Blog

Amy Traub

By Amy Traub
Research Director Drum Major Institute for Public Policy

It’s a truism on the right these days: firefighters, librarians, sanitation workers, and other public employees are lazy and overpaid. They’ve “turned themselves into a coddled class that lives better than its private sector counterpart,” according to Reason Magazine. They are crushing beleaguered taxpayers with their fancy salaries and lavish benefits.

It would be an alarming story if it were true. But a new study by the Center for State and Local Government Excellence and the National Institute on Retirement Security takes a sober look at the data behind the politicized hype and uncovers a very different picture. When workforce factors such as education and work experience are taken into account, state and local employees make less than their private sector counterparts. Looking at pay alone, those supposedly “coddled” state employees earn 11 percent less than comparable private sector workers. Employees of city and county governments earn 12 percent less than their private sector counterparts.

What about those generous public sector benefits? Analyzing data from the National Compensation Survey, the researchers find that benefits such as pensions and health coverage do make up a slightly greater share of public employees’ overall compensation than for private employees. Yet when the cost of benefits is factored in, state and local employees still wind up with less total compensation. People working for local government earn 7.4 percent less than employees with comparable skills could get in the private sector. State employees are compensated 6.8 percent less. So much for the lavish lifestyle.

The new research offers no clarion call for public employee raises and benefit hikes to catch up with the private sector. Indeed, the study documents how public compensation has lagged private sector for twenty years. But it does throw the resurgent right-wing campaign to demonize public employees and their unions sharply into question. In this recession, public employees have been laid off, furloughed, and seen their wages frozen. At a time when public budgets are strained by falling tax revenue, these are among the difficult choices cities and states have made. But that’s no reason to imagine that “greedy” city workers somehow caused the crisis or deserve to lose their jobs or to see their pay cut any more than private sector employees. Those looking for a “coddled class” should look to the Wall Street bonus pool, not the Parks Department.

***
Follow Amy Traub on Twitter: www.twitter.com/AmyTraubDMI
***
Amy Traub is the author of the book, From Disaster to Diversity: What’s Next for New York City’s Economy. She also wrote a chapter for the book, Thinking Big: Progressive Ideas for a New Era (Berrett-Koehler Publishers, 2009). She has authored several influential DMI reports, including “Principles for an Immigration Policy to Strengthen and Expand the American Middle Class.” In 2008, the Jewish Funds for Justice gave her its Cornerstone Award.

Dave Johnson

By Dave Johnson
Fellow with Campaign for America’s Future

China and the United States have both engaged in economic stimulus plans. This provides an opportunity to compare, and hopefully to learn.

China’s stimulus brought them through the economic crisis, even as they lost some exports because of the slowdown. They made the leap into alternative energy technology, spent $100 billion just for high-speed rail, and showed the world how fiscal stimulus works. Their growth rate is currently 13%. Ours is currently … nowhere near 13%.

In November, 2008, China announced its $586 billion plan,

Beijing said it would spend an estimated $586 billion by 2010 on wide array of national infrastructure and social welfare projects. They would include new railroads, subways and airports and rebuilding areas like those devastated by the Sichuan earthquake in May.
… It would amount to about 7 percent of China’s gross domestic product during each of the next two years.

So their stimulus totaled about 14% of their GDP. Our own stimulus was $862 billion in a $14 trillion economy, or about 6%. The differences between the priorities of the two plans are clear when seen on charts.

From a year ago: China’s Stimulus Package: A Breakdown of Spending:

The first chart of our plan from the stimulus bill (as proposed) provides detail. The second chart from Think Progress shows major categories.

China focused on investment in public infrastructure, which leads to future economic growth. We are mired in conservative ideology so we focused on tax cuts, which do little more than increase our debt.

And we didn’t get the spending started very quickly. According to a one-year analysis,”Through the end of January, roughly $334 billion in spending has been approved, of which $179 billion has actually left federal coffers. Another $119 billion has gone to tax cuts.” and “only $31 billion has been spent on projects such as infrastructure, high-speed rail, broadband and health technology.”

