Monday, December 28, 2009

$200,000 per minute

Afghanistan War spending for 2010 is now expected to exceed $102.9 billion, or $12 million per hour, or $200,000 per minute!

Just remember exactly why it is we don't have money to reform health care or jump start job creation.

(source: Mother Jones)

Creating Toxic Assets to Profit From the Collapse

I am certain that there are some readers out there who still somehow think that our financial crisis was caused by greedy poor people buying houses that they couldn't afford. Then when the economy tipped a little bit, the weight of their snow-balling defaults kept the economy on a downward slide. After all, it is what some cable media people were telling you. That assumption plays well with hard working Americans because the alternative is to believe that those at the top - the respectable people in fancy suits running Our banks were actually doing something wrong. [article]

Guess what? It gets a bit complicated but I'll walk you through it.
[An up-and-coming Goldman Sachs employee created] mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits. Goldman’s own clients who bought them, however, were less fortunate.
We have all been hearing about these so-called "toxic securities" that the banks were sitting on as things collapsed, but this sounds a bit different. This sounds like the banks created stinky assets, sold them to investors, then bet against them.
Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments
Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
Isn't also nice to know that the fox is watching the hen-house for us? We can be fairly certain that next to nothing will change as a result of a Geithner-led investigation. Nevertheless, We The People need to know this so we can force the issue and make real change happen.
One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.
Our ignorance is blissful for those in financial power. As long as We keep scrabbling for our dollar, they can fleece Us for their millions. The stink of this practice is overwhelming. It is true that any prudent investment strategy calls for hedges against possible changes in the economy. In the simplest terms, it is like owning both stocks and bonds because each generally performs well when the other is not. But most investors don't create a massive failure so that their hedge can profit extraordinarily.
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”
It is also important to note that this is not an accident, or some sort of one-off switch-a-roo.
The creation and sale of synthetic C.D.O.’s helped make the financial crisis worse than it might otherwise have been, effectively multiplying losses by providing more securities to bet against. From 2005 through 2007, at least $108 billion in these securities was issued, according to Dealogic, a financial data firm. And the actual volume was much higher because synthetic C.D.O.’s and other customized trades are unregulated and often not reported to any financial exchange or market.
And the assets in question were unregulated. Why do you suppose that was? Who do you suspect profits when financial shenanigans go under the radar?
A handful of investors and Wall Street traders, however, anticipated the crisis. In 2006, Wall Street had introduced a new index, called the ABX, that became a way to invest in the direction of mortgage securities. The index allowed traders to bet on or against pools of mortgages with different risk characteristics, just as stock indexes enable traders to bet on whether the overall stock market, or technology stocks or bank stocks, will go up or down.

Goldman, among others on Wall Street, has said since the collapse that it made big money by using the ABX to bet against the housing market.
Ponder that, dear readers. In 2006 there were people shaping a mortgage crisis, who built an index to monitor that developing crisis, then reveled in the collapse making billions of dollars. If you are in foreclosure right now, or can see the possibility of it from where you are, then you must be pretty angry right about now. You might want to contact your Senator and Representatives and make certain they know just how this makes you feel.

And what happens to the people who play fast and loose with your castle?
Mr. Egol and Fabrice Tourre, a French trader at Goldman, were aggressive from the start in trying to make the assets in Abacus deals look better than they were [snip] Goldman’s bets against the performances of the Abacus C.D.O.’s were not worth much in 2005 and 2006, but they soared in value in 2007 and 2008 when the mortgage market collapsed. The trades gave Mr. Egol a higher profile at the bank, and he was among a group promoted to managing director on Oct. 24, 2007.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers. “They saw the writing on the wall in this market as early as 2005.” By creating the Abacus C.D.O.’s, they helped protect Goldman against losses that others would suffer.
But hey, claims Goldman, we played fair. We said there was risk. It's the investors fault for being greedy!
The Goldman salesman said that C.D.O. buyers were not misled because they were advised that Goldman was placing large bets against the securities. “We were very open with all the risks that we thought we sold. When you’re facing a tidal wave of people who want to invest, it’s hard to stop them,” he said. The salesman added that investors could have placed bets against Abacus and similar C.D.O.’s if they had wanted to.
Funny, earlier in the article it specifically states that Goldman was quietly buying the shorts and rarely selling that option to investors. It's a bit like those lottery ads on the radio that make it all exciting and trumpet how you can win millions, and then the odds of winning are tacked on at the end of the ad at breakneck speed that no one could catch. But hey, we warned you!

