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The reason members of the Super Committee didn’t reach an agreement is that Republican members insisted on damaging cuts to Social Security, Medicare, and Medicare — and they wouldn’t budge from their refusal to lower tax rates for the richest 1% of Americans.

If the so-called “Super Committee” had made a bi-partisan deal based on the announced negotiating positions of the Republicans and Democrats on that panel, the result would have been higher unemployment, serious damage to the social safety net — and worsening deficits.

Super Committee Democrats, concerned about being seen as blocking a deal, clearly offered Social Security and Medicare benefit cuts in return for a pitifully small increase in taxes and large and damaging spending cuts in the middle of a struggling economy.

The deal on the table — whose failure is much lamented by beltway pundits — would have seriously harmed the economy, without significantly reducing deficits. In fact, it might have made it worse.

Luckily, the progressive base — and the Democratic Caucus in the House and Senate — convinced those negotiators that a bad deal is worse than no deal.

Democrats should have been guided by the message of the September 6th press conference at which Super Committee appointee Rep. Chris Van Holland, standing with former Speaker Nancy Pelosi, declared “Job growth will contribute to deficit reduction,” according to the Washington Post coverage:

Van Hollen, who made the remarks at a news conference with House Minority Leader Nancy Pelosi (D-Calif.), Minority Whip Steny Hoyer (D-Md.) and other members of the Democratic leadership, argued that the most recent Congressional Budget Office report states that for every 1/10 of one percentage point increase in the U.S. gross domestic product, the deficit is reduced by $310 billion.
“Now, they project over the next 10 years that average GDP, average growth of the economy will be about 2.9 percent,” he said. “What those numbers tell you is that if you got that growth rate up by half of one percent, you would actually reduce the deficit by $1.5 trillion, which is the target laid out in the legislation before us.”

Clearly, this is what all progressives believe: the weak economy should not be allowed to fall backward into another recession — which could happen if we cut spending too fast or too deeply. And action to get the economy growing robustly would be the most effective thing we could do to bring down the Federal deficit. (more…)

If there was one message that united the various speeches that launched the Take Back the American Dream conference in Washington, it was perhaps summed up by former Labor Secretary Robert Reich, who gave a post-lunch talk that was as potent as a can of Red Bull.

What’s worse than the conservative penchant for the Big Lie, he said, is the right’s ability to make the public demoralized and cynical about the government that is supposed to be their instrument for change. “The worst thing is when people say that nothing can be done,” he said. “Then we know the other side has won.”

But, in fact, something can be done.

(more…)

The Wall Street Journal and other media are reporting definitively on the Obama deficit plan to be announced on Monday. The big news: the President will not propose raising the Medicare eligibility age. So the millions of older workers and unemployed people now desperately trying to hold on until they reach age 65 will not end up resenting Democrats for trying to make a difficult life even more difficult. And young people without pensions will enjoy a little more confidence that one party is on their side.

After today, the policy choice will be even clearer: Almost all Republicans voted for the Ryan plan to dismantle Medicare. And now Democrats can clearly say they will fight any attempt to cut Medicare benefits or raise the Medicare eligibility age.

Coming after the President’s $447 billion jobs plan, unveiled in his September 8 address to a joint session of Congress, many progressives were worried that the President in Monday’s speech on deficits would break his jobs momentum. We feared Obama would revert to the offers he made to Republicans in a futile effort to reach a “grand bargain” during negotiations over raising the debt ceiling. (more…)

By Dave Johnson
Fellow with Campaign for America’s Future

Conservatives sure do get silly when they talk about taxes. I don’t just mean the expressions they get on their faces, or how red their faces get, or the way their hair sticks straight up and their eyes get all big. And I don’t mean the way they shake and sweat or even the stuttering. I mean the silly things they actually say.

Of course we have all heard a few hundred variations of “taxes are theft,” “government collects taxes at gunpoint,” etc.

Then there is the Randian “if you tax me I won’t work” argument known as “going Galt.” It assumes everyone is a 5-year-old who throws a fit if you ask them to help out with the chores. Which baseball player, actor, surgeon, etc. do you know who just quits partway through the year — and is allowed back the next year?

They get especially silly and agitated when it comes to taxing the rich. (They know to dance with the ones that brung them.) There is the “the rich already pay most of the taxes” argument that ignores the Social Security, sales, property, vehicle, phone and all non-income taxes working people pay — not to mention the fact that the rich make most of the income! There is the old “rich people create jobs” argument that doesn’t understand about customers and demand. There’s the old “if you tax them they will just leave” argument that assumes the rich hate America, don’t love it and will leave it. (more…)

By Roger Hickey
Co-Director of the Campaign for America’s Future

The terrible shootings in Arizona should make us all get beyond the sound-bite wars. Will the media let us?