Quick lessons:

- China spent serious money, quickly. It worked.
- China focused on infrastructure. It worked.
- China has a national economic/man manufacturing strategy and invests in R&D and developing strategically important industries. We don’t.
- Don’t cut taxes, it only causes massive yearly deficits and accumulated debt.

***

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project..

***

Johnson also is a fellow at the Commonweal Institute and a Senior Fellow at the Institute for the Renewal of the California Dream.

***

Follow Dave Johnson on Twitter: www.twitter.com/dcjohnson

Dean Baker

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

I worked at the Economic Policy Institute (EPI) for 6 ½ years. During this time, the credibility of my work and that of my colleagues was often impugned by describing EPI as “labor backed.” This was partially true, we got 20-25 percent of our funding from unions. However, the clear implication of this identification was that our ties to labor called our integrity into question in a way that large amounts of corporate tied money did not affect the integrity of other think tanks.

I am reminded of this because I was at the Peter G. Peterson’s Foundation deficit fest this morning. I left as Peter Peterson took the stage with Robert Rubin. The hypocrisy around this sight was more than I could bear. Actually, I left because I had work to do, but this sight was still pretty painful.

Peter Peterson and Robert Rubin are both enormously wealthy men. (They joked about dividing their lunch tab based on their net worth.) They are lecturing the country on the need to cut Social Security and Medicare benefits for retirees who have a tiny fraction of their wealth. Many of the victims of the cuts that they would push are people who are already struggling.

This would be difficult to accept in any case, especially since there are ways to get the long-term deficit down to size that don’t involve nailing middle income and/or poor people. However, it would be hard to find two people who have benefited more from taxpayer handouts than these two individuals.

Peter Peterson has been the recipient of tens of millions of taxpayer dollars through the fund manager’s tax break. This tax break, which is also known as the “carried interest tax deduction” allows managers of hedge and equity funds to pay tax on their earnings at the 15 percent capital gains tax rate, instead of having it taxed as normal income. As a result, Peterson paid a lower tax rate on much of his earnings than tens of millions of people working as school teachers, fire fighters, and other middle income jobs.

Peterson not only collected the money himself, he came to Washington in 2007 to lobby Congress when it debated ending the tax break. He apparently wanted to make sure that his friends would still be able to benefit from this tax break even after he had retired.

After setting the country on a course for the current crisis with the policies he pushed as Treasury Secretary, Robert Rubin went to work as a top executive at Citigroup. In this capacity, he earned $110 million before leaving the company in the middle of its 2008 meltdown. As we know, Citigroup was one of the major actors in the housing boom. It produced hundreds of billions of dollars worth of mortgage backed securities.

It would have gone belly up in the crisis were it not for tens of billions of dollars in taxpayer loans and hundreds of billions in guarantees. (That the government’s guarantees restored Citi to life, which allowed us to get our money back is beside the point.)

Rubin’s public line is that he should not be blamed for Citi’s collapse or the role it played in bringing down the economy; he really didn’t know what they were doing. This is an interesting claim for someone who got paid $110 million by the bank. Presumably Citi could have employed someone who didn’t have a clue about what was going on for something considerably closer to the minimum wage. In any case, being at the center of a collapsed megabank that helped bring down the economy would not ordinarily be a credential that would give a person standing to lecture the country about fiscal policy and the need for sacrifice.

Yet, in Washington in 2010, Peterson and Rubin hold the high ground, lecturing the rest of us on the need to tighten our belt. As I said, I have work to do.

***

This post is part of the Virtual Summit on Fiscal and Economic Responsibility For People Who Did Not Wreck The Economy. 

***

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

There should be a fund to provide vacation trips
to the Gulf of Mexico for everyone who has
used the phrase “Drill, Baby, Drill!”

Leo Toribio
Pittsburgh, PA

***

To submit a blog to Free Speech Zone, e-mail it to bstack@usw.org. Keep it to 250 words or fewer. You MUST include your full name, hometown, and state. You may attach a photograph of yourself. Please include a phone number. This WILL NOT be published. Posting any given blog is within the discretion of the USW.  No blog using foul language (this is a family site), false information (we don’t want to get sued), or unnecessary personal attacks (again, we don’t want to get sued) will be used. Wait a reasonable period of time, then blog again! This is a Free Speech Zone. 

