptcy that Geithner and Co. pursued with Lehman.

The government could set up an arranged bankruptcy under which creditors have accepted conditions in advance. While this may not be easy to negotiate, the government does have enormous bargaining power in pursuing such a deal. The creditors (other than insured deposits, which will be paid in full) of these banks may end up with nothing if the government just let the banks sink.

The prospect of even an arranged bankruptcy of a major bank will undoubtedly shake up markets, but many safeguards have been put in place since the Lehman collapse. If the stock market goes down for a few weeks or months, who cares? Running the economy to serve the stock market is a sure recipe for disaster; if President Obama fixes the economy, the stock market will do just fine in the long run.

Anyhow, the Geithner crew insists that there are no alternatives to his plan; we have to just keep giving hundreds of billions of dollars to the banks. Perhaps Geithner is right. But before we throw such huge sums away, further enriching the bankers who wrecked the economy, maybe we should get a second opinion.

Suppose that Congress appropriated a modest chunk of money to have independent economists put together teams to construct alternative plans. Why not give M.I.T. professor Simon Johnson, a former chief economist of the IMF, $5 million to hire a crew to outline his preferred path? Congress could give Joe Stiglitz, a Nobel Prize winner and one-time chief economist to President Clinton, who is also a harsh critic of the Geithner plan, a similar sum to put together his own team.

These economists could develop their best plans and put them out for public consumption. Geithner’s crew can then tell us why their plans are unworkable and we must instead hand over the money to banks.

Given how much money Geithner wants to spend – putting it in the hands of the folks that brought on this economic crisis – it would seem appropriate to first examine all the alternatives. After all, we could find out what our options are in this case for the price of just a few A.I.G. executive bonuses. That has to be a good deal in anyone’s book.

Dean Baker is the author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy.”

This piece was first published on Huffington Post.

By Bob Cesca
Author of One Nation Under Fear

It only makes sense that a party currently being wagged by fringe crazy people like Glenn Beck, Rush Limbaugh and Michele Bachmann would release its alternative budget on April Fools’ Day.

Not only does the Republican plan freeze discretionary spending for five years in the midst of a recession which, by most accounts and proved by history, will countermand any sort of economic recovery, but it also cuts taxes by 10 percent for the same Wall Street executives whose actions largely got us into this economic mess in the first place. In other words: Congratulations, Republicans, you just released a budget that rewards wealthy corporate executives while blocking any attempt to dig us out of the economic catastrophe they created.

Smart!

The only bit of Republican legislation that’d be more ridiculous would be if Michele Bachmann were to introduce a constitutional amendment thwarting a fake plot to eliminate the dollar as the form of currency in the United States.

Oh wait. She’s already done that. And 30 Republican congressmembers so far have co-sponsored the amendment. 30 Republicans have irrevocably tethered their wagons to the Bachmann crazy train. Excellent. Next on the agenda: a bill creating the Office of Robot Insurance, protecting us from robot attackers who use old people’s medicine for fuel. Speaking of which, the Republican plan also phases out Medicare.

The marquee item, however, in the Republican plan is their inexplicably regressive tax cut for the super rich. Wealthy Americans in the top three tax brackets would see their tax burden cut to a flat 25 percent from previous rates of 35, 33 and 28. According to the Center for American Progress Action Fund, CEOs from any of the top 800 corporations would receive a tax break of around $1.5 million a year. Meanwhile, if you earn $15,000 a year, your tax break will be around $0 a year.

But get this. Under the Republican plan, Americans are given the option of paying the old tax rates instead of the new, expensive and regressive Republican rates. So, for example, if your household income is $100,000, you could pay the same tax rate as someone earning $15,000. Or you could be a swell egg and go back to your old rate. Aside from the utter lack of fairness in the notion of a $100,000 household paying the same rate as a $15,000 household, who in their right mind would voluntarily pay higher taxes?

Now you might be asking, given that the Republicans are all about fiscal responsibility, how much does this Republican tax cut for the wealthiest three brackets actually cost? Some estimates, according to Steve Benen, project upwards of a $4 trillion price tag. At the very least, according to their own projections, the Republican plan would run up a $500 billion annual budget deficit through at least 2080. Again, the Republican grasp of fiscal responsibility is about as firm as their grasp of reality and sanity. The subtext here being: The trillion dollar Bush tax cuts weren’t irresponsible enough. Let’s go crazy! WOOO!

And by the way, those are annual deficits that factor into the mix a completely insane five year freeze on discretionary spending — a freeze that would surely plunge the American economy into a deep depression. To that point, the Republican plan doesn’t account for such an economic catastrophe, and therefore doesn’t factor such an inevitable consequence into their revenue and deficit projects.