As soon as the story leaked that President Obama was about to appoint former aides to President Clinton, Bill Daley and Gene Sperling, to key positions (Chief of Staff and head of the National Economic Council, respectively), reporters from major media started calling me, seeking quotes to substantiate the story they were already writing: “Progressives Outraged, New Democrats Delighted.”

Now I know enough about Daley and Sperling that my initial instinct was to join other progressive colleagues in criticizing the appointments. Daley joined the Clinton Administration to help pass NAFTA, which has since devastated US manufacturing jobs and pissed off blue collar workers (and voters in the heartland in general) who should be solidly voting Democratic, but aren’t. And I remembered that, just as we began the successful fight against the Bush plan to privatize Social Security, Sperling was actively promoting his plan for private investment accounts which could have led to a Democratic version of privatization. Luckily, the movement ignored him back then, and virtually all Democratic lawmakers joined to stop the dangerous Bush plan for Social Security in its tracks. And, of course, recent news reports made it hard to ignore the strong connections both have with big Wall Street firms that helped engineer the deregulation of banking and the speculative orgy that followed, leading to the massive collapse of the economy. (more…)

 By Dave Johnson
Fellow with Campaign for America’s Future

The Social Security and Medicare Boards of Trustees today released their report on the Status of the Social Security and Medicare Programs. Here is what it says:

Social Security Just Fine Until At Least 2037

The summary of the report says, “The financial outlook for Social Security is little changed from last year. The short term outlook is worsened by a deeper recession than was projected last year, but the overall 75-year outlook is nevertheless somewhat improved…” and is otherwise fine until at least 2037 with no changes.

It is just fine forever, in fact, if we do something simple like raise the “cap” on earnings that are taxed to pay for the program. (That’s right, when you make more than a certain income level you stop paying the tax!) Compare that to the military budget. We spend more than $1 trillion on military and related programs each year — more than every other country combined — and unlike Social Security that is completely “unfunded,” and adds to the deficit. (more…)

Astonishingly, as Wall Street reform enters its final hours a tired, generic corporate refrain against regulation is gaining traction. As bigwig bankers and their lobbyist brethren fight to defeat tough new rules on derivatives—the crazy casino that brought down AIG—all their sloganeers can come up with is the trite wail that serious rules will send this risky business overseas. It’d be funny if members of Congress weren’t taking it seriously.

“Oh no—the business will go overseas!” is the last-ditch, we’re-about-to-lose-this-one cry of despair for corporate executives in every industry. Crack down on a profitable abuse in the United States, and the entire business will move to London or Mumbai, sending jobs and tax revenue abroad– or so the argument goes. You only hear this line when CEOs know they have no case, and have to divert attention away from the real substance of the policy debate. In the case of Wall Street abuses, this nonsense is especially ridiculous. The bank lobby really just doesn’t have any good arguments to launch in its favor, so it’s falling back on generic corporate jargon.

In reality, the U.S. has extremely broad authority to crack down on derivatives activity abroad, we just don’t have a whole lot of good rules on derivatives for regulators to enforce. It’s extremely difficult for financial institutions to simply offshore their risky derivatives business to avoid oversight. Under current law, the Commodity Futures Trading Commission has the authority to regulate any trading done by foreign firms on behalf of U.S. clients, any trading of U.S. assets conducted by foreign institutions and any trading that causes a “substantial disruption” in U.S. markets. Just about anything the CFTC wants to get its hands on, it can, and the current CFTC Chairman, Gary Gensler, is a committed reformer. We just need to write good rules for his agency to enforce.

Moreover, finance tricksters will have no incentive to move their destructive derivatives trading abroad, because the rules in other countries are, in fact, much tougher than those the U.S. is currently considering.

There are a lot of ways to crack down on Wall Street, but none of them will work without reining in the insane, secretive market for derivatives—speculative instruments that allow financiers to gamble on anything from subprime mortgages to the price of corn. Right now Wall Street is making a big push to roll-out new derivatives on movie box-office receipts, allowing the financial world to place raw bets on how much money a movie is going to make. It sounds crazy and destructive, and it is.

Germany is leading the way on derivatives reform by simply banning this kind of naked gambling outright. The U.S. effort is critically important, but much more modest. Instead of banning the casino, reformers in Congress are hoping to shrink it by ending the taxpayer subsidies that fuel it. This is at the heart of the proposal from Sen. Blanche Lincoln, D-Ark., that has earned so much ire from the bank lobby. Bankers love their taxpayer subsidies, and love converting them into bonuses—who wouldn’t? The trouble is that this business is inherently risky, and can jeopardize the entire economy, as the collapse of AIG attests.