The banks themselves met and established the rules that would be in effect. In fact, they created new rules that more quickly fleeced those holding the toxic investments that the banks themselves created.

This is exactly the reason that unfettered business is a Bad Idea. While I am all in favor of capitalism, it has to be on a level playing field. Those at the top simply cannot be allowed to make the rules whereby they profit at Our loss. The entire point of this blog, Pitchforksandtorches, is to function as a wake up call. It is a call to action. In a Democratic Republic such as ours, the simplest thing you can do is holler, frequently and intelligently and preferably in writing, to your elected officials. If you believe they are not acting in your best interest, then WORK to find a better candidate and get that person elected. Heck, that better person might even be you. These are the preferred Pitchforks and Torches in a civilized society, but just like their literal namesakes, they work better in a large group.

Pass along this blog if you believe in what I am trying to do. Tell like-minded friends and family. Tell those who you think disagree and have conversations about it. Read the articles I link to and get your information straight from the source rather than through my filter. Use the knowledge you gain to ask more questions and seek out your own answers from other sources. Our ignorance is Their best tool. Our knowledge becomes Their restraint.

"You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time. ~ attributed to Abraham Lincoln."

"Don't get fooled again!" ~ The Who

Saturday, December 26, 2009

Americans are getting ripped off

Here is a link to a graphic that shows health care dollars spent versus life expectancy (at birth) as well as frequency of doctor visits. If there is a clearer example of the following statement, I'd like to see it:

Americans are getting ripped off.

http://andrewsullivan.theatlantic.com/.a/6a00d83451c45669e20120a77d19db970b-popup

I would be curious to see how much the proposed reform moves this absolutely astonishing line.

Friday, December 25, 2009

A Christmas Carol for 2014

A few excerpts from Paul Krugman's op-ed in today's NYT.
It begins with sad news: young Timothy Cratchit, a k a Tiny Tim, is sick. And his treatment will cost far more than his parents can pay out of pocket.

Fortunately, our story is set in 2014, and the Cratchits have health insurance. Not from their employer: Ebenezer Scrooge doesn’t do employee benefits. And just a few years earlier they wouldn’t have been able to buy insurance on their own because Tiny Tim has a pre-existing condition, and, anyway, the premiums would have been out of their reach.

But reform legislation enacted in 2010 banned insurance discrimination on the basis of medical history and also created a system of subsidies to help families pay for coverage. Even so, insurance doesn’t come cheap — but the Cratchits do have it, and they’re grateful. God bless us, everyone.
It's off to a fine start, isn't it? But despite all the happy ending overtones, there are still people who are grousing. Whatever are they grousing about? Let's look in again.
First, there’s the crazy right, the tea party and death panel people — a lunatic fringe that is no longer a fringe but has moved into the heart of the Republican Party. In the past, there was a general understanding, a sort of implicit clause in the rules of American politics, that major parties would at least pretend to distance themselves from irrational extremists. But those rules are no longer operative. No, Virginia, at this point there is no sanity clause.
Yes, it is awfully challenging to take the complaints coming from right field too seriously. They simply aren't cogent, and often aren't even coherent.
A second strand of opposition comes from what I think of as the Bah Humbug caucus: fiscal scolds who routinely issue sententious warnings about rising debt. By rights, this caucus should find much to like in the Senate health bill, which the Congressional Budget Office says would reduce the deficit, and which — in the judgment of leading health economists — does far more to control costs than anyone has attempted in the past.

