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U.S. Senate Candidate and financial expert Elizabeth Warren explores the consequences of America’s changing investment priorities and where the money goes.

CNN’s Lisa Sylvester follows two Maryland Alliance for Retired Americans retirees who are walking the beat on Capitol Hill to protect Social Security and take on big business lobbyists.

Jim Hightower

By Jim Hightower
Author, radio commentator, America’s number one populist

They came they saw, they conquered. This line pretty well sums up a little-reported but important story about the new tea partiers in the U.S. House of Representatives.

No sooner had they arrived than the corporate lobbying corps came to visit, saw what these supposed rebels were made of, and quickly conquered them without a fight. The forces of big business needed only to lay out some campaign cash – and quicker than you can say “Business as usual,” the budding lawmakers snatched up the money and immediately began carrying the lobbyists’ corporate agenda.

Check out the financial services subcommittee, which handles legislation affecting Wall Street bankers. Five tea partiers got coveted slots on this panel, and all five were suddenly showered with big donations from such financial lobbying interests as Goldman Sachs. Now, all five are sponsoring bills to undo parts of the recent reforms to reign-in Wall Street excesses. Steve Stivers of Ohio, for example, hauled in nearly $100,000 in just his first two months in office – 85 percent of it from the special interests his committee oversees. He insists that the cash he took from Goldman Sachs and others has nothing to do with his subsequent support of bills that Goldman is lobbying so strongly for. Stivers claims that his sole legislative focus is on jobs for Ohio’s 15th district. (more…)

Leo W. Gerard

By Leo W. Gerard
USW International President

The nation’s greedy corporations and insatiable wealthy are fattening themselves on workers. There’s no trickle down. It’s the opposite; the rich have been sucking the economic lifeblood from the middle class for decades.

When reckless Wall Street banksters get taxpayer-funded bailouts, billionaires get tax breaks and gigantic corporations like GE and Bank of America pay absolutely no federal income taxes, they’re getting for free the very public services that enable them to make massive profits in this country – the courts, the roads, the trade regulators, the patent enforcement.

The middle class doesn’t get those big time special deals and loopholes. Workers pay their taxes. As a result, it’s workers footing the bill for the government services that enrich the rich. Greedy corporations, their CEOs and the right-wing politicians they buy with tens of millions in campaign cash are freeloaders.

It’s time workers stood up to the freeloaders. Join Monday’s We Are One rallies. These demonstrations across the country by religious groups, social justice organizations and labor unions will illustrate that the middle class is mad as hell and not going to take trickster economics anymore.

It’s time for greedy corporations and the insatiable rich to pay their fair share. It’s time to stop cuts to the government programs most treasured by and vital to the middle class and the vulnerable in this country – education, public transportation, Social Security. It’s time to stop right-wing attempts to terminate democratic rights like collective bargaining and voting without harassment. It’s time for the middle class to stop paying for everything and for the insatiable rich and greedy corporations to start sharing the sacrifice required to recover from the economic crisis caused by reckless gambling by Wall Street bankster corporations.

March for your rights Monday. March for the middle class facing record rates of foreclosure, unemployment, child poverty, and loss of opportunity as country club conservatives cut off college loans and Head Start.  March for the right of college students to register and vote in the towns where they study. March for the right of workers to band together, elect representatives and bargain with employers for better pay and working conditions. March for the right of the people to insist that corporations pay at least the same rate of taxes as workers do. March to end tax breaks for the wealthiest one percent who have now acquired more wealth than all the workers in the bottom 90 percent.

Greedy corporations, the insatiable wealthy and their purchased politicians have for three decades skewed public policy to enrich themselves while pushing down wages and benefits for the middle class.

From 1947 to 1975, a time of strong unionization in the workforce, real wages of average workers increased with productivity. The 75 percent rise in productivity and the nearly matching rise in wages gave the United States the largest, most vibrant middle class in the history of the world.

Since 1978, productivity grew 86 percent, but compensation for workers grew only 37 percent, and if the cost of benefits, mostly uncontrolled health insurance increases, is removed, the real average  hourly wage did not rise for 35 years, according to Alan S. Blinder, professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve.