All told, imagine if you will the Monopoly man running up and shoving you into a deep precipice. The Republican plan not only gives that Monopoly man a $1.5 million check for his trouble, but it also cuts the rope you were using to climb out of the hole — provided you actually survived the fall in the first place.

Speaking of holes, did you see the graph Paul Ryan clearly yanked out of his?

 

Check out that steep blue line illustrating the alleged Democratic budget deficits extending to upwards of 50 percent of GDP by 2060. Put another way, suggesting a deficit that’s 50 percent of GDP is like presupposing a living human being that’s 50 percent marshmallow man. It’s insane. Furthermore, the Congressional Budget Office (CBO) projections only extend out to 2019. Yet the Republican chart somehow extends out to 2080. The steep upwards slope of the Democratic budget begins at around 2030 — 11 years after the furthest CBO projections stop.

What does this mean? For starters the claim on the chart: “Out-years based on CBO’s Long-Term Alternative Fiscal Scenario” is a lie. And the text: “Source: House Budget Committee Republican Staff” might as well say: “Source: Paul Ryan’s Ass.” In other words, that steep upwards slope is entirely made up.

The graph might as well look like this:

 

Yes, the Democratic budgets will be so out of control they’ll eventually make little curly-cues and travel backwards in time — adding to past deficits — while also looping around the word “government” — you know, because the Democrats love government.

At this point, the laughable street vendor pamphlet that John Boehner rolled out was probably less ridiculous than this actual budget plan and its accompanying Wall Street Journal graph. But it stands to reason that given their track record the Republicans would churn out a budget proposal that’s fully in line with their backwards, zero cred reputation.

BobCesca.com

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CORRECTION: I erroneously credited the CEO taxation numbers to the Center for American Progress. These numbers came from the Wonk Room at the Center for American Progress Action Fund.

                                                            ********************

One Nation Under Fear, with a foreword by Arianna Huffington of  Huffington Post is available on Amazon. For more by Bob Cesca, see BobCesca.com! Go!

In June of 2007, Pennsylvania Senator Arlen Specter was the only Republican to vote with Democrats to end debate on the Employee Free Choice Act. The motion failed, 51 to 48, because 60 votes are needed in the Senate to end debate.

Now that Democrats presumptively have 59 votes in the Senate (with Democrat Al Franken the expected winner of the contested seat in Minnesota), Specter has announced he won’t repeat his vote to end debate on the Employee Free Choice Act, legislation which would make forming unions at workplaces less difficult.

What do you think of Specter’s reversal?

Specter’s loyalties lie with Big Business

It’s clear that his first vote to support cloture (to end debate) was simply political calculus.  He did vote against his party, but obviously knowing that the motion would fail and his vote would have no practical effect.  Thus, allowing him to have his cake and eat it too.  Something ALL politicians love to do.  Now that his vote would have the practical effect of making the EFCA law, we can see his true loyalties.  They obviously lie with the Republicans and Big Business and not with working class Americans.

Charles Sellers
San Diego, Calif 

Can’t count on Specter

As a former resident of Pennsylvania, I’m very disappointed to hear that Arlen Specter has changed his mind on the EFCA, but I am not surprised. The guy has always been a weasel and someone you really can’t count on for help with the middle class. I hope he loses his bid for re-election in 2010. Good riddance!

Dan Zurosky
Lexington, S.C.

Specter: always there when you don’t need him

I’m not surprised at all about Specter’s reversal on key labor legislation, in this case EFCA, Employee Free Choice Act.  Senator Specter, like many other so-called moderate members of Congress, who claim to be labor-friendly, is always there when you don’t need him.  Look at his vote in June of 2007.  It was doomed for failure, so the Republican leadership released him to curry favor with labor.  Unfortunately, this is a pattern for many other fair weather friends of labor, as well as Senator Specter.  They vote with labor often enough to earn or keep labor leaders’ support but, when “key” legislation like trade bills, anti-strike breaking laws and labor law reform like EFCA come along, they turn their back on workers.

This practice is not surprising nor is the practice of unions giving these legislators a pass and, in most cases, an endorsement when they run for reelection.  So, no, I’m not surprised by the reversal of Senator Specter on EFCA, and I won’t be surprised when he receives support from many unions in his upcoming reelection bid.  The rationale we will hear is “he’s with us (labor) on many issues.”  And he is.  But try finding him and other “moderates” when it really matters.

Jan D. Pierce
Quaker City, Ohio

Senator Flip Flop

The best way to deal with Senator Flip Flop is to put in his seat a Democrat who will not flip flop.  Is Ed Rendell interested and wouldn’t he be reliable on such issues?

Herbert G. Reid
Emeritus Professor of Politics, University of Kentucky
Lexington, Kentucky

Is this a new, ratty philosophy from Specter?