But, with few exceptions, the fiscal scolds have had nothing good to say about the bill. And in the process they have revealed that their alleged concern about deficits is, well, humbug. As Slate’s Daniel Gross says, what really motivates them is “the haunting fear that someone, somewhere, is receiving social insurance.”
I have had this conversation with people. They are foaming at the mouth about "socialism" and "fascism" (and I have to repeatedly challenge them to look up fascism in the dictionary and report back to me just who in this debate sounds like the fascists). They generally get a pole-axed look when I point out that public schools are a socialist benefit. If I think they are particularly bright, I ask them to imagine a scenario where they call 9-1-1 in an emergency and the dispatcher responds, "An police cruiser will be dispatched momentarily. But first, will that be Visa or Mastercard?" Ah yes, that sort of socialism is fine. But not the kind that benefits someone else, especially if they are poorer than me.
Finally, there has been opposition from some progressives who are unhappy with the bill’s limitations. Some would settle for nothing less than a full, Medicare-type, single-payer system. Others had their hearts set on the creation of a public option to compete with private insurers. And there are complaints that the subsidies are inadequate, that many families will still have trouble paying for medical care.
There is a longer reach option that would have been best. Imagine (after reading the bill rather than listening to "Headline News" or "Screaming Head News") just how many people are actually covered, and subsidized, who have been out of the game until this point. It will still be a challenge for some people. Many will have something when they had nothing. People like me who are new small-business owners with little income will be able to afford something (my current health care costs are about 100% of my gross income).

My real gripe is reserved for Republicans. They have had decades to create policy about health care but chose instead to merely talk about it and stonewall any efforts by the Dems while simultaneously spending un-budgeted money on misguided wars and the single largest unfunded expansion of Medicare in its history while reducing taxes on Corporations and the wealthiest Americans. I would have loved for genuine conservatives to have created a plan for comparison. But neocons are not conservatives, and the GOP, appearing to be led from the loudest loonies mentioned above, became the party of "No", and had nothing to contribute. Perhaps they will get their act together and curtail the worst of the fiscal concerns, though I suspect their answer will be to trim benefits from the neediest so that the likes of Cigna and Blue Cross can make more profit. That is the wrong answer for this problem, and they will find little support at the moment, but they could get more traction if the economy remains tough. Watch for the GOP to start stonewalling job creation efforts and you will know where their true heart lies (I would love nothing more than to be wrong about this prediction).

For now, I feel a little disappointment well-tempered by a greater sense of (if you'll forgive the pun) general relief.

Tuesday, December 22, 2009

Helath Care: Early Benefits

Here is a link to a PDF file that gives a very brief description of benefits that will kick in during 2010. It will likely raise as many questions as it answers, so ask questions (of your elected representatives).

NIMBY

The Obama administration is trying to balance conservation demands with its goal of radically increasing solar and wind generation by identifying areas suitable for large-scale projects across the West.
And in the case of this article, that balance is a necessity of finding a path between the "Drill, baby. Drill!" mindset of those addicted to oil and the "Save the trees!" mindset of die hard environmentalists. There are some basic truths to being an American, and one of them is that We use a lot of natural resources. We really don't think a lot about where and how are goods and services come from. There is a push to shop increasingly for locally produced goods, and the trend in autos is headed in the right direction. However, there is simply no comparison between the fuel efficiency of a private auto, be it ever so green, and a nice full metro bus (think in terms of passenger miles per gallon).
Senator Dianne Feinstein introduced legislation in Congress on Monday to protect a million acres of the Mojave Desert in California by scuttling some 13 big solar plants and wind farms planned for the region.
And here we see some of the problem at the highest level. We cannot have simultaneously warm houses, a transportation infrastructure, Hi-Def televisions, and the millions of other comforts we take for granted, and maintain a Not In My BackYard mentality about energy production. Switching from drilled oil and mined coal means chewing up hundreds of thousands of acres of land suitable for wind and solar farms somewhere.
“This is arguably the best solar land in the world, and Senator Feinstein shouldn’t be allowed to take this land off the table without a proper and scientific environmental review,” said Robert F. Kennedy Jr., the environmentalist and a partner with a venture capital firm that invested in a solar developer called BrightSource Energy. In September, BrightSource canceled a large project in the monument area.
So if not there, where? If not now, when? If the Obama administration is to move forward with radical programs to produce wind and solar energy production, then that means - in no uncertain terms - that the process has to move along rapidly and as inexpensively as possible. That means using lands that are low-hanging fruit: Undeveloped, optimal, and not so very useful for other human activity.

I offer a proposal for We The People. Let plans for radical development of new energy production occur. In exchange, we preserve greenspace and wild lands in other locations by limiting urban sprawl. No more McMansions on 1 acre lots of former farm fields. No more new subdivisions of 3,500 sq. ft. houses for two or three people a mile or three out of town for people who want to pretend they are Thoreau living at Walden (albeit with a significantly increased impact). No more 4-lane roads out to the 'burbs where every single adult commutes into the nearby city, often in separate cars. Instead We need to favor urban infill projects. We need to stop subsidizing things that encourage sprawl and waste of energy resources (like highway development at the expense of mass transit infrastructure).

Something has to give. We know it. We just don't want it to limit Us, personally. As long as limits affect someone else, someone either richer or poorer than me, then such plans are fine, right? I have news for you. Unless you are already living in a dense population area and biking, riding a bus, or ride-sharing to work, you are going to feel the effects of the next decade in a profound way.

No more wars for oil. Let's evolve.

Monday, December 21, 2009

Health Care Bills Compared

Here is a link to a simplified comparison to the two versions of the health care reform bill. It picks 15 topics and does a side-by-side of key elements. While not enough for a thorough understanding, it provides a good list to get you started about what is on the table, or not. Some examples:

- both bills have a penalty for people who do not buy coverage, though both have some exemptions. Most people will be required to buy or be penalized.
- Both bills still force or provide incentive employers to provide this benefit, though the Senate version makes more sense to me.
- the House version still has a "public option" to negotiate rates and provide start-up funds. Premiums would be required to cover benefits (no government subsidy other than theoretically lower premiums from negotiated rates). The Senate bill would instead have a government office sign contracts with insurers to offer at least two national health plans to individuals, families and small businesses. The new plans would be separate from the program for federal employees, and premiums would be calculated separately. At least one of the plans would have to operate on a nonprofit basis. I wonder how that will work?
- both bills offer some subsidy for families making less than 400 percent of the federal poverty level ($88,200 for a family of four). The details are not specified here. Since this will affect me directly, I am curious about this. More later!
- both plans expand Medicaid to cover the poorest Americans. Details vary.
- the House version thoroughly stigmatizes, and refuses to cover, abortions. The Senate version applies some restrictions but is considerably less harsh.
- Illegal immigrants could buy coverage, without subsidy, in the House version but would be prevented from buying coverage from the plans created under the Senate bill. Presumably they could still buy insurance directly from a provider at the providers discretion.

So there are a few highlights to get you a bit more informed. As always, I encourage you to pursue this on your own to get your questions answered.

Sunday, December 20, 2009

Morgan Stanley’s Mack gives up on bonus

Perhaps the rage from We The People is, in fact, palpable and properly focused. This story warms my heart.
Mr Mack was mindful of the anger at bankers’ compensation, and the distraction a bonus might create as he prepared to step aside. As an executive who has managed his public persona carefully, Mr Mack may also have weighed the effects on his legacy.

Mr Mack is likely to earn about $800,000 in salary this year – a low amount for a Wall Street chief.

His move will increase the pressure on other top executives at rivals such as Goldman Sachs not to take a bonus.
The cynic in me will file this away, and check the quarterly reporting from Morgan Stanley to see if he will simply get a going-away present later in 2010 when Our attention is distracted by spring training or spring planting. For what it's worth, I consider the odds of a misdirection play like that are better than 50-50. I would love to be surprised by Mack actually doing the right thing. For the moment I will give credit where credit is due, and acknowledge that this is a Right Choice. Good on you, Mr. Mack.

Just Say No to Whoopie, continued

It is always interesting to me to see what sneaks into a bill in the dark of the night when Senators think that no one is paying attention.
The health care reform bill approved by the Senate Finance Committee includes an amendment, introduced by the Republican Senator Orrin Hatch, that would revive a separate $50 million grant-making program for abstinence-only programs run by states.
Good old Orrin Hatch, a safe bet to making sure that ineffective ideology remains part of public policy. Never mind that abstinence-only programs have been a dismal failure.
Texas has the third highest teen birth rate in the nation -- 50% higher than the national average [snip] increases across all "races and ethnicities ... demonstrate that the current lack of sexual health curriculum in our schools is seriously harming all of our children." [snip] 94% of students in Texas receive abstinence-only sexual education and, to date, more than $1 billion in federal funding has been spent on abstinence-only education. Texas ranks No. 1 in the amount of federal funding for "abstinence-only education dollars in the country -- more than $18 million"
Legislation based on wishful thinking is what the GOP always accuses the Left of. This is as clear a case of wishful thinking intended to use policy to shape behavior (another Right against Left canard) as I can probably find. Let's strip this out of the final bill, shall we Nancy?

Saturday, December 19, 2009

Goldman Bankers Arming Themselves

How nice. The senior management of Goldman must be aware of my blog!
The "senior Goldman people" may be spending too much time trolling the Internet. If you read the comments posted after just about any blog item or feature article referencing Goldman, the venom expressed would surely lead you to imagine that a mob armed with pitchforks and torches was already on their way to Goldman headquarters. It's a bipartisan frenzy, and as Goldman profits continue to accumulate while the economic slump persists, the bile will continue to percolate.
(emphasis added)
senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank
Rest easy in your gilded cage. And gilded it is: Lloyd Blankfein, CEO and Chairman of the Board, owns 1,685,932 shares of Goldman, worth $274,393,733.

Months and Millions to Keep the Status Quo

As of this morning, it looks like some sort of health care reform bill will come out of the senate today. It seems the Dems got their 60 votes. Of course, I have not read this final bill, nor have I heard a thorough analysis of it yet. I suspect what it will be is, to borrow a line from Matt Welch at Reason.org, a "plan doubles down on most everything that's bad with the current system."

I have stated repeatedly, and will do so again: Significant health care reform would decouple health benefits from employment. Doing so would have several immediate effects. It would reveal the true cost of health care because employers would, after ending coverage, need to provide that same offset to employees as wages, and those wages would be whisked away as the employee wrote the check for health care. It would also free up potential entrepreneurs to strike out on their own without being tied to a corporation for the benefits package.

That assumes that health care is also affordable, and that 30 percent of premiums weren't skimmed right off the top by the likes of Cigna or Blue Cross to cover administrative salaries and executive compensation (like the $25.8 million that Cigna CEO H. Edward Hanway waltzed away with in 2007). With a for-profit model for health care insurance, there is little chance of meaningful reform. A government-offered single-payer public option (essentially a buying pool with no profit being made for those of you who think this is some sort of socialism) would have been the only dent in the corporate monopoly of health care. But we don't get that now.

Here's what I think we'll get when the dust settles: A requirement to buy health insurance from a for-profit provider at whatever rate they want to charge us (with a minor penalty if we decline to purchase it), and while the health care corporation will not be allowed to decline coverage for pre-existing conditions, they will be free to charge exorbitant rates for things like age, existing conditions, or potential conditions including pregnancy.

The end result for a self-employed guy like me? Expensive, mandatory payment for decent coverage no different - or worse - than I have now. Piss on the obstructionist Republicans and spineless Democrats. There will be little or no chance to fix this later with add-on bills because the Dems are going to lose many seats in the mid-term elections. Congratulations elected representatives. You spent months and millions to keep the status quo. Consider me unimpressed.

Friday, December 18, 2009

Despotism ~ An Erpi Classroom Film

I urge you to take 10 minutes out of your day and watch THIS FILM, produced in 1946 by Encyclopedia Britannica Films. Fresh from WWII and at the start of the Cold War, this film looks at general definitions and measurements by which we can understand a despotic state and how the slide to such a state occurs.

I REALLY want to hear your reactions.

A few teaser quotes:
Well for one thing, avoid the comfortable idea that the mere form of government can of itself safeguard a nation against despotism.
When a competent observer looks for signs of despotism in a community, he looks beyond fine words and noble phrases. [cut to adults reciting the 1946 Pledge of Allegiance: "...for which it stands. One nation, indivisible, with liberty and justice for all." Notice anything missing?]
If a community's economic distribution becomes slanted, its middle-income groups grow smaller [as wealth shifts to a smaller, wealthier group], and despotism stands a better chance to gain a foothold.
Another sign of a poorly balance economy is a taxation system that presses heaviest on those least able to pay.
A community rates low on the Information Scale when the press - radio and other channels of communication - are controlled by only a few people.
Here is a little homework quiz for you. Who owns the media in your market? How easily can you find out? How many independent radio or television stations are there? How many independent newspapers? Trace the ownership to the top of the tree and see how much of your content is provided by one or two corporations. How much content is spun, filtered, screened, emphasized or downplayed due to editorial control or advertising pressure? Do you take your news from a single source, or do you make an effort to hear multiple sides of each issue?

One last quote:
...and to find out which way [your community] is likely to go in the future, you can rate it on Economic Distribution and Information scales. The lower your community rates on Economic Distribution and Information scales, the lower it is likely to rate on Respect and Power scales, and thus, to approach despotism. What happens in a single community is its own problem, but it is also a problem of us all.
Where DO we rate on these scales? Surely not at the bottom, though perhaps trending that way? What do you intend to do about it?

Wednesday, December 16, 2009

Let Them Eat Cake

Many of the same lawmakers that We The People hear daily yammering on and on about how expensive the proposed health care reform will be ($1 trillion over 10 years is the CBO estimate being bandied about) are the very same ones who enthusiastically supported Bush II's tax cuts. The organization Citizens For Tax Justice (a watchdog group active since 1979) published an interesting white paper (PDF) assessing the annual and cumulative costs of those tax cuts.

The total of the cuts for all recipients is $2.106 trillion over 10 years. Since those cuts occurred while we were engaged in two wars that were never included in the budget, the cuts were financed by deficits. You may recall Vice President Dick Cheney's infamous quote that "deficits don't matter." It turns out, they do matter. When you add in the debt servicing - interest - those Bush tax cuts amount to $2.485 trillion. In other words, the deficit funded tax cuts cost We The People nearly two-and-a-half times what the proposed health care reform would cost.

We can afford tax cuts for the richest 20% of the employed but we cannot afford health care assistance for the bottom 50%. Are you liking how that feels?

Let's go back to those tax cuts and see just who got the most benefit from them. Those who support them would like you to believe that everyone benefited. And that is true, as far as it goes. But who got what? Let's follow the money.

Out of that 2.106 billion dollars, those in the top 1 percent of earners (the fat cats at the top earning $1.4 million or more per year) got $674 billion, or 32 percent of the pie, basically a third. The next 4 percent (those earning $249k or more) got $305 billion, roughly 15 percent. So the top 5 percent of wage earners received just shy of 50% of the total benefit of those tax cuts. The next 15 percent of wage earners (those earning $114k or more) got $506 billion, or 24 percent of the total. That means that the wealthiest 20 percent received over 70 percent of the tax cut benefit that was funded by deficit spending.

We The People gave the wealthiest Americans a tax break - money in their pockets - and put it on our American Credit Card.

[pause while that sinks in]

Meanwhile the remaining 80 percent of Us (those earning less than $114k) divvied up $622 billion in "benefit" (the unfunded spending spree with a bill coming due from China), or roughly the remaining 30 percent of the pie.

For those of you who are tax savvy, you might be thinking that those tax cuts sound great, but that great big bill did not adjust the Alternative Minimum Tax (sort of a backstop designed to make sure that everyone pays at least some income tax). That's true, the original bill did not. However each year Bush and Congress adjusted the AMT downward so that those at the top got more benefit from those tax cuts.

I'm all for tax cuts when they are paid for. What Bush did was utter madness.

Tuesday, December 15, 2009

US Income Inequality Continues to Grow

It is not your imagination that things seem worse than "before", especially if what you mean by before was your parents' prime years. While we continue to surround ourselves with Hi-Def televisions and a gajillion cable channels, iPods and iPhones, and a plump mortgage and think we are doing splendidly, the truth of the matter is that we are not. We are steadily losing buying power as compared to prior decades when adjusting for inflation. This article, originally published in the Madison, WI, Capitol Times on July 17, 2009, spells it out. Recent years were terrific if you were at the top of the heap.
During eight years of the Bush administration, the 400 richest Americans, who now own more than the bottom 150 million Americans, increased their net worth by $700 billion. In 2005, the top 1 percent claimed 22 percent of the national income, while the top 10 percent took half of the total income, the largest share since 1928.
Niiice. A different way to look at it is to compare the relationship of those earnings at the top with the average American paycheck. How did it play out for the rest of us? Not so well it turns out.
The highest incomes come from executive pay at top corporations. In 2007, the ratio of CEO pay to the average paycheck was 344 to 1, lower than the record 525 to 1 ratio set in 2001, but substantial.

This year's ratio is estimated to decrease to 317 to 1. In the '60s, '70s and '80s, the average ratio fluctuated between 30 and 40 to 1.
Great huh? For the 30 years prior to Reaganomics really kicking in, the big boss made about 30 times what you did. Is simple terms, if you made $10/hour, the head honcho made $300/hr. Then things changed and executive salaries took off. At the worst of the excess, the big boss was making $5,250/hour to your measly $10. And now that poor big boss's salary has dipped to merely $3,170/hour against your same old $10/hour. And all along We The People heard the same thing at salary review time: "Things are tight this year. We all have to suck it up and keep trying harder."

That disparity in salary also had a tremendous impact on net worth, the sum total of your cash and investments plus such things as your house (less outstanding mortgage).
In 1955, IRS records indicated the 400 richest people in the country were worth an average $12.6 million, adjusted for inflation.

In 2006, the 400 richest increased their average to $263 million, representing an epochal shift of wealth upward in the U.S.
During that same period, pensions largely disappeared and we were all encouraged to buy into the 401(k) scheme. Sure it has the potential to do well, though mine is not looking so great these days. Fortunately I do not need it today so I am merely set back, not destitute or forced come out of retirement (I am not retired!).

So what changed? Lots of things: Salaries, Tax rates, tax loopholes and shelters, Corporate taxes, health care costs, and the Story that was pitched to us.
In 1955, the richest tier paid an average 51.2 percent of their income in taxes under a progressive federal income tax that included loopholes. By 2006, the richest paid only 17.2 percent of their income in taxes. In 1955, the proportion of federal income from corporate taxes was 33 percent; by 2003, it decreased to 7.4 percent. Today, the top taxpayers pay the same percentage of their incomes in taxes as those making $50,000 to $75,000, although they doubled their share of total U.S. income.
Earlier I said that salaries for the likes of us stayed the same or even declined slightly. We now know that those at the top certainly did not have that problem! What was our reality?
Meanwhile, wages for most Americans didn't improve from 1979 to 1998, and the median male wage in 2000 was below the 1979 level, despite productivity increases of 44.5 percent. Between 2002 and 2004, inflation-adjusted median household income declined $1,669 a year. To make up for lost income, credit card debt soared 315 percent between 1989 and 2006, representing 138 percent of disposable income in 2007.
Remember all those pep talks at work about "working smarter, not harder", and "making do with less"? It seems like I heard that song routinely. Congratulations! We did it. We worked smarter and increased productivity. For our efforts, we were allotted meager raises that actually trailed behind inflation and ever-rising health care costs. In an effort to maintain that sense of class - where we fit in as the Middle Class - we blew up our credit card debt and ran steadily larger mortgages as a percentage of our income.

It is exactly this topic that made me call this blog Pitchforks and Torches. What are We going to do to curtail the exploitation occurring so systematically at the top? It seems our legislators are in the game just as deeply, and merely pander to Us rather than correct the imbalance. The game is rigged against us. We have too few votes with our puny stock holdings to change corporate direction. Our Senators and Congresspersons generally are not in the fight for us (there are exceptions). Do we have to unite for a collective demonstration of our power? It seems like it. But what? What will it take to make ENOUGH people wake up and get angry enough to actually do something to set things right?

Grab your whetstone and tinder box

Welcome to Pitchforks and Torches. The name is designed to set a mood; a mood for encouraging working-class Americans to take back their economic power, their liberty, and their dignity. By "working-class" I mean those not in the top 10% or so of earnings - line workers, hourly employees, office staff, and even mid-managers. While not literally encouraging you to take to the streets and drag shameless robber-barons from their McMansions and set those palaces on fire, I find the correlation between our current situation and the events leading up to the French Revolution to be...interesting.

I hope to help you understand just exactly what has been done to We The People over the past 50 years or so, and continues to be done. This is neither a Democrat nor Republican site. Both those parties have sold us down the river at times, and both have actually had our collective backs on occasion. Rather, this is a blog that intends to point out that you and I have steadily lost buying power and economic clout while those at the top of the heap have increased their wealth disproportionately and at our expense. We have often been duped by great phrases ("Trickle-down Economics") and sleight of hand misdirection (Health care reform means death panels), that take our eye off the real beneficiaries of the status quo or proposed change.

I will turn over news rocks and look past the headlines and see if I can find the rest of the story. I will point out the alternative news that dovetails with the headlines. It is my intent to have no sacred cows, no untouchable topics or persons upon which I will not shine my light. I will not always get it right. I will argue points that turn out to be wrong. For that I apologize in advance, and promise that when it is clear that I am wrong, I will blog that correction as well.

Your voices in the comments will let me know if I am on the right track or not. For now the comments will remain open and not moderated. I reserve the right to turn on some filtering if those leaving comments cannot be civil (attack the topic not the person) or routinely try to divert the topic to a talking point (trolls).

Stay tuned!