Here’s how it works: The nation’s largest corporation, General Electric, earns tens of billions in profits from the labor of its workers but refuses to share the benefits with them. GE is expected to demand that its 15,000 unionized U.S. workers accept benefit cuts. So they’ll pay more for their retirement and health care and have less money to live and to pay taxes.

Meanwhile, the share of national income captured by the richest one percent rose from 8 percent in 1975 to 23.5 percent in 2005.

Under Dwight D. Eisenhower, the president in the 1950s, the nation’s richest paid an effective tax rate of 70 percent after loopholes. Today, it’s 16 percent – significantly lower than the 25 percent forked over through payroll deductions by individual workers earning between $34,500 and $83,600 a year.

That resulted from deliberate policy changes. Beginning with Ronald Reagan, country club conservatives cut taxes for the wealthy, while at the same time ending routine minimum wage increases and undermining the bargaining rights of labor.

The changes were made by increasingly wealthy politicians increasingly influenced by lobbyists. For example, 60 percent of the freshmen in the U.S. Senate and 40 percent in the U.S. House are millionaires. By contrast, only 1 percent of Americans are worth more than $1 million.

Compounding that is corporate influence, which worsened last year when the U.S. Supreme Court enabled corporations to donate unlimited money in secret. The upshot is corporations like General Electric, spending millions to lobby and paying zero in federal income taxes. GE spent $200 million to lobby for loopholes in the federal income tax code over the past decade, made $26 billion in American profits over the past five years, and not only paid absolutely no federal income taxes, but got itself a $4.1 billion rebate from the IRS.

That is far from an anomaly. Two out of every three U.S. corporations paid no federal income taxes from 1998 through 2005, according to a report by the Government Accountability Office. And the situation hasn’t improved since then. U.S. Sen. Bernie Sanders has written repeatedly about tax avoidance by the likes of Bank of America and Goldman Sachs, Wall Street banks that former President George W. Bush handed hundreds of billions in bail out dollars.

Bank of America got a $1.9 billion tax refund from the IRS last year, even though it made $4.4 billion. Goldman paid only 1.1 percent in federal income taxes on its $2.3 billion in profits. New York Times reporter David Kocieniewski wrote in his story about GE that such tax dodging by corporations has resulted in a significant decline in federal revenue from corporations –  from 30 percent in the 1950s to 6.6 percent in 2009.

Tax avoidance is a virtuous cycle for greedy corporations and the wealthy. They pay less in taxes, then have more money to lobby politicians to lower their taxes. In fact, it’s gotten so bad that lawmakers are hiring lobbyists right from their K Street firms to write legislation. And Congress’ new right wingers are increasing this trend. Since they took office in January, nearly half of the 150 former lobbyists working in top policy jobs in Congress were hired.

For workers, however, it’s a vicious cycle. They’re forced to pay the taxes shirked by greedy corporations and the insatiable wealthy. And they’re forced to suffer service cut backs.

Right now, right wingers are trying to cut $51.5 billion from the federal budget – demanding elimination of programs essential to the middle class and poor such as subsidies for home heating for the impoverished. But if the wealthy paid their share, say hedge fund manager John Paulson who earned $2.4 million an hour in 2010 – then those cuts would be unnecessary because the federal government would have an extra $69.5 billion in revenue.

Forty-three years ago on April 4 Martin Luther King was assassinated after standing up for the right of public sector workers in Memphis, Tenn. to negotiate for better lives.

In his last speech, Rev. King said God had allowed him to go to the mountaintop where he’d looked over and seen the Promised Land. “I may not get there with you,” he cautioned, “But I want you to know tonight, that we, as a people will get to the Promised Land.”

Greedy corporations and the wealthy have made it to the mountain top. And they’re shoving American workers down the hillside to ensure the Promised Land is reserved only for the richest.

The promise of America democracy is equality. Equal rights, equal treatment under the law, equal opportunity. Freeloading by greedy corporations and the insatiable wealthy is denying those promises to the vast majority of citizens. Americans must unify and march to wrest back those rights and secure the American Dream for all.

Take a first step. Join one of the 600 We Are One demonstrations on April 4.