Anyone who has worked in a non-union shop and tried to organize a union knows the barriers placed before them: the rumor-mongering, the open threats, the veiled threats, the workplace changes that nearly but don’t quite cross NLRB rules and so on. Just getting the minimum number of cards signed means that a great many more support unionization but for various reasons are reluctant to sign. The EFCA is a self-evident no-brainer, and even if the EFCA is passed, the odds are still stacked against the unions. Passing the EFCA would, however, begin to reverse the anti-union tide that was accelerated by Reagan’s destruction of the Air Traffic Controllers union in 1981.

That sharp reversal of union power has led to a wage depression over the last 40 years, and this has a close connection to our current economic crisis. High wage earners don’t need subprime mortgages, tend not to default, and do create a domestic market to sustain a vibrant economy– low wage earners (the result of de-unionization) do not.

Specter is not a fool, and he surely understands all the above. But, did he vote pro-union in 2007 because he could do the math and realize then that he could appear pro-union but with no effect? Or was he sincere then, but now is running scared of a primary challenge within an increasingly right-wing, anti-people, anti-union, marginalized Republican Party? I guess that amounts to asking “was he always a rat or is this something new?”

David Arnow
Brooklyn, New York

Repuglican coward and corporate lapdog

 What do I think of the Republican’s reversal?  Specter rolled over and is a Repuglican coward and corporate lapdog.

The more important question is what do I think, as a resident of Colorado, of our “appointed” new Democratic(?) Senator Michael Bennet? 

I think even less of Bennet after his failure to come out in support of the Employee Free Choice Act than I do of Arlen Specter.  Bennet’s been ducking the issue like a shy prostitute, in other words how oxymoronic of him to be a Democrat(?) who can’t choose between supporting labor or supporting corporate power.

 Mary Ann Meyers
Littleton, Colorado

Specter prefers credit cards over union cards

Specter apparently favors credit cards and payday loans as the preferred “union cards” in this country.  Disgusting!  American workers deserve a living wage, and the only way to that end is unionization. 

Jacqualyne Cody
Rhinelander, Wis. 

Organizing a perceived right, not a real one

Had Senator Specter not reversed his decision, Senators would have been forced to show the vote.  Where I come from, it’s called the Employer Free Choice Act and undoubtedly it’s a perceived “right” not a real one. Been there, Still there. Ready to move forward. Put away the past.

 Kerry Joel Sudberry
Royal, Tenn.

Votes for workers when there’s not gain

It looks like Senator Spector’s big business masters allowed him to vote the way workers in Pennsylvania would prefer as long as he could safely do so without actually achieving gains for workers.  Now that the balance has shifted, he must show his true colors and tow the corporate line.

Karen Grainey
Savannah, Ga.

Time for Specter to be a statesman

The skills of a great politician include a mastery of showmanship, compromise, deal making, fund raising, and most important of all, knowing how to get reelected each and every time.  The skills of a great statesman are the courage and wisdom to dismiss all the potential rewards from those political skills to do something that you know is right and will improve the lives of the greatest number of people.

Senator Arlen Specter has shown his skills as a great politician throughout his entire career and now is the time for him to show his skills as a great statesman by voting to end the debate on the Employee Free Choice Act.

As the senior Senator from the great state of Pennsylvania, Arlen Specter knows better than anyone the damage done to working and middle class Americans by thirty years of union busting, trickle down, voodoo economic policies.  He knows that only a resurgence of strong healthy collective bargaining units across the America workforce will stop the decline in living standards and economic opportunities for all American wage earners across this great country.

The Employee Free Choice Act is a once in a generation piece of legislation that will have such a positive impact on so many lives.  It is time for Senator Specter to rest his laurels as a great politician, and step up to the plate as the great statesman that he is and vote to end the debate on the Employee Free Choice Act.

John O’Connor
North Smithfield, R.I.

Specter seeking both sides

He’s walking both sides of the street.  He knows how poorly Pennsylvanians are doing (and that the state went for Obama in the election), and he doesn’t want to appear to be unsupportive of his constituents.  But on the other side of the street, he worries about his party exacting a political price in the future for his support of Democrats.  He can tell his constituents a half-truth in his next campaign–that he voted for it–knowing most people don’t really know or bother to look up individual votes on various bills.

Gloria Aukland
Mesa, Ariz.

Pressure from RNC

I think Specter was pressured by the RNC and most likely told that he would not receive funds for his upcoming run for re-election.

Bruce Jenkins
Sunnyvale, Calif.

Buckling under pressure of the nasties

Ever since the rise to power of the nasty breed of Republican that seeks to make government a zero-sum political game — I’m thinking Newt Gingrich, Rush Limbaugh, etc. — there have been distinguished, experienced senators quitting the senate while expressing dismay at how the institution had deteriorated.  I have always seen Arlen Specter as one of the old-style, respectable men willing to continue trying to make the legislature something all Americans can be proud of.  But lately, I’m afraid, he has been buckling under the pressure of the nasties. 