Richard Trumka

By Richard Trumka
President, AFL-CIO

So now we learn that as millions of America’s families were losing their homes, Goldman Sachs cheered because it stood to make huge money betting on a housing market gone bad. Is that Wall Street’s vision of American values? It’s not mine. And it’s not the values of the thousands of working Americans who are marching on Wall Street today in person with me and online.

Our message is simple: Big Banks tanked our economy and took our money when they needed a bailout. Now they’re thumbing their noses at our communities but making billions in profits. It’s time they pay up.

Pay up by investing in communities to create jobs for the millions of unemployed workers–like Terry in Florida, who was laid off a week before Christmas. Being forced to return his family’s Christmas gifts to the store was just the beginning of his pain. While the corporation he worked for is turning a profit, he fears his family will be homeless by summer.

Meanwhile, in 2009, 25 hedge fund managers were paid the equivalent of the salaries of 680,000 school teachers. That’s in 2009, when we taxpayers spent billions of dollars bailing out the financial sector. If Goldman Sachs is cheering at the collapse of the housing market, what’s the rest of Wall Street saying? Thanks, suckers?

Those may be Wall Street’s values. They’re not America’s.

In a stunning new Pew poll, more than half of those surveyed say within the past year a member of their household has been out of work–up 15 percentage points since last year. Fully 70 percent of Americans say they have faced one or more job- or financial-related problems in the past year, up from 59 percent in February 2009.

And homelessness no longer is a scourge of the most troubled of our society. Maria Foscarinis, executive director of the National Law Center on Homelessness and Poverty, describes the nation’s epidemic of homelessness as reaching crisis proportions not seen since the Great Depression–and it stems directly from the Big Bank-fueled recession in which millions of workers lost jobs and savings and can no longer afford their mortgage or rent.

Meanwhile, the Big Banks announced massive first quarter earnings–Citigroup, $4.4 billion; Bank of America, $4.2 billion; Goldman Sachs, $3.46 billion; JPMorgan Chase, $3.3 billion; and Morgan Stanley, $1.8 billion. It turns out that much of that money was made by the same risky trading practices that cost taxpayers a $700 billion bank bailout.

The damage inflicted has deepened economic inequality, which has gotten worse since 2007. The richest 10 percent now control nearly 70 percent of the wealth. Those with incomes in the bottom 50 percent have a little more than 2 percent of the wealth.

The bottom line is Wall Street should pay to clean up the mess they made and Congress must enact strong Wall Street reform. We are supporting four ways for the Big Banks to pay–President Obama’s bank tax, a special tax on bank bonuses, closing the carried interest tax loophole for hedge funds and private equity and, most important, a financial speculation tax levied on all financial transactions–including derivatives–that would raise more than $150 billion a year, according to the Congressional Budget Office. The financial speculation tax would have a negligible impact on long-term investors but would discourage the short-termism in the capital markets that led to so much destruction over the past decade.

Congress also must aggressively address the jobs crisis now–if not because it’s the right thing to do, then because of November 2010. That Pew poll I cited above? It found Americans united in the belief that the economy is in bad shape: 92 percent give it a negative rating.

Wall Street’s values are based on greed. The American people’s values are rooted in working hard, playing fairly and doing right by our family, neighbors and friends.

If you can’t march and rally with us on The Street, join us live online today at 4 p.m. EDT. We’ll be 10,000 strong on the ground and marching for tens of thousands more who have signed up to take part in our virtual march.

Working people are angry–and we are right to be angry at the betrayal of our economic future. Help us turn that anger into the energy to create jobs, fix our economy and build a stronger nation.

Robert Borosage

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

Senate Republicans have perfected the art of saying no. But in blocking a debate on financial reform, they have begun to imitate Goldman Sachs traders, selling positions that they are betting against.