***

Leo W. Gerard also is a member of the AFL-CIO Executive Committee and chairs the labor federation’s Public Policy Committee. President Barack Obama recently appointed him to the President’s Advisory Committee on Trade Policy and Negotiations. He serves as co-chairman of the BlueGreen Alliance and on the boards of the Apollo Alliance, Campaign for America’s Future and the Economic Policy Institute.  He is a member of the IMF and ICEM global labor federations and was instrumental in creating Workers Uniting, the first global union.

Jim Hightower

By Jim Hightower
Author, radio commentator, America’s number one populist

Let’s play a game called “Washington Budget Whackers Go Wacky!”

Unfortunately, though, it’s not a game. Ax-wielding Republicans and Democrats alike are madly whacking at our nation’s public programs in a political contest to show which of them is the scroogiest of all. For example, both are going after the very useful program that helps low-income Americans pay the ever-rising cost of heating their homes in the dead of winter. This budget cut will literally cut off the heat to some of the most vulnerable people in our society – but, hey, say Congress critters (whose workplace is always kept toasty at taxpayers’ expense), everyone must sacrifice.

Well… not really everyone. Washington’s ferocious ax wielders are sparing assorted corporate subsidies. Take the Market Access Program – please! It hands $200 million a year to such huge processors and exporters of agricultural commodities as Sunkist and Welch’s so they can advertise their products abroad. Hello – these “free enterprise” giants have plenty of money to do their own ads.

Even wackier, this subsidy often is frittered away on nonsense. Last year the Cotton Council used a big chunk of its $20 million handout from Uncle Sam to promote U.S. cotton sales in India. India? That country produces twice as much cotton as we do and is a major exporter of the stuff, so it has no interest in buying ours. (more…)

Robert Reich

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

This, from the Washington Post‘s conservative pundit George Will:

Total spending by parties, campaigns and issue-advocacy groups concerning every office from county clerks to U.S. senators may reach a record $4.2 billion in this two-year cycle. That is about what Americans spend in one year on yogurt, but less than they spend on candy in two Halloween seasons. Proctor & Gamble spent $8.6 billion on advertising in its last fiscal year.
Those who are determined to reduce the quantity of political speech to what they consider the proper amount are the sort of people who know exactly how much water should come through our shower heads — no more than 2.5 gallons per minute, as stipulated by a 1992 law. Is it, however, worrisome that Americans spend on political advocacy — determining who should make and administer the laws — much less than they spend on potato chips, $7.1 billion a year?

In a word, Mr. Will, yes. (more…)

Don McNay

By Don McNay
Award winning financial columnist and structured settlement guru 

“I don’t give a damn about my bad reputation.”
-Joan Jett 

In my childhood, Northern Kentucky was a hot spot for organized crime. In a town full of hustlers, prostitutes and gamblers, the profession they looked down on was loan sharking.

Loan sharks preyed on the poor and most desperate. The sharks charged high rates of interest for short term loans. The practice was illegal and, often, dangerous.

It wasn’t unusual for a loan shark to wind up floating in the Ohio River. One of the biggest names in the business, Frank “Screw” Andrews, (who is a central character in Hank Messick’s book, Syndicate Wife) “accidentally fell” out of a 4th floor window.

If Screw was in business today, he would be a captain of industry. Loan sharking is now legalized. Today, we call the loan sharks “payday lenders.”

The stock of payday lenders is traded on the New York Stock Exchange and NASDAQ. Many payday lending companies do business with Wall Street’s biggest banks.

As Gary Rivlan notes in his book, Broke USA, “the working poor have become big business.”

Rivlan’s book is a must read. It’s a riveting piece of work by a first-rate writer.

As far as flow and writing style, it reminds of Joe Nocera’s 1994 classic history of personal finance in America, A Piece of the Action.

A good idea would be to read Rivlan’s book immediately after reading Nocera’s book.

A Piece of the Action shows how we went from a nation without credit cards to where they are so important in many people’s lives. Broke USA shows how the decades of easy credit and loose regulation has created a new business category called the “Poverty Industry.”

You wouldn’t think that poor people would be a growth market, but businesses make big money off people who live paycheck to paycheck.