It’s very sad.

Bob Persons
Newton, Mass.

Reversal provokes questions about intent

Senator Specter’s “change of heart” with regard to the Employee Free Choice Act makes one wonder.  Was he cynical when he supported it knowing that it would not pass?  After all, he scored some points with working people by his assumed support.

And, now, has he had a change of heart, or simply been overwhelmed with pressure from corporations and lobbyist?  Or was he opposed to the EFCA all along?

Mauna Richardson
La Madera, N.M.

Specter clueless about survival today

I wonder if Mr. Specter has ever had to work for his income, do a dirty job, do something he doesn’t want to, but had to, because without doing said job, there would be no food on his children’s table.  I doubt it.  Senators and Congresspeople have absolutely no idea what it is like to survive in this day and age of, at the minimum, two jobs to make ends meet. 

Or maybe they all should be laid off, given their proverbial pink slips, because those buffoons got us into this mess in the first place.  I am referring to the fact that it was Congress, which, when they stripped away the banking controls that had been enacted in the last depression, caused this current depression.  They should have to clean toilets for a while; you know, get a feel for what the rest of us have to suffer through.  

I’d be happy to make six figures to sit on my butt and listen to lobbyists all day, and I don’t want to hear about how hard these government officials work because you and I don’t have an army of staff members doing our job for us.  Don’t get me started.

Vincent Falcone
Biotechnology student, Hocking College
Amesville, Ohio

Specter tows typical GOP anti-union line

I think it is very disappointing to hear that Sen. Specter will not vote as he did in 2007. I am wondering what prompted him to vote for the Employee Free Choice Act in the first place and then change his mind this year. I have respected some decisions/stances he has taken in the past (ie voting for this in 2007) but to hear that he is towing the typical Republican party line of anti-unionism is upsetting. I am disgusted to see time and time again, politicians who are supposed to be “for the people” or the voice of the people, continue to vote for the best interests of the corporation rather than the people, the worker.

Janet Hada
Snohomish, Wash.

Sounds like RNC threats

Sounds like the RNC threatened him, doesn’t it?

Could be just general cussedness; he’s done that before, but my guess is that the party made it known that if  Specter voted against their line, he could lose support.

Again, there’s precedent for that. 

Mary Carter
Endicott, N.Y. 

Senate should change filibuster rules

When will Sen. Reid have the good sense to change the filibuster rules so that a mere majority can pass a bill in the Senate?

Jack McKissen
Grand Coulee, Wash.   

Reversal surprising and disappointing

Sen. Specter: Your reluctance to support this legislation is surprising and disappointing.  In the name of fairness, please reconsider your position.

Rev. Wesley E. Blaha
Monroeville, Pa.

Seek support of others

I think we must leave Senator Arlen Specter to vote his conscientious in peace.  He needs the support of Republicans. Let’s reason instead with the others and seek to develop additional allies among them.

David A. Crosbie
Pittsburgh, Pa.

Specter made a major mistake

Specter has made a major mistake if he is planning to run for re-election.  Several hazards await him: (1) he could be defeated by a strong candidate who is a liberal and pro-labor Democrat, of course; but he could also (2) run into terrible troubles in his party’s primary.  Far-right GOPs like to run a candidate against him, as they did last time, though he managed a narrow victory.  BUT Democrats, possibly faced with a primary in which the choice is obvious or an easy winner, could (temporarily switch parties and) vote in the Republican primary for the far-rightist in order to help insure that Specter goes down.  (There are many ways to skin a fat cat!) 

Gerald L. Houseman,
Spokane, Wash. 

Specter’s weasel votes

A reversal from Specter is no big surprise. He will vote with us whenever he knows the vote won’t matter. He votes with the Republican leadership when it counts. Look at his weasel words on the Clinton impeachment votes. His only saving grace is that any other Republican from Pennsylvania would be worse (or maybe not – integrity is something to value even if it’s in one’s opponents).

Tom Wolfinger
Centreville, Va.   

Specter sell-out

There is no sinister conspiracy behind the EFCA to thwart an employee’s freedom to choose or not to choose union representation as some opponents would have the public believe.  The EFCA is a straightforward attempt to reverse the anti-union bias that has perverted US law for nearly thirty years. Arlen Specter knows that. His refusal to support EFCA this time around is nothing short of a sell-out to political expediency now that his incumbency is challenged by strong right-wing opposition in the forthcoming Pennsylvania Republican primary election. Shame on you Arlen Specter.

David A. Blythe
Oxford, Mich.

Specter pressured by Republicans and right

I think it is awful.   Senator Specter has had a lot of pressure put on him by Republicans and the Right in general.  We need to get our folks out there with emails, calls, etc. in support of his progressive votes of late. We also need the same kinds of action to show him how many people are in favor of the Employee Free Choice Act.  Each member must contact family and friends to do the same.  We must get this act through now, at this point in history. Other potential Republicans might be Susan Collins and Olympia Snowe.  We need mass action now!

Judith Richards
Lathrup Village, Mich.

Exigencies of politics

Even as a dyed-in-the-wool Democrat, I have always admired Senator Specter’s honesty. I don’t want to think that he would vote to end debate only when he knew his vote was safe; when his vote would not be the 60th. Yet, I believe he is up for election this year and that his seat is not safe. The exigencies of politics are such that, should his vote be the 60th, he would lose his seat. I’d rather see him hold back this time with the hope that this decent man will be returned to his Senate seat.

Barbara Gunther
Bayport, NY

Tragedy for Employee Free Choice Act

I guess soul-selling is the accepted way to go when you are up for reelection. He finds ways to placate his conscience by pretending he is in the Senate to serve the people. Isn’t this par for the course among too many of our politicians?

What a tragedy when The Employee Free Choice Act hangs in the balance!

Elaine Babian
Far Rockaway, N.Y.  

Senator, you have to go

Hon. Sen. Specter, Sir: Thank you for nothing.  After sending us two identical “‘boiler-plate” letters, one on 12/22/08 and the other on 3/24/08, on your ostensibly supportive position of the EFCA, yesterday you turned around and announced your opposition to it.

Most troubling, was the report from The Patriot-News, by Charles Thompson: “On the Senate floor, Specter said he was troubled by the bill’s proposed elimination of the secret ballot, which he called ‘the cornerstone of how contests are decided in a democratic society’.”

This is troubling because you know “the elimination of the secret ballot” is absolutely false, and not part of the bill.

The article suggests your decision was politically motivated.  This is the political reality:  You have had the support of moderate Democrats in the past because of the moderate positions you have shown.  To stray to the far right would be a mistake.  Should you do that, we would actually welcome the candidacy of far right lunatics like Pat Toomey, so that he would be crushed in November of 2010.  Sorry, but if we can’t rely upon you for non-partisan votes, then you have to go.

Randi & Tom Alba
Ambler, Pa.

Specter kneeling at the alter of big business

Spector is a gutless punk who pandered to labor when there was no chance of the bill passing. Now that we have a real shot at passing this bill, he is showing his true colors. He is kneeling at the altar of big business. Unions and their members in Pennsylvania should not forget this double cross. 

Steven Elliott
Danbury, Conn.

Specter should vote for fairness

Are all Republicans the same?  We had one on our road, who signed a right-of-way for the road to be paved when a Republican was governor, but when it was a Democratic governor, he wouldn’t sign one.  They never vote on the fairness side of any issue.

Without unions our country will not survive as the leader of the free-world.  Education on union backed issues is the key to enlightenment of people who through no fault of their own, stand on the wrong side of issues.

Ronnie Young
Waynesville, N.C.

Vote change inconceivable

I cannot understand how Senator Specter could even consider changing his vote. This bill is a “no-brainer. It is vital for our economy. How could anyone not support it – where are the thoughts of those missing Democrats – amazing that we would elect persons like this to “represent” us in Congress.

Howard Lord
Montezuma, Iowa

Make the Republicans filibuster

 I think it is time to make the Republicans filibuster against the working man if that is their choice.

Robert Hooker
Upper Marlboro, Md.

A jolt

I think somebody needs to kick Arlen upside the head. 

Robert Young
Nashville, Tennessee

Specter feels threatened

I hope that Specter (and others in the GOP) have the courage to vote in good conscience for the interest of working people in Pennsylvania and the country. It’s apparent that he feels threatened by the CFG (Club for Growth) contingent, who are interested in a business agenda that is disconnected from the needs of working people. If only politicians on either side of the aisle would stand up to this anti-worker agenda, people would respond in support.

It’s very disheartening to see the path that Specter and so many others in government are taking while the middle class continues to be undermined across the U.S., by denial of basic union organizing rights and protections granted in most “civilized” nations.

Brent McFarlane
Seattle, Wash.

Specter votes for his own advantage

Arlen Specter has been a successful politician for a very long time.  

Successful politicians, for the most part, do what is in their best interests.  When Specter voted FOR the Employee Free Choice Act, he did so in order to position himself with the Democratic Party, at a time when that party’s fortunes were on the rise.  Now, he is fighting against the EFCA because he has more to gain from his fellow Republicans, and the business interests that support them, by doing so, than can be gained by siding with the Democrats. Politics as usual.