But ending subsidies is still not as strong as banning gambling, which Germany is doing. The entire European Union is currently making a move to follow Germany’s lead. Businesses can’t exit U.S. markets to skirt regulations if their Wild West trading schemes are outlawed everywhere else.

In the U.K., officials are poised to impose a hefty tax on all financial assets, prevent banks from ballooning their balance sheets with derivatives trades. That means, U.S. banks can’t send their derivatives operations to the U.K. without paying a big price.

Outside of Europe, few nations have the financial infrastructure to support derivatives trading on the scale of what we currently have in the U.S., where $300 trillion in trades are housed at just five banks. Some Asian nations do have this kind of infrastructure, big financial firms in Asia all realize that they will have to comply with U.S. rules if they want to keep doing business in the U.S. And indeed, policymakers in Hong Kong and other financial centers are looking to the U.S. for leadership on derivatives, and are likely to mimic whatever reforms are adopted here.

But more broadly, we have to ask why the U.S. should be worried about this activity being offshored at all. Raw gambling by financial institutions brought on one of the greatest economic catastrophes in American history. It forced the government to pony up over $4 trillion in bailout funds, expanded the national debt by 40 percent, and killed over 8 million jobs. If this business goes overseas, so be it! Let other nations bailout their megabanks and wreck their own economies if they want to. Today’s derivatives casino is a job-killing nightmare that produces nothing other than megabonuses for bankers. Taxpayers have no business subsidizing such economic destruction.

Compared to international efforts, Blanche Lincoln’s derivatives bill is overpoweringly mild, but it remains the only serious attempt to rein in the speculative casino that crashed our economy. The fact that the bank lobby’s only tactic left is the wail “offshore!” shows how desperate our bank executives have become. Congress has no business caving to such nonsense at this stage of the reform process.

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This piece is re-posted from the Campaign for America’s Future blog, OurFuture.

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Zach Carter also is a Fellow a Campaign for America’s Future. His work has appeared in The Nation, Mother Jones, The American Prospect and Salon.

By Isaiah J. Poole
Executive editor of the blog site OurFuture.org

Oh, the irony. As Defense Secretary Robert Gates was on Capitol Hill today telling a Senate appropriations subcommittee that Congress has to approve a $33 billion supplemental war funding request by July 4 or else “we begin to have to do stupid things,” the Senate did an incredibly stupid thing itself: By a vote of 45 to 52, it blocked a spending and tax measure that if enacted would prevent the loss of hundreds of thousands of jobs nationwide and would begin to close a particularly egregious tax loophole.

Once again, a majority of the Senate has placed trying to use whipped-up fear of growing deficits to protect their own jobs over aggressive action to create and protect jobs for the American people.

HR 4213, the American Jobs and Closing Tax Loopholes Act of 2010, was the victim today of yet another conservative filibuster. But this time, several Democrats joined the typically unbroken wall of Republican opposition. Those Democrats were Sens. Evan Bayh, Ind.; Mark Begich, Ark.; Russ Feingold, Wis.; Herb Kohl, Wis.; Mary Landrieu, La.; Claire McCaskill. Mo.; Robert Menendez, N.J.; Bill Nelson, Fla.; Ben Nelson, Neb.; Mark Pryor, Ark., and Jim Webb, Va. Independent Sen. Joe Lieberman, Conn., also voted to block the bill. Sens. Robert Byrd, W.Va.; and Blanche Lincoln, Ark., did not vote.

Just a taste of what was at stake in this bill was explained by Pennsylvania Gov. Ed Rendell earlier today. The bill included funding to offset state spending for Medicaid, and without that money “we will have to lay off 20,000 people. These would be teachers, state workers, fireman, policemen and caseworkers,” Rendell was quoted by CQ as saying.

In fact, according to the Center for Budget and Policy Priorities, about 900,000 jobs are likely to be lost in the next 12 months without federal aid that would help states keep these workers. And how stupid would it be to allow that to happen, in the name of deficit reduction?

Critics say that the measure would add $80 billion to the federal deficit. But what do we lose when 900,000 people who are teaching our children, protecting our lives and property, maintaining our public spaces and serving us in innumerable other ways are unemployed?

Here’s one way to think of the loss. On Sunday The Washington Post profiled Angie Walker, a D.C. resident living in view of the Capitol building in the city’s Ward 8. She has a 19-year-old daughter and a 2-year-old grandson. In her neighborhood, the Post reports, “unemployment, estimated at 25 percent, approaches 40 percent when counting the underemployed and those who have given up looking.” Her experience as a cook means that she can get some jobs, “but they’re almost always part time, low paying and temporary.”

What are we saying to Walker and her children when White House officials threaten to do “stupid things” if their defense spending proposals aren’t rubber-stamped by Congress but there are no comparable rumbles of thunder when Congress won’t act on a measure essential to the nation’s economic security?

Angie Walker is like a lot of us. She’s made a couple of wrong turns in her life but she’s now trying to do what those Senate deficit hawks say she’s supposed to do: apply for work and then apply herself when she gets that work. But playing by those rules doesn’t work when Congress won’t make the basic policy decisions that are necessary to get a broken economy to work. We can’t afford to send that message to Walker and her children. And if the economy is not working for Angie Walker and the thousands of other struggling Ward 8 residents, it’s not working, period.

It is time to tell the Senate that it is being stupid. The Senate must pass legislation that will aid the jobless and prevent a massive wave of layoffs.

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This post originally appeared on the  Campaign for America’s Future (CAF) Blog for OurFuture.  Sign up here for the CAF daily summary.

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Isaiah J. Poole worked for 25 years in mainstream media, most recently at Congressional Quarterly. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. He is a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.

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

Were the big banks all knowingly running Ponzi schemes? That’s the question that arises from the stunning hearings held this week by the Senate Permanent Committee on Investigations, chaired by Senator Carl Levin, on the collapse of Washington Mutual, the largest thrift failure in the U.S.

Faced with looking like fools or knaves, the barons of the big banks— from Robert Rubin to Lloyd Blankfein to WaMu’s Kerry Killinger—have chosen, not surprisingly, the fool. But the WaMu hearings—and Zach Carter’s stunning running commentary on them—suggest that while Bernie Madoff may have been the extreme, he wasn’t the exception. (Note: Carter blogs for the Campaign for America’s Future, which I co-direct.)

The Levin hearings show that WaMu systematically peddled loans to people it knew could not pay them back. This wasn’t an accident. Levin exposed a WaMu internal audit that reviewed 132 loans, and found 115 involved confirmed fraud, with 80 having “unreasonable” income—meaning the income listed on the loan was so preposterous that any reasonable person, much less a trained loan officer, would have called it into question. The audit resulted in no—zero, nada—changes in WaMu’s lending practices. Fraud wasn’t a problem; it was the business plan.

As Carter summarizes:

According to the FBI, 80% of mortgage fraud is committed by the lender. We’re not talking about stupid loan officers allowing borrowers to get away with something crazy that is bad for the bank. We’re talking about clever loan officers pushing fraudulent documents in order to score bigger paychecks, and bank executives looking the other way so that they can keep getting big paychecks from the securitization machine. This isn’t a problem unique to WaMu. This is how the U.S. mortgage system operated for half a decade.

WaMu particularly pushed predatory option-ARM loans, loans with an initial monthly payment so low that it often didn’t even pay off the interest on the loan. Then after a couple of years, the monthly payment explodes—and the loan becomes unaffordable.

WaMu actively trained its personnel to convince skeptical borrowers to take these loans because option ARMS received a very high yield when packaged into securities. So WaMu’s compensation schemes rewarded loan officers for the number of loans sold, not the quality of the loans. Stunningly, Levin cited internal memos showing that even loan officers under investigation for fraud were rewarded with trips to Hawaii and the Bahamas for their high production.

WaMu packaged the fraudulent loans into securities and sold them to investors, or peddled the loans to investment banks that did the same. Even after WaMu’s own internal audits reported that a high percentage of the loans were fraudulent, WaMu still sold them to investors. Worse, even after WaMu’s own study showed that the default rates on option ARMS were going to be staggering, WaMu rushed to peddle even more of these loans to investors on an “urgent” basis. As Carter reports, “They not only packaged existing option-ARM loans into securities, they issued as many new option ARMs as possible, in order to score securitization profits before the market collapsed.” CEO Kerry Killinger testifies that he doesn’t know if it would have been appropriate to tell investors what the company knew about default rates. “I don’t know what actually happened,” says Killinger.

As Carter summarizes, this was essentially a Ponzi scheme, similar to Madoff’s:

Making truckloads of fraudulent loans can only end in disaster, but WaMu [executives weren't] really interested in the long-term picture. They were only interested in their ability to book these loans for big, short-term profits. Even when those bad loans finally took the company under, it had been, in a sense, a success. Its executives had already made millions.