Rivlan’s book had a personal connection for me. Much of his narrative takes place in Dayton, Ohio, a city I know well. Don Donoher, the longtime basketball coach at the University of Dayton, was best man in my parents’ wedding and I am named for him.

Frank “Screw” Andrews “fell” out of the window in 1973. He never dreamed that nearly 40 years later, his business would be operating legally in almost every city in the country.

Screw knew how to bribe local officials with cash payments. He didn’t live to the see such bribery legalized in the form of lobbying and political fundraising.

Broke USA makes it clear that the public and those in the media don’t care for payday lenders much.

It also makes it clear how many friends the Poverty Industry has made by paying big dollars to lobbyists and giving huge contributions to lawmakers.

They are also funded by Wall Street.            

Until I read Broke USA, I didn’t realize what a big hand the “too big to fail” banks have in creating the Poverty Industry.

Citigroup, JP Morgan Chase and Bank of America are just some of the big banks that make huge profits, directly or indirectly, from the Poverty Industry.

They have another common bond. They received bailout money from the American taxpayers in 2008.

They are directly or indirectly in the Poverty Industry. Since we bailed them out, that makes us directly or indirectly in the Poverty Industry, too.

Rivlan’s book paints a depressing picture of America.

Entrepreneurs who want to be rich and don’t care how they do it are matched with people who don’t handle money well.

The people peddling poverty products have figured out the there is a strain of Americans who are the financial equivalent of drug addicts. They will pay any price, fee, or interest rate as long as they can get an immediate fix. They don’t care about tomorrow. They just want money today.

Just like a heroin addict, a financial junkie will usually die before the addiction runs out.

The uplifting side of Rivlan’s book is that a great deal of it is devoted to reformers.

He writes extensively about people like Martin Eakes of North Carolina, who has developed a poverty financing model at reasonable interest rates, and to Bill Faith, an Ohio activist who got that state to pass a restrictive cap on payday lenders’ interest rates.

Those who want to fight the Poverty Industry can look at what Eakes and Faith have done and follow their road map.

It’s not an easy battle. The Poverty Industry has tons of lobbyists, lawyers, legislatures and “too big to fail” financial institutions backing them up.

Poor people don’t have well-paid lobbyists. But as Rivlan’s book makes clear, focused and committed lobbyists can make up the difference.

Congress is putting the finishing touches on financial reform legislation and the “too big to fail” banks are fighting tool and nail to prevent a separate consumer protection agency, like the one Elizabeth Warren has been pushing, from seeing the light of day.

If Broke USA did anything, it convinced me why a separate agency is needed.

Without regulation, there are people and businesses who will find new ways to make money off poor people and don’t give a damn about their bad reputations.

***

Don McNay is the author of two books, the most recent being “Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery.” McNay also is an award-winning financial columnist and contributor to The Huffington Post, where this piece was first published. His web site is www.donmcnay.com . McNay earned master’s degrees from Vanderbilt and American College and was inducted into the Eastern Kentucky University Hall of Distinguished Alumni. He is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field, CLU, ChFC, MSFS, and CSSC.

I can’t tell what’s more outrageous and disgusting: The fact that lobbyists have been permitted to serve on the federal advisory boards that oversee policies affecting their clients, the fact that that has been occurring with almost no Establishment outcry for years, or the fact that lobbyists have the sheer audacity to publicly scream at the Obama administration for trying to end this form of institutionalized corruption.

That latter point is, of course, the good news announced on the White House’s website on September 23rd:

We wanted to take this opportunity to announce the next step in the President’s efforts to reduce the influence of special interests in Washington. The White House has informed executive agencies and departments that it is our aspiration that federally-registered lobbyists not be appointed to agency advisory boards and commissions. These appointees to boards and commissions, which are made by agencies and not the President, advise the federal government on a variety of policy areas.

The administration had previously been criticized – rightly, IMHO – for issuing a series of waivers on its much-touted lobbyist/ethics reforms. So this move is a welcome change in direction that suggests the White House is getting (at least a tiny a bit) more serious about rooting out some of the worst corruption in the government.

Then again, the reaction on K Street to even this minimal clean-government step shows just how institutionalized that corruption is. Though, as OMB Watch notes, there will still be many ways for corporate interests to get around this latest directive, those interests are nonetheless going crazy.