Victoria LoSchiavo
Mentor, Ohio

Specter’s decision all GOP politics

It’s about politics. The Republicans see Barack Obama succeeding beyond their and many others’ (including Democrats) expectations and so now they see themselves circling the wagons lest they help the President succeed. I say the President, because he has expressed strong support for Employee Free Choice, so anything that furthers that success will be opposed by the GOP. Come election time, they’ll come around. We need to remember that, including let’s not forget the biggest traitor of all, Senator Joe Lieberman.

Angel Rodriguez, a former copper miner from Morenci, Ariz.
Glendale, Ariz.

Specter a straw in the wind

I think Senator Specter is still smarting from the beating his fellow Republicans administered after his vote on the stimulus bill, so he is trying to assert his ideological purity with this vote. I can remember when he first ran for the Senate; he was a decent, principled former DA with crime-fighting credentials. Now he seems more like a straw in the wind, hell-bent on keeping his seat, no matter who gets hurt.

I guess we’ll have to get some other help with this….

Barbara Bruce
Mandan, N.D.

Replace Specter with pro-union Democrat

I am not surprised. After all, he is a Republican. The union members of Pennsylvania need to replace Specter with a pro-union Democrat. Unions do have an ally with Secretary of Labor Hilda Solis. We could urge Obama and Biden to resort to the nuclear option. The first step is getting all Democrats to support EFCA.

William Joseph Miller
Los Angeles, Calif.

Specter’s response unfortunate

Senator Specter’s response was unfortunate, and it probably was due to his fear of being defeated in the next Republican primary because of a YES vote.  It may be possible to deal with his concerns and to eventually gain his support, but if not, surely there are other ways to gain a Republican vote. I think the solution is to compromise- make a deal – give up something, to gain something else. Perhaps the key is with President Obama. Maybe he can help put a deal together that satisfies labor and one Republican senator.  Please recall that Specter, Snowe and Collins helped Obama before, for something I am sure each of them wanted.

Bill Weiss
Morgantown, W.Va. 

Votes for middle class when it doesn’t count

Mr. Specter has done this before.  He votes for the middle class so long as his vote won’t count; but when it counts, he always votes for the corporate hierarchy. He is a true Republican, but tries to conceal the fact.  I was surprised when he voted with Collins and Snowe for the stimulus, the only time I have seen him break his rule.

David G. Wagner MD
Portland, Ore.  

Union members must vote their interests

I think Senators are allowed to vote for their constituents when it won’t affect the outcome, but must vote with the party when required to do so or face primary opposition. 

As long as union members–or the 60 million who want to become union members–fail to vote (or vote Republican), the Employee Free Choice Act has an uphill fight. 

My county brags about being one of the “most Republican in the nation” — and 60% of the parents of public school kids are not registered. 

Arlen Specter should have been voted out long ago.  Yet, he can’t have been elected without the votes–or apathy– of labor. 

Judy Ferro
Caldwell, Idaho

 

By Dean Baker
Co-Director, Center for Economic and Policy Research

In the movie Lars and the Real Girl, the main character imagines that a female blow-up doll is his fiancé. To humor Lars, his brother and sister-in-law go along with the charade. Over the course of the movie, more people are drawn into the circle, until eventually the whole town is treating Bianca the blow-up doll as one of its leading citizens.

This seems to pretty well describe the debate over the budget deficit, except it’s not clear that many people realize it’s a charade. The main story is that Lars’ budget hawk counterparts are upset that the deficits projected for 2013 or 2019 are too large. They want President Obama to commit to spending cuts and/or tax increases in order to bring these deficits to levels they consider acceptable.

The unreality of this picture is striking because the budget hawks seem not to notice that we are in the middle of an economic meltdown.

People are losing their homes through foreclosures at the rate of more than 100,000 a month. The default rates on credit cards, car loans and other debt is at record levels. Most of our major banks are effectively insolvent.

Home and stock prices have plummeted, destroying most of the wealth of the baby boom cohort as they stand on the edge of retirement. The economy is shedding almost 700,000 jobs a month, with the unemployment rate rapidly approaching the highest level since the Great Depression.

In this context we are supposed to be up in arms over the deficit projections for 2013 or 2019? This is a bit like someone complaining about the lawn not being mowed at a time when the house is on fire, it’s just not the first priority. And the media all seem to go along with the charade – yes, they are very concerned about the projected deficit for 2013, just as the characters in the movie expressed concern about the health of Bianca the blow-up doll.

It is especially annoying to hear the whining from this group of deficit hawks since their whining in prior years helped to drown out serious discussion of the dangers posed by an $8 trillion housing bubble. While some of us were yelling at the top of our lungs about the imminent disaster that would hit the economy when the housing bubble burst, the media chose to focus on these deficit hawks with their dire warnings about budget deficits 40 or 50 years in the future.