Blocking financial reform is, not surprisingly, financially rewarding, as Republican leaders lease themselves to Wall Street as congressional security guards. But with the public outraged at the human devastation caused by the financial crisis, and the bailout of the big banks, with the Wall Street ethics (increasingly an oxymoron) in full display in the Goldman Sachs and Washington Mutual hearings, being in the pocket of the big banks isn’t exactly a popular platform for re-election.

So instead, Republicans are expressing their inner populism. They rail at the financial reform bill (the Dodd bill) as too weak, designed to ensure more taxpayer bailouts. “We cannot allow endless taxpayer-funded bailouts for big Wall Street banks. And that’s why we must not pass the financial reform bill that’s about to hit the floor,” says Senator Mitch McConnell, unfortunately tracking almost word for word the infamous Frank Luntz talking points on how to kill financial reform. Republicans pose like Horatio at the bridge, defending us against future bailouts. For McConnell, and Republican Senate Campaign Chair Tom Coburn to come straight from a Wall Street fundraiser to parade as the scourges of Wall Street may lack a certain authenticity, but Goldman Sachs traders aren’t the only insiders who think the rubes will buy anything.

Now Republicans have done us a favor. They’ve published a Republican alternative on financial reform, laying out the differences. Not surprisingly, much of it tracks the Dodd Bill, since a good portion of that was forged in bipartisan negotiations. It adds language calling on the Treasury Secretary to present a plan on Freddy Mac and Fannie Mae, which he’s promised to do. It puts somewhat different limits on the Federal Reserve. But its major differences come in two major areas: how to pay the costs associated with shutting down failed big banks, and on consumer financial protection.

The Dodd bill calls for the banks to ante up a $50 billion fund. This would be used by the FDIC if it were forced to take over a failing big financial institution. Unlike the last bailout, where the banks were rescued but not reorganized and taxpayers paid the bill, in the Dodd bill, a troubled big bank would be treated basically like smaller insolvent banks. The FDIC would take it over, fire the management, and reorganize it, liquidating assets, merging with other banks. The shareholders would lose their investment; the creditors would take a hit. The bank financed fund would cover any costs along the way.

For all of Republican warnings about the FDIC’s incompetence, the Republican alternative essentially calls for the same procedure. The FDIC would be named receiver. It would liquidate the assets, or transfer them to a “bridge bank” and sell them. It would fire the management; operate the bank if necessary while dispersing its assets. Shareholders would be wiped out; creditors would take a hit. But in some cases, the FDIC will have to take “emergency action to stabilize” the bank, “issuing guarantees, purchasing assets, and advancing funds to creditors.” The FDIC would seek to recoup this money from creditors and shareholders in the ensuing liquidation.

Where would that initial money come from? Here’s where Republicans pay tribute to George Orwell. The money won’t come from a fund paid for by the banks. Republicans denounce that as leading to “taxpayer funded bailouts.” No, the money would come from, well, taxpayers, and thereby save us from taxpayer funded bailouts. War is peace. Black is White. Are Republicans a great party or what?

The second major Republican initiative is to protect the banks from consumer protection. No really. Instead of an independent agency which the House called for, or a strong agency lodged in the Fed as the Dodd bill calls for, Republicans would create a “Council for Consumer Financial Protection” to promulgate rules for consumer financial protection. It would have three regulators and three consumer advocates and is charged with insuring that all rules and regulations “consider the safety and soundness” of the banks.

That, of course, is essentially what we have now where the various regulators have the authority to protect consumers, but are focused on the safety and soundness of the banks. The result is that they sat on their hands as consumers got gouged by payday lenders, rapacious mortgage brokers, credit card companies, used car dealers and more. (Of course, they didn’t do much on the safety and soundness of banks either).

So when you watch Republicans join in lock step once more to block opening the debate on financial reform, understand what their objections are. They want taxpayers, not banks, to front the costs of resolving failed big banks. And they want greater protection for the banks from consumer protection.

Which side are they on?

***

Robert Borosage and Campaign for America’s Future Co-Director Roger Hickey are co-editors of the book, The Next Agenda: Blueprint for a New Progressive Movement.

***

 Follow Robert L. Borosage on Twitter: www.twitter.com/borosage

Leo W. Gerard

By Leo W. Gerard
USW International President

Don Blankenship, the man ultimately in charge of Massey Energy’s West Virginia mine where 29 workers died in an explosion April 5, assured financial analysts last week that safety is paramount in his operation.

Massey, the country’s fourth largest mining company, issued a statement that same day asserting that a review of conditions in the Upper Big Branch mine uncovered no problems shortly before the blast that killed more workers than any other mine disaster in nearly four decades.  

All that could only mean one thing, right?  Massey did nothing wrong and bears no responsibility. So clearly the disaster was an act of God or an omission by workers. God killed them. Or they killed themselves. Blankenship suggested that in earlier interviews and repeated it to stock analysts last week:

“Obviously, I don’t want to speculate, but either something went wrong from a natural/unnatural manner that was not foreseeable by us or human beings or somebody made a mistake or something.”

That contention – that God’s hand or worker blunder caused a disaster – is a bogus employer excuse that managers frequently dredge up. The supervisor of the Westray Mine in Canada, where 26 workers died in an explosion in 1992, did the same thing. A government-commissioned report on that catastrophe recounts that manager, Gerald Phillips, “blatently blamed the miners for the explosion.” It’s a refrain that might be repeated in the aftermath of the Tesoro refinery blast on April 2 that killed seven workers and the explosion on the Transocean Ltd. oil offshore oil drilling platform on April 20 that killed 11 workers.

It’s a lie. And when workers die, it’s a damned lie. Employers are responsible for maintaining safe working environments. Yet, across this country, 14 workers are killed on the job every day. The American people and their government must hold employers accountable. Or the workplace killing will never stop. 

Employers routinely attempt to dodge culpability. Blankenship spouted the “I-am-not-responsible” talking points in his telephone call with financial analysts. He swore to them with reassuring double negatives:

“It’s not due to us not being focused on safety, not having a strong safety culture, not putting safety first. Some of the implications have been that we don’t focus on safety or we put dollars in front of safety, and nothing could be further from the truth.”

Blankenship has also said incidents are “unfortunately an inevitable part of the mining process,” suggesting they just happen like hurricanes or tornados; no one can control them.

The U.S. Minerals Management Service, which regulates offshore oil rigs like the one that exploded and sank into the Gulf of Mexico this month, blames workers as well.  MMS is writing rules requiring rig operators to prevent human error.  This follows an MMS report on the 41 deaths and 302 injuries on oil rigs between 2001 and 2007 that said:

“It appears that equipment failure is rarely the primary cause of the incident or accident.”

This is the same MMS whose inspector general, Earl E. Devaney, said suffered from a pervasive “culture of ethical failure.” In three reports to Congress in 2008, Devaney portrayed MMS as, the New York Times said, “a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administration’s watch.”

It is not surprising that MMS blames workers when, the New York Times noted, eight MMS officials accepted expensive gifts from energy companies. These exceeded values set in federal ethical regulations. And several MMS officials, the Times said:

 “Frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives.”

Regulators for mines and refineries take an entirely different view from MMS. Kevin Stricklin, the Mine Safety and Health Administration’s administrator for Coal Mine Safety and Health, said while at Upper Big Branch:

 ”All explosions are preventable. It’s just making sure you have things in place to keep one from occurring.” 

That is management’s responsibility.  

Similarly, the Occupational Safety and Health Administration does not blame workers for explosions at refineries. To prevent catastrophes, OSHA requires refineries to implement a system called process safety, which is a mixture of engineering and management focused on prevention. After a 2005 blast at the BP refinery in Texas City, Texas that killed 15 workers and injured 170, OSHA launched a two-year program to emphasize process safety at refineries.

Afterward, OSHA director of enforcement Richard Fairfax reported:

 “We are pretty shocked and dismayed by what we found.”

OSHA’s review of 14 refineries in the first year found 1,517 violations, including 1,489 for process safety.

While MMS contends “human error,” caused incidents on oil rigs, inspections by MMS and the Coast Guard over the past three years of oil rigs in the Gulf of Mexico found problems such as repair crews working without proper permitting in hazardous areas, inoperable gas detectors and faulty firefighting equipment. These examples of management recklessness are listed in a Houston Chronicle story by Lise Olsen titled, “Blood a part of oil’s price.” 

Similarly, former United Mine Workers union President John L. Lewis said coal was washed in the tears of widows. In West Virginia where there are two dozen new coal widows, Blankenship repeatedly has said Upper Big Branch was as safe as other mines and that citations for violations are just a routine part of the mining business.

A review by Ellen Smith, owner of Mine Safety and Health News, showed, however, that Upper Big Branch had a violation rate 30 percent higher than the average underground bituminous coal mine. In addition, a Massey subsidiary, Aracoma, pleaded guilty to criminal charges of willful violation of mandatory safety standards in the 2006 deaths of two miners.

President Obama had this to say about culpability:

“This tragedy was triggered by a failure at the Upper Big Branch Mine, a failure first and foremost of management, but also a failure of oversight and a failure of laws so riddled will loopholes that they allow unsafe conditions to continue.  Owners responsible for conditions in the Upper Big Branch Mine should be held accountable for decisions they made and preventive measures they failed to take.  And I’ve asked [Labor] Secretary [Hilda] Solis to work with the Justice Department to ensure that every tool in the federal government is available in this investigation.”

Even in the 1800s, managers tried to evade blame by placing it on God and workers. Mine inspector Thomas K. Adams noted that blame shifting in an article published in 1900 by the journal Mine and Minerals:

“During such distressing events [as mine disasters] we have, as usual, a plenteous crop of apologists and general utility men who appear . . . Those men are very resourceful in offering all kinds of excuses for those who are possibly responsible for such calamities. They will tell us about the subtle agencies in operation in nature’s storehouse, the mysteries which wiser men than Solomon cannot unravel and that those mine explosions are the unavoidable and natural accompaniments which gives harmony to the coal-mining industry.”

Adams went on:

“Such rot has no weight with intelligent mining men, of course, but dupes there be everywhere.”

Today is Workers Memorial Day, an occasion to mourn those killed in the workplace, to condemn the lying about culpability and to demand corporate accountability.

Robert Reich

 By Robert Reich
Former U.S. Secretary of Labor, Professor at Berkeley

Washington’s relationship with Wall Street is growing more schizophrenic by the day. On the one hand, Congress is trying to show how tough it can be on the financial sector by enacting a law ostensibly designed to prevent another near-meltdown and taxpayer-supported bailout. As the midterm election looms, a staggering number of Americans remain unemployed or underemployed, and most Americans blame Wall Street (whose top bankers are raking in almost as much money as they did before the crisis). The lawsuit launched by the Securities and Exchange Commission against Goldman Sachs for alleged fraud only confirms the view held by many that the economic game is rigged.

On the other hand, both parties are going to Wall Street seeking campaign donations to fund critically important television advertising in the months ahead. After all, the Street is where the money is, and TV ads demand huge amounts of it. In recent years, the financial industry has become the second-biggest source of campaign contributions in America — just behind the health care industry.

Even as Congress debates legislation to tame it, Wall Street is conducting a bidding war between the parties for its continued beneficence. More than 60 per cent of the $34m given by the financial industry to fund the 2010 elections has so far gone to Democrats, but since January the Street has switched its allegiance to the Republican camp. In the first quarter of this year, Citigroup, Goldman, JPMorgan Chase and Morgan Stanley donated twice as much to Republicans as to Democrats.

It is hard to bite the hands that feed you, especially when you are competing for food. The finance reform bill emerging from Senate Democrats takes a hard line in many respects – requiring that most derivatives be traded on open exchanges where buyers can see what they are getting and sellers have adequate capital, establishing an agency to protect unwary consumers from predatory lending, and giving the government authority to wind down the activities of banks that get themselves into trouble. Democrats point to these and other features as evidence of their willingness to be strict with the Street, despite their dependence on its generosity.