Over here and here you have corporate trade associations freaking out. Over there you have the American League of Lobbyists screaming bloody murder. And at U.S. Trade Representative Ron Kirk’s press conference last week, he was barraged with questions about how he could dare try to remove lobbyists from the major federal advisory boards that have shaped our destructive “free” trade policies.

Kirk answered the question judiciously, saying that while “There is a role for representatives and lobbyists in the development of the policymaking process, the president felt that that role in Washington had been enlarged to perhaps an unhealthy degree.”

That’s an understatement, if there ever was one. On trade policy alone, CongressDaily estimates that of the 700 representatives serving on government advisory panels, about one third are registered lobbyists.

To be sure, some might say that hey, it’s not a big deal for lobbyists to serve on advisory panels, because those panels are only “advisory.” But that label is deliberately deceptive.

These panels issue very influential reports and edicts with the stamp, seal and credibility of the federal government. These are documents that begin the long process of policy formation and that, for example, congresspeople hold up in floor debates as proof that they are doing the right thing. And so the reason why corporate lobbyists are going crazy about being barred from these advisory panels is because they know that those panels – despite their “advisory” billing – are extremely powerful in corrupting policy at its very origin. Remove the lobbyists from these positions, and you begin removing the spores that ultimately germinate into stuff like NAFTA, the Medicare prescription drug giveaway, corporate tax loopholes, etc.

To that end, I expect this story isn’t over by a long shot. The anger about this modest proposal is so intense on K Street, you may see the administration back off. I sure hope not – and I give the White House a lot of credit for moving forward knowing full well this would be the reaction.

But that gets back to the original point of this post: just how deeply rooted corruption really is in Washington. It has become such a part of Beltway culture that lobbyists now feel fully entitled to be able to corrupt public policy with the seal of the government – they expect it so much, in fact, that they spaz out whenever anyone tries to stop it.

***

David Sirota is the bestselling author of the books “Hostile Takeover” (2006) and “The Uprising” (2008). Find his blog at OpenLeft.com or e-mail him at ds@davidsirota.com

Robert Borosage

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

Glenn Beck has captured national attention with his caustic poison. The aging right-wing troubadours — Rush Limbaugh and Bill O’Reilly — still rouse the wingnuts and enforce discipline among Republican legislators. They’ve peddled the fantasies about ACORN and the all-powerful poverty lobby, and launched a search-and-destroy hunt for targets of opportunity in the Obama administration. Progressives have sensibly organized to question Beck’s advertisers, and even the president has called him out.

But it is worth remembering — Glenn Beck is not blocking the passage of a good health care bill. The old and new carny acts of the right aren’t undermining the energy legislation or frustrating financial reform. To focus on who and what is standing in the way — follow the money.

On health care, the lockstep opposition of Republicans in Congress is deplorable, but Republicans don’t have the votes to block progress. The president is forced to negotiate with Democrats who have 60 votes in the Senate and a large majority in the House and could pass a good bill tomorrow if they unified.

The angry tea bag activists shouting slogans in town meetings in August provided drama, but the true opposition is writing checks, not waiving signs. They are wearing pin stripes, not jeans and t-shirts. They represent wealthy insurance company CEOs, not angry workers or small business owners.

The Washington media likes to paint the divisions as ideological. Republicans and Blue Dog Democrats are said to be opposed to “big government,” cautious about spending, more concerned about deficits, reflecting more conservative districts and voters. Sure, there are ideological differences between the parties. And legislators do cater to the major interests in their districts. And no doubt, the Democratic Party is a big tent, with a broad range of political opinion.

But the president didn’t cut a deal with Big Pharma to sustain the ban that prohibits Medicare from negotiating lower prices on drugs because of ideology or a policy debate. He did it to neutralize one of the powerful lobbies standing in the way of reform. The deals with utilities and coal companies in the energy bill aren’t about ideology; they are about special interests and political clout. Republicans don’t mind government spending when pouring hundreds of millions into subsidizing insurance companies to compete with Medicare. Blue Dogs aren’t worried about costs when they oppose a public option that would help keep insurance companies honest.