Because the media and political elites chose to pay more attention to the deficit hawks than those warning about the housing bubble, we now get to enjoy the current economic crisis. And, one result of the economic crisis is (drum roll, please) ……..record deficits.

To put the point so simply that even a Washington Post editor can understand it: because the media highlighted the views of the people who were ranting about the deficit rather than the views of people who understood the economy, we both got a wrecked economy and larger deficits.

The moral to this story is that the economy must take priority, not only because the state of the economy is what most directly determines people’s well-being, but also because the state of the economy will be the most important determinant of the deficit.

The experience of the 1990s provides an example of exactly this sort of story. In January of 1994 the Congressional Budget Office projected that the deficit in 1999 would be $204 billion or 2.4 percent of GDP. This projection incorporated the impact of President Clinton’s tax increase and spending cuts.

It turned out that there was a surplus of $125 billion in 1999, or 1.4 percent of GDP. This shift from deficit to surplus of 3.8 percentage points of GDP (equivalent to $540 billion in 2009) was not caused by further spending cuts or tax increases, it was caused by the strong economic growth of the period.

There is no guarantee that President Obama’s policies will be successful in restoring strong growth, but they are clearly a step in the right direction. If we have strong growth, then our deficits will be manageable. If the economy remains weak, the deficit will remain a serious burden no matter how much we raise taxes or cut spending.

Someone has to tell the deficit hawks that their blow-up doll is not real. The issue is the economy, not the deficit.

 

Dean Baker is the author of the new book,“Plunder and Blunder: The Rise and Fall of the Bubble Economy.”  This piece was first published on  Huffington Post.

By Robert L. Borosage
Co-Director Campaign for America’s Future

Treasury Secretary Tim Geithner has called for “sweeping regulation” of the financial community, beginning a discussion of how we restructure the banking system — in and out of the shadows — as we emerge from what Robert Kuttner calls the Great Collapse. Literally trillions have already been committed in loans, guarantees, swaps, direct equity to stave off a complete financial collapse, even as the real economy declines.

But before we decide on the salvation, we need a public probe of the fall. What caused the Great Collapse? We need a grand inquest — either a special congressional committee or an independent commission like the 9/11 Commission armed with subpoena power — to expose misbegotten policies, malpractices, and mistaken ideas that allowed the wizards of Wall Street to transport us over the cliff.

In the 1930s, the dramatic hearings by the Senate Banking and Currency Committee became known as the Pecora Commission, after Ferdinand Pecora, the fierce former assistant prosecutor from New York who served as general counsel. Born in Sicily, the son of an immigrant cobbler, Pecora was a crusader. As counsel, he hauled the barons of Wall Street before the committee, and took them apart with often withering cross examination. By the time Pecora was done, the hearings had captivated the country’s attention and, as Ron Chernow reports, Senator Burton Wheeler of Montana was comparing the bankers to Al Capone and the public began calling them “banksters,” rhyming with gangsters.

The Senate committee unearthed the assorted frauds, the abuses, the ponzi schemes that led to the 1929 crash. And in doing so it provided both the case for reform and built a public demand in support of it.

The hearings came under fierce criticism. Wall Street bankers charged that they were “undermining confidence.” Some Senators scorned them as running a “circus,” and in fact, some of the excesses deserved the tag.

Yet, Pecora was deadly serious. By the time the hearings ended in May 1934, they had generated 12,000 printed pages of testimony — providing the source that historians have mined ever since to fuel their descriptions of the era. And they paved the way for reform: the Securities Act of 1933, the Glass-Steagall Act of 1933, and the Securities Exchange Act of 1934. In recognition, Roosevelt named Pecora to be a commissioner of the new SEC.

We need the same fearless investigation now. As Elizabeth Warren, the brilliant head of the congressional oversight panel on the bank bailout has noted, no one has exposed the record of pervasive fraud and misdealing that was at the base of the housing bubble. Her panel doesn’t have subpoena power, and has no little difficulty getting documents from the Treasury. There have been scattered congressional hearings on different aspects of the folly, some quite good. But none have laid out a systematic record of what went wrong, hauling miscreants before the committee, using subpoena power to expose the extent of the malfeasance — for example, the extraordinary percentage of mortgages that revealed signs of fraud on the face of the loan, and yet were marketed as sound by ratings agencies, banks and hedge funds that never looked at the underlying documents.

A broad, public investigation is also vital to help provide citizens with a clear narrative of what went wrong. It will counter the pernicious efforts on the right to cook up the notion that a powerful poverty lobby created the crisis by forcing hapless banks to make loans to the unqualified because of the Community Reinvestment Act.