But the American public has no independent means of judging how tough the bill really is. Most people do not understand the intricacies of finance, and still do not know exactly what Wall Street did to bring the economy to the brink. The dependence of both parties on the financial industry for political support inevitably feeds suspicions that the bill is not nearly tough enough. Why, for example, are so-called “customized” derivatives exempted from the exchanges? Does this not create a big loophole? Why does the bill not limit the size of banks so none can again become “too big to fail”? Why is the Glass-Steagall Act – which once separated commercial from investment banking – not being fully restored? Why does the bill not separate investment banking from the private banking and wealth management activities that got Goldman into trouble?

It does not help that in recent months both parties have held at least three-dozen fundraising events with Wall Street bankers and their lobbyists. Harry Reid, the Democratic Senate majority leader, has trekked to Wall Street cup in hand, while in February and March the National Republican Senatorial Campaign Committee invited financial industry executives to pony up $10,000 each for the chance to confer with Republican senators.

Tight connections between Washington and Wall Street are nothing new, of course, especially when it comes to Goldman. Hank Paulson ran the bank before becoming George W. Bush’s Treasury secretary. Robert Rubin followed the same trajectory under Bill Clinton, then returned to Wall Street to head Citigroup’s executive committee. Dick Gephardt, the former Democratic House leader, lobbies for Goldman. Some 250 former members of Congress are now lobbying on behalf of the financial industry. President Barack Obama himself received nearly $15m from Wall Street during his 2008 campaign, of which almost $1m came from Goldman employees and their families.

But politicians cannot continue to have it both ways. Given the Street’s excesses, Washington’s continued financial dependence on it is eroding trust in government. The distrust has already helped spawn the so-called “Tea Party movement” of disaffected Republicans. Many Democrats and Independents are no less cynical.

If Washington knew what was good for it and the nation, it would sever its financial connections with the Street. Better yet, it would enact legislation seeking to limit the impact of private and corporate money in politics. That goal is made more difficult to achieve by the grotesque recent Supreme Court decision (Citizens United vs. Federal Election Commission) holding that corporations, including financial firms, have the right to spend unlimited amounts on political campaigns. But there are ways around this, such as more generous public funding for candidates that choose not to take private contributions. Hopefully as well, the president will nominate Supreme Court justices who understand the importance of public trust in democratic institutions, and the difference between companies and people.

***

Cross-posted from Robert Reich’s Blog

***

Robert Reich served as the nation’s 22nd Secretary of Labor and now is a professor of public policy at the University of California at Berkeley. His latest book, “Supercapitalism,” is out in paperback. For copies of his articles, books, and public radio commentaries, go to www.robertreich.org. 

James Parks

By James Parks
AFL-CIO Senior Writer

A seventh United Steelworkers (USW) member has died after an April 2 explosion at a Tesoro refinery in Anacortes, Wash.

Matt Gumbel, 34, died Saturday after fighting for his life for three weeks. The other USW members killed in the blast were Lew Janz, 41; Matthew C. Bowen, 31; Darrin J. Hoines, 43; Daniel J. Aldridge, 50; Kathryn Powell, 29; and Donna Van Dreumel, 36.

Gumbel’s death, and that of another miner killed on Friday, comes just days before we commemorate Workers Memorial Day, which honors workers killed or injured on the job and also highlights the need for tough and effective workplace safety laws.

In a statement yesterday, U.S. Labor Secretary Hilda Solis said:

[E]ach day in this country, 14 workers lose their lives on the job. That is 14 workers too many. Later this week, we will mark Workers’ Memorial Day. Let us take the time to reflect on and honor the love and contributions of those we’ve lost and to re-focus our efforts on not only providing secure and rewarding jobs for every American worker, but safe ones as well.

According to the USW, Tesoro has a history of serious health and safety violations. The Associated Press reports that Washington State Department of Labor and Industries fined the company $85,700 last April for 17 serious safety and health violations, defined as those with potential to cause death or serious physical injury. The fine was lowered in a settlement with the company, which required Tesoro to correct hazards and hire a third-party consultant to do a safety audit.

Also, inspectors found 150 instances of deficiencies and said the company did not ensure safe work practices and failed to update safety information when changes were made to equipment.

USW President Leo Gerard is calling for stronger new workplace safety laws in light of explosions at the Tesoro refinery and the Massey Energy Co.’s Upper Big Branch Mine in West Virginia, where 29 coal miners were killed in an April 5 explosion. Both facilities had long and troubling records of safety violations.

Meanwhile, rescuers have called off the search for 11 missing oil rig workers following the April 21 explosion on an oil drilling rig some 50 miles off the Louisiana coast in the Gulf of Mexico.

***

Re-posted from the AFL-CIO Now Blog 

Dean Baker

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

Economists seem to specialize in bad logic, or so one might think based on the recent debate over breaking up the big banks. Former Treasury Secretary Larry Summers, who is currently President Obama’s top economic advisor, pointed out on the Lehrer News Hour on Friday that failures of small banks can present as much of a problem or more than the failure of a huge “too big to fail” institution (TBTF). He specifically noted the savings and loan crisis of the 80s.

This point is true. With bad regulation, the simultaneous collapse of many small banks can pose as much a threat to financial stability as the failure of even the largest bank. However, this fact has nothing to do with the opposite proposition – that TBTF banks pose special problems to the financial system.

The basic point is straightforward: by definition a TBTF bank will not be allowed to fail. The losses to its creditors are deemed too dangerous to the financial system and/or the economy as a whole.

This implies two things. First, because creditors know that the government will stand behind the debt of a TBTF in a crisis, they view its debt as less risky than the debt of other institutions. This means that the TBTF banks will be able to borrow at lower cost than other institutions. CEPR did a short paper last fall that suggested that the size of this TBTF subsidy to large banks could be as much as $34 billion a year.

The other implication is that TBTF banks will be able to take more risks than other banks. If other banks were perceived as engaging in risky ventures, creditors would shy away, thereby depriving them of the capital they need. However, because creditors know that the government will bail them out if a TBTF bank gets in trouble, they will keep the money flowing regardless of how risky the activities of the bank. This is a recipe for many more bailouts.

Paul Krugman and others have pointed out that effective regulation, like that exercised in Canada, can prevent TBTF banks from engaging in risky behavior. It can also, in principle, prevent these banks from profiting from the TBTF subsidy. But Canada is not the United States. We have to ask whether it is likely that our regulators will clamp down on activities that are very profitable for TBTF institutions, even if they pose great risks to the financial system.

Let’s imagine a hypothetical situation. Suppose that a regulator wants to clamp down on risky actions by the financial industry. Let’s call that regulator “Brooksley Born.” We’ll assume that she is head of the Commodities Futures Trading Commission. Let’s imagine that she wants to regulate the sale of credit default swaps and other derivative instruments.

Further, let’s assume that there are people in top positions at the Treasury, the Federal Reserve Board, and the Securities and Exchange Commission, all of whom have close contacts with the executives of the TBTF institutions. We’ll call those people “Robert Rubin”, “Larry Summers”, “Alan Greenspan” and “Arthur Levitt.” These powerful officials might try to prevent Brooksley Born from effectively regulating derivatives. They would probably question her understanding of modern finance, since very smart people at the TBTF institutions say that the current system for trading derivatives is just fine without additional regulation. They might also ridicule her proposed regulations of derivatives, which for purposes of our hypothetical scenario we can assume is not perfect. Since these powerful officials hold top positions in government, they would likely be able to prevent Brooksley Born from regulating derivatives.

Regulation in the real world looks like this hypothetical scenario. There are never unambiguous cases where risky actions are evident to all. Big banks pay smart people multi-million dollar salaries to explain why their actions are perfectly safe. These smart people can even make an $8 trillion housing bubble appear like a perfectly normal housing market.

If we want regulators who have a chance against the institutions they are regulating, we should not want institutions that are as large and politically powerful as Goldman Sachs, JP Morgan, Citigroup and the other TBTF institutions. Regulators can always make stupid mistakes and small banks acting collectively can also be a substantial force against effective regulation. But, given the power of the large banks at present, we are starting the game with a rigged deck. If it comes to placing a bet between a vigilant regulator pushing sound regulation and the TBTF banks pursuing profits, the smart money is with the banks.

***

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