The re-born McCarthy like conspiratorial fantasies of Glenn Beck should not go unanswered. His effort to discredit the administration by searching for appointees to target should be resisted and scorned.

But everyone should be clear. The president has called on the Congress to act on fundamental reforms that cannot be avoided. Our broken health care system is unaffordable and must be fixed. Moving to new energy is a national security, economic and environmental imperative, not a choice. Fundamental financial reform is necessary if we are to avoid a worse crisis in the near future.

Glenn Beck and Rush Limbaugh and the Republicans in Congress oppose these reforms. They want, as Limbaugh proclaimed, the president to fail. But they aren’t the major roadblocks to the change we need. What stands in the way is the organized power of the entrenched lobbies that have a direct stake in limiting change, and are willing to spend hundreds of millions to obstruct it. Their legions are less angry citizens, than sophisticated lobbyists, increasingly Democrats, many of them retired legislators. They deliver campaign contributions, not votes. They threaten negative campaign ads, not authentic citizen uprisings.

With literally billions at stake, progressives will never be able to match the money of the industries fighting off change. Our only chance is to make their money toxic — to expose the contributions, the lobbyists, the inside deals — and to make legislators understand the president was right when he said we can’t let the permanent lobbies define what is possible in the nation’s capital.

The struggle over health care reform is now reaching its climax. The backroom struggle over energy and financial reform is already fierce. It is time for Democrats to unite to get these done. It is time for the two or three Senate Republicans with any iota of independence to put country over party and be part of the solution. But most of all, it is time for us to follow the money, to track the contributions, expose the lobbyists, and challenge the legislators in both parties who hope to benefit by serving special interests rather than representing their constituents.

Check out opensecrets.org, where the Center for Responsive Politics tracks contributions. Take a look at their study with the Sunlight Foundation on the lobbyists undermining health care reform. Get angry, not cynical. Let your legislators hear from you — and join with your neighbors to demand that they represent you and not the interests that are writing campaign checks. The president has called on the Congress to deal with fundamental national challenges that can not be ignored (although his predecessors were happy to do so). We’ll not have a better chance to get vital reforms done. But to succeed, legislators in both parties will have to learn that voters aren’t going to put up with the cozy beltway business as usual.

Robert Kuttner

By Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

There is a huge reality gap between the happy talk about green shoots, banks passing stress tests, the rise in unemployment slowing — and what’s happening out in the real economy, especially if you take a close look at banking and housing, ground zero of the economic crisis. Credit remains tight for all but the most blue-chip borrowers. Despite the Fed’s policy of keeping short term interest rates at just above zero, average rates on conventional 30-year mortgages, now above 5.5 percent, have jumped nearly a full point since April.

Last Wednesday, the FDIC quietly folded a program that was the centerpiece of Treasury Secretary Tim Geithner’s effort to get toxic assets off the books of banks.

The program, whose details were unveiled in late March after six awkward weeks of delay while the administration worked out the details, included special incentives for what Geithner delicately termed “legacy assets.” These are the junk securities on banks’ balance sheets, mostly backed by sub-prime loans, for which ordinary buyers cannot be found.

The Treasury drafted the Federal Reserve to provide special loans, and the FDIC to run a pilot program to attract speculators to bid on the securities. All told, the government was prepared to put up 94 percent of the capital if private investors would put up 6 percent. Government would guarantee most of the losses, and split the gains 50-50.

The plan took Geithner full circle to something like the original strategy attempted by his predecessor, Treasury Secretary Hank Paulson, when Paulson came to Congress last September asking for $700 billion to buy up toxic assets from banks. But after Paulson got Congress to approve the money, he concluded that he couldn’t make the original plan work. Instead, the Treasury pumped several hundred billions into the banks directly. The toxic assets stayed on the banks’ books.

Now, Geithner’s do-over seems to have collapsed, too. There are a couple of reasons why.

First, the government has bent the accounting rules to allow the banks to carry nearly worthless securities on their books at their nominal full value. The Wall Street Journal ran a terrific investigative piece June 3 on how the banking lobby and legislators of both parties pressured the Financial Accounting Standards Board (FASB) to suspend its rules requiring assets to be carried on banks’ books at their current market value.

With this change, banks had no incentive to sell these deeply depressed securities at anything like their actual market value. So if a speculator, armed with Fed funding and a government guarantee against losses was prepared to take a speculative flyer in a bond by bidding, say, 30 cents on the dollar, the bank was not prepared to sell at less than 90. Hence, no deal.

Second, some hedge funds and private equity companies sniffed around these deals and concluded that they weren’t worth the bad publicity or government scrutiny if the deals resulted in big windfall profits (the only kind that hedge funds pursue).

Cooking the books to inflate the value of depressed securities also explains how zombie banks like Citigroup could pass the government’s “stress tests” with flying colors. Citigroup, which has depended on $45 billion in straight government cash and hundreds of billions more in guarantees, was found by the stress-testers from the Fed and the Treasury to need only $5 billion more to be adequately capitalized. This is, of course, preposterous if you value the junk on its books accurately.

So the banking sector, despite the pretty picture painted by the stress-tests and the banks’ recent success in selling stock to investors reassured by the government’s too-big-to-fail actions, remains weak. As a result, banks are hesitant to lend. And this weakness keeps dragging down the rest of the economy.

The flipside of weak banks is a depressed housing sector. Just as the administration chose bailout over government takeover of failed banks, the administration opted for an entirely voluntary effort to induce banks to refinance sub-prime and other mortgages that homeowners could not afford. The program, announced by President Obama February 18, aims to help at-risk homeowners keep their homes.

But the terms of the plan exclude the most hard-hit homeowners. Today, one homeowner in four owns a house worth less than the mortgage on it. However, you can qualify for a refinancing only if the home’s value is within five percent of the value of the loan. In other words, if you have a $300,000 mortgage on a house valued at $250,000, forget about help. And you are also excluded from help if you are behind in your payments – the situation of most people who need help.

Worst of all, the program depends entirely on the voluntary cooperation of banks. The administration will spend up to $75 billion on inducements to banks to vary the terms of loans. But at this writing, well under 100,000 loans have been modified, out of the several million at risk of foreclosure. As a consequence, people continue losing their homes, depressing the value of other homes. The Times recently reported on a woman who heard about the administration, approached her lender, Countrywide (one of the worst sub-prime offenders and now part of Bank of America) and asked for a refinancing. The bank offered a new loan that would save the woman all of $79 a month, and in return the bank wanted $18,000 up front.

Basically, the banks seem to be viewing refinancings as new profit opportunities. The one stick in a plan full of carrots was a provision empowering bankruptcy judges, as a last resort, to vary the terms of a mortgage. The banking lobby went all out to kill this provision. In the end, twelve Senate Democrats voted against it, and the administration made no political effort to save it.

Rep. Alan Grayson of Orlando, one of the hardest-hit parts of the country in terms of foreclosures, tells the story of a woman with a $300,000 mortgage on a house now worth perhaps $60,000. She could afford the payments on a $60,000 mortgage. But the bank would rather foreclose, bear the expenses of carrying the house which will be at risk of vandalism and deterioration until is it is sold. The bank would actually be better off writing down the mortgage to $60,000 and allowing the woman to stay in the house. But few banks see it that way. In similar circumstances in the 1930s, the Roosevelt Administration created the Home Owners Loan Corporation, and the government refinanced mortgages directly. But the Obama administration prefers to work through the private sector, and the private sector is averse to refinancings in most circumstances.

Another progressive Member of Congress, Rep. Marcy Kaptur of Toledo, tells of cascading foreclosures in her district, where banks are selling foreclosed homes at a few cents on the dollar to syndicates of speculators, some from the very sub-prime lenders who caused the collapse. Rather than sell to local government or local non-profits, which want to keep people on their homes, the banks want to get a few bucks onto their balance sheets fast. The situation cries out for more effective national leadership, and the government’s failure to provide that leadership means that the downward spiral in housing will continue.

The weakness of the mortgage relief program and of the banks’ balance sheets have one big thing in common–an administration that is far too deferential to the big banks. For the crisis to be solved soon, rather than lingering on and on, we need direct government refinancing of mortgages, and direct government restructuring of zombie banks.

***

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His recent book is “Obama’s Challenge.”