There are many reasons for Congress to duck an inquest. An honest inquiry will show that the de-regulatory follies took place under presidencies of both parties — Reagan, the two Bushes, but Clinton also. The inquest would undoubtedly embarrass some of the former Clinton appointees now at the center of the Obama economic team, like Lawrence Summers. Many of the legislators who voted for deregulation, including dismantling the Glass-Stegall Act, would, no doubt, prefer that the past remain in the mists.

But serious reform of the banks — and that restructuring that is vital — will take new laws, new authority, and most likely more money from the government. That will require public support that can only be engendered by a clear view of what went wrong, by a sense that the most extreme wrong-doers are being brought to justice. Exposing the regulatory failures, the legal changes, the ideological blindness, the institutional structures, and the compensation packages that propelled the reckless gambling that eventually brought down the house is vital if we are to understand what must be changed and can mandate change to it.

If the banks are revived without the inquest, then Congress will find it hard to drive the restructuring and re-regulation essential to a new, more balanced economy. This will take courage — and a modern day Ferdinand Pecora with the necessary fire in his stomach.

By Dean Baker
Co-Director, Center for Economic and Policy Research

The new consensus among the experts who missed the housing bubble (EMHB) is that Treasury Secretary Tim Geithner’s plan to subsidize the purchase of junk mortgages and their derivatives will help alleviate the stress on the banking system. That’s good news.

These geniuses have devised a plan that for $1 trillion (approximately equal to 300 million kid-years of SCHIP, the State Child Health Insurance Program) can alleviate the stress on the banking system. Note that no one claims that $1 trillion spent on the Geithner plan will actually clean up the banking system – that would be asking too much. The EMHB only assure us that this $1 trillion (more than enough to have energy conserving retrofits for every building in the country) will make things better. Isn’t that enough?

Oh, by the way, some people will get very rich off the Geithner plan. Some hedge and equity fund managers could make hundreds of millions or even billions off the Geithner plan. And, under current law, they will pay a lower tax rate on this money than a schoolteacher or firefighter. Are you sold yet?

One other outcome of the Geithner plan is that the folks who bankrupted their banks and wrecked the economy will be able to continue to earn multi-million dollar salaries. Of course this is necessary, because who else has the skills to run these banks, other than the people who drove them into bankruptcy?

For some reason, every plan the EMHB have developed so far involves using taxpayer dollars to subsidize the bankrupt banks and keep them breathing a little bit longer, while offering opportunities for other Wall Street actors to get hugely wealthy. Some people say that the EMHB keep coming up with plans that enrich the Wall Street crew because they are so closely tied to the Wall Street financial interests.

It is, of course, possible that the EMHB are too closely tied to the financial industry, but it’s also possible that they just lack the creativity and imagination to think of a plan that doesn’t enrich the Wall Street crew. After all, these people lacked the ability to see an $8 trillion housing bubble, the largest financial bubble in the history of the world. So, let’s see if we can help them out.

The core problem is that many of the largest banks are bankrupt. They are currently concealing this bankruptcy by listing assets on their books at prices that are far above their market value. In principle, they can do this for a long time, unless the government forces them to write-down the value of these assets. As long as the banks are bankrupt, they will not make new loans, limiting the ability of many businesses to get capital.

Instead of Geithner’s plan to allow banks to sell these assets at a subsidized price, we can go the other way. Geithner could have announced a plan to clean up the banks, following a standard FDIC-type takeover.

This approach could harness the power of existing bondholders to help the government clean up the banks quickly. Geithner could, for example, promise to honor the banks’ commitments to bondholders in full, if the banks recognized their losses immediately. Bondholders, however, would be offered a lower payback rate for each month that the banks waited.

So, if a bank waited one month, the bondholders would only get a guarantee for 90 percent of the value of their assets. If the bank waited two months, the payback would fall to 85 percent and so on. (Note the issue here is bank bonds that the government has no legal or moral obligation to pay off. The government will, of course, pay off the banks’ FDIC-insured deposits.)

Under this kind of a plan, bondholders would place enormous pressure on the banks to recognize their losses. Bank executives that refused to own up to the bank’s bad assets might even face personal liability. In other words, executives who lie about their bank’s assets might not just lose the bonuses that came out of TARP money, they also might lose the tens or hundreds of millions of dollars they “earned” during the housing bubble.

If President Obama’s advisers, all of whom are leading members of the EMHB camp, had more imagination, they might have devised a plan like this for dealing with the banking crisis. Instead, they came up with a plan that will enrich Wall Street and further punish Main Street.

Congress can try to bring enough pressure to make President Obama reverse course. At the very least, Congress should insist that when this plan fails, Secretary Geithner and others involved in drafting the plan are sent packing. We cannot continue to have a system that always ignores the mistakes by those on top and only holds those at the bottom accountable. The EMHB already wrecked the economy once; how many more times will they get the opportunity?

Dean Baker is the author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy.”

This piece was first published on Huffington Post.