NYT Blames Petty Theft and Old Workers for Prolonging the Recession

Yes, they really believe that the answer to the recession is, at least in Italy, liberalization of the labor market. In an article previously titled "Italian Business Potential Thwarted as Crisis Persists," Liz Alderman describes a microcosm to justify new labor laws that make firing employees easier in Italy:

"In Ms. Pallini’s own factory, an employee suspected of stealing had to be watched for two years before being caught in the act. Videotape that had captured his thefts was not admissible in court, so her father and two employees had to spend countless hours gathering watertight evidence to ensure that judges would not eventually reinstate the man. By contrast, a private sector employer in the United States could have terminated the worker as soon as a theft was detected, unless a union contract was involved or antidiscrimination laws were violated." Source

Dean at the Center for Economic and Policy Research missed the point by focusing on a polemic about how accurate it was to say that US businesses can fire workers after theft is "detected":

"Actually, a private sector employer can terminate a worker who it thinks is stealing, even if they never caught the worker. In fact, they can fire the worker just because they think they are the type of person who might steal or just because they don't like him or her. Workers who are not protected by union contracts or civil service guidelines can be fired any time for any reason that does not violate anti-discrimination laws." Source

Of course, he is right about that point, but its a rather narrow argument to make and it doesn't even start to address the real problems that created and are perpetuating the crisis.

Astroturfing Bankers in the Age of Jackson

In the early 1800s, the US banking system was dominated by a unique blend of proprietary bank notes held by wealthy merchants and a working class mostly limited to foreign currencies (when they were lucky enough to earn real money at all). New England merchants, ever reliant on European trade, had developed or maintained extensive connections to prominent European trading partners. The capital to valorize these products, coupled with the unique trading opportunities that a continent of untapped resources offered, were fertile ground for a rising class of bourgeois. A shipbuilding/fishing economy had given way to an international-mercantilist model, and the monetary supply could hardly keep up with growth.

As this rapid accumulation of capital progressed, a clear winner was bound to emerge - and the US Government wasn’t playing around: they were going to enthrone the financiers to their own ends. Remember, in those days money wasn’t quite as easy as it was now – loans were in the form of promissory notes or proprietary bank notes: unlike fractional reserve banking, there was little liquidity in loaned value. This was such a problem that it would cause a run on debt in 1937. For the better part of the century, the country was set to witness profound clashes between nearly monolithic financial interests - interests, it turns out, that would manipulate popular movements to push their own financial agenda, all in the name of the "free market."¹

Glass-Steagall: Dead for 2 Decades and Counting

Where the Wealthy Meet to Engineer Crises

Clinton's 1999 repeal of Glass-Steagall was hardly a repeal at all. In fact, it was just the dying breath of legislation that had been steadily eroded for decades. Following Alan Greenspan's pivotal moves for deregulation, the Gramm-Leach-Bliley Act merely confirmed in official canon what had been increasingly evident for the past 2 decades.

In 1996, Greenspan gave the Federal Reserve Board the green light to change the practices governing commercial bank holding companies. Under Glass-Steagall, they could only invest up to 5% in investment banks (due to the added risk). Greenspan quickly doubled this limit twice: first to 10%, and then to 25%. 8 months later, another decision opened the doors to insurance underwriting, allowing Traver's (under the management of Sandy Weill, who had already unsuccessfully tried to acquire JP Morgan) to acquire Solomon Brothers. Less than a year later, Traveler's merged with Citicorp.¹


Enter the beast: a bank which merged securities underwriting, insurance underwriting and commercial banking - precisely the amalgamation which ushered in the banking instability of the early 1900s - only this time, the publicians had a new motto: too big to fail. Perhaps more ominous is the name itself though: Citicorp, now Citigroup Inc., was once known as National City Bank, variously administered by James Stillman (who managed the bank in his retirement via discrete courier), Charles E Mitchell (touted in 1933: "Mitchell more than any 50 men is responsible for this stock crash" -Carter Glass).² Mitchell was also on the board of directors for American IG Farben³ (a pharmaceuticals combine which produced Zyclon B for the Nazis), which cartelized with Standard Oil New Jersey with the help of a 30 Million bond from National City Bank.^2,4

Expansion of Financial Credit Eventually Leads to Negative Growth

VoxEU: Too Much Finance?

"Our results show that the marginal effect of financial development on output growth becomes negative when credit to the private sector surpasses 110% of GDP. This result is surprisingly consistent across different types of estimators (simple regressions and semi-parametric estimations) and data (country-level and industry-level). The threshold at which we find that financial development starts having a negative effect on growth is similar to the threshold at which Easterly et al. 2000 find that financial development starts increasing volatility. This finