Nouriel Roubini argues that the United States faces massive income inequality which seriously threatens and already fragile economy. This reduces aggregate demand in the economy which holds down growth and employment.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Property monopolized or in the possession of a few is a curse to mankind.
It’s class warfare, my class is winning, but they shouldn’t be.
– Warren Buffett, CNN interview, May 25, 2005.
Excellent “memo” from Michael Lewis. Read the whole piece.
We have identified two looming threats:
The first is the shifting relationship between ambitious young people and money. There’s a reason the Lower 99 currently lack leadership: Anyone with the ability to organize large numbers of unsuccessful people has been diverted into Wall Street jobs, mainly in the analyst programs at Morgan Stanley and Goldman Sachs. Those jobs no longer exist, at least not in the quantities sufficient to distract an entire generation from examining the meaning of their lives.
Our Wall Street friends, wounded and weakened, can no longer pick up the tab for sucking the idealism out of America’s youth. But if not them, who? We on the committee are resigned to all elite universities becoming breeding grounds for insurrection, with the possible exception of Princeton.
The second threat is in the unstable mental pictures used by Lower 99ers to understand their economic lives. (We have found that they think in pictures.)
For many years the less viable among us have soothed themselves with metaphors of growth and abundance: rising tides, expanding pies, trickling down. A dollar in our pocket they viewed hopefully, as, perhaps, a few pennies in theirs. They appear to have switched this out of their minds for a new picture, of a life raft with shrinking provisions. A dollar in our pockets they now view as a dollar from theirs.
Fearing for their lives, the Lower 99 will surely become ever more desperate and troublesome. Complaints from our membership about their personal behavior are already running at post-French Revolutionary highs.
Check out this great opinion piece by Nick Hanauer:
It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
…I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. (MSFT) in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc. (AMZN).
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
Hanauer is correct and you must read the entire essay. The failure of the economy to return to real growth is a lack of aggregate demand. In other words, a lack of paying customers. There is no lack of wealth at the top of our economy nor are taxes high. The rich become richer every day, and taxes are as low as they were in 1950. Quite the contrary.
Update: By the way, if you want to see something amazying, but from a republican, take a look at this compendium of advice regarding economic rhetoric from Frank Luntz, a long-time GOP advisor.
The nation is still recovering from a crushing recession that sent unemployment hovering above nine percent for two straight years. The president, mindful of soaring deficits, is pushing bold action to shore up the nation’s balance sheet. Cloaking himself in the language of class warfare, he calls on a hostile Congress to end wasteful tax breaks for the rich. “We’re going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share,” he thunders to a crowd in Georgia. Such tax loopholes, he adds, “sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary – and that’s crazy.”
Preacherlike, the president draws the crowd into a call-and-response. “Do you think the millionaire ought to pay more in taxes than the bus driver,” he demands, “or less?”
The crowd, sounding every bit like the protesters from Occupy Wall Street, roars back: “MORE!”
The year was 1985. The president was Ronald Wilson Reagan. …
– Tim Dickinson, writing in Rolling Stone. President Reagan raised taxes multiple times in 8 years. He would be broomed out of today’s GOP. Keep this in mind when the Super Committee budget compromise fails because the Republicans will not agree to significant tax increases because of their fealty to Grover Norquist.
Our nation needs to stop doing for people what they can and should do for themselves. Self reliance means, if anyone will not work, neither should he eat.
– Michele Bachmann, demonstrating the compassion regarding extremely high unemployment at the heart of today’s GOP.
Barry Ritholtz writes that Wall Street is promulgating a “Big Lie” concerning the economic collapse that began in 2007. Their Big Lie is that the collapse was caused by government policies.
A Big Lie is so colossal that no one would believe that someone could have the impudence to distort the truth so infamously. There are many examples: Claims that Earth is not warming, or that evolution is not the best thesis we have for how humans developed. Those opposed to stimulus spending have gone so far as to claim that the infrastructure of the United States is just fine, Grade A (not D, as the we discussed last month), and needs little repair.
Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault.
Indeed, the arguments these folks make fail to withstand even casual scrutiny. But that has not stopped people who should know better from repeating them.
The Big Lie made a surprise appearance Tuesday when New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”
I have outlined previously why the Big Lie is indeed a lie. I won’t repeat it here, but I agree with everything Ritholtz writes in this article. But read the full article as it outlines even more problems with this Big Lie.
(Caution: language NSFW)
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It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t have gotten them without that.
But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it’s one target, it’s easy to blame them and congress certainly isn’t going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for.
– New York Mayor Michael Bloomberg. Federal policy did not force the banks to create billions in collateralized debt obligations that sliced-and-diced mortgage pools into fictional “AAA-rated” debt. Federal policy did not force the banks to make “liar loans” with no documentation of income or ability to pay. Nor did Federal policy force the banks to make huge bets against their own customers without disclosure.
It’s as if the Europeans — or Merkel and Sarkozy alone — believed that they were in control of the people of Greece. But this is a democracy. In Greece, and even in Italy, you cannot expect to rule without the support and consent of the people. And you can’t impose an austerity program for a decade on a country, and even choose for them the austerity measures that country must implement.
– Jean-Paul Fitoussi, professor of economics at the Institute of Political Studies in Paris, addressing the pending Greek referendum on the bailout plan. If they wish, the Greek people should cease the austerity programs and default on its debt, which is largely held by German and French banks.
I, like you, get a little incensed when you think about how much good all of you do, whether it’s volunteer hours, charitable giving we do, serving clients and customers well. You ought to think a little about that before you start yelling at us.
– Bank of America’s CEO Bryan Moynihan, speaking to a townhall meeting of his bank’s employees. He is “incensed” by the criticism of his bank? A bank which was knee deep in the CDO collapse that was a core cause of the economic collapse? A bank which has been being challenged by multiple state attorneys general for failing to provide reasonable service to mortgagors seeking help or information? A bank that has deployed fleets of robosigners? A bank that charges checking account customers $5/month for the privilege of allowing BofA to hold their money? A bank that has performed this poorly in the stock market?
I am incensed that he is incensed.
Update: It now appears that BofA is at least reconsidering its $5/month fee to use debit cards for shopping.
In its report, the budget office found that from 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent for the 1 percent of the population with the highest income. For others in the top 20 percent of the population, average real after-tax household income grew by 65 percent.
By contrast, the budget office said, for the poorest fifth of the population, average real after-tax household income rose 18 percent.
And for the three-fifths of people in the middle of the income scale, the growth in such household income was just under 40 percent.
– The New York Times. Here is a direct link to the CBO report, which is fascinating if disturbing.
More than three years after the crisis and the accompanying bailouts, the six largest American financial institutions are significantly bigger than they were before the crisis, having been encouraged to snap up Bear Stearns and other competitors at bargain prices. These banks now have assets worth over 66 percent of gross domestic product — at least $9.4 trillion, up from 20 percent of G.D.P. in the 1990s. There is no evidence that institutions of this size add sufficient value to offset the systemic risk they pose.
– Jon Huntsman, GOP candidate for President, inveighing against “too big to fail” financial institutions.
You can watch streaming feeds from various Occupy Wall Street events around the world here.