WaMu’s [executives were] in many ways operating a simple Ponzi scheme. Their risky loans were going bad, but the company was trying to counter those inevitable losses with the short-term profits from issuing more risky loans. That’s basically how Bernie Madoff’s scam worked, except he wasn’t using make-believe loan profits, he was using make believe stock returns. So long as the bubble keeps growing, the scam could keep moving. But when the bubble burst, there was no way to keep issuing lots of loans in an economy where home prices were plunging.

The one divergence from the Ponzi scheme is securitization — if WaMu could dump the bad loans off its books, then it wouldn’t have to eat the inevitable losses. But that doesn’t reflect well on WaMu– it means [the executives] were deceiving and abusing investors.

Why run this scheme that would lead to the ruin of the bank? Because the executives were making out like, well, like bandits. Killinger, the CEO of WaMu, was taking home $11 million to $20 million a year during the housing boom.

As Carter points out, what WaMu was doing in mortgages—originating mortgages that they knew would default, cutting them up into securities, and marketing them to investors without notice—isn’t much different than what Goldman Sachs was doing in synthetic subprime CDOs: creating securities that it knew would fail in order to bet against them, while selling them to investors without notice.

These guys weren’t fools. They knew what they were doing. They knew that the music would stop some day, and the reckoning would come, or more likely, the Feds would step in and bail them out. (Amazingly, Killinger is still outraged that WaMu wasn’t bailed out rather than put out of business.) But they kept dancing because they were cleaning up along the way.

In the last two weeks, the Financial Crisis Inquiry Commission and the Levin hearings provide a stunning picture of the industry. The good cop, FCIC, treats the bankers as experts, listens to their opinions, and lets them claim the role of fools. “We didn’t know.” “We didn’t realize housing prices wouldn’t always go up”. “We weren’t responsible.”

Then yesterday, the bad cop—the Levin committee—exposed the inner working of what former bank regulator William K. Black calls “control fraud,” a business model based upon fraud as central to its profitable operations. It is hard to believe that WaMu or Madoff is an exception. Levin should probe every major bank engaged in the securitization of mortgages.

Is it likely that their bank officers were fools? Or that they were prepared to turn their heads or hold their noses because the rewards were so great? Ignorance is their defense, not their condition. They knew what they were doing. The rest is for a prosecutor to sort out.

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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.

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This piece is re-posted from the blog site of Campaign for America’s Future – Blog for America’s Future.

 By Dave Johnson
Fellow with Campaign for America’s Future

What will it mean to American businesses if – I should say when – Chinese imports cost as much as they should cost?

A currency and trade rebalancing is going to happen sooner or later because it has to. We can’t run a trade deficit forever. If something is unsustainable it can’t be sustained. Eventually we have to earn the money to pay off what we are borrowing and the only way to do that is with exports. The first step to that is to stop importing so much and at least make things to sell to ourselves.

This rebalancing could happen because China lets its currency approach market levels. Or, if China refuses to stop unfairly subsidizing their exports (their currency manipulation is just one piece of that) our government will have to impose tariffs on imports from China. There are other things that could change the current trade imbalance. The only thing that is for sure is that the current situation can’t just continue. We can’t just keep sending factories, supply chains, jobs, and dollars away. It’s a bubble that has to pop. And it will. American business should be planning for this approaching new era of American manufacturing.

Once the Chinese import bubble pops new phrases will enter the lexicon, so start getting used to them. “Re-shoring,” “on-shoring” and “insourcing” will replace “offshoring” and “outsourcing.”

A week ago I wrote about a CNBC segment on this,

For many years we’ve been hearing about outsourcing and offshoring. President Obama has started taking steps to rebalance world trade and the pendulum is about to start swinging the other way. More and more often you’ll be hearing new words: “insourcing,” “on-shoring” and “re-shoring.”

Watch this CNBC segment from Friday, Made in America Making a Comeback.

American businesses — are you ready? It’s coming.

P.S. Here’s a stock tip: machine tools.

Update and P.S. –

Re-Shore at the NTMA/PMA Contract Manufacturing Purchasing Fair

Help bring manufacturing back to the U.S.!
At last somebody is doing something: the May 12, 2010 NTMA/PMA Purchasing Fair focuses on re-shoring. The dollar  is down vs. many currencies. JIT and R&D are best supported, and carbon footprint minimized, by local sourcing. The time is right for this effort to succeed.
Customers bring your off-shored work! Vendors bring your best technical ideas and sharp pencils! Learn More

Click through!

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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..

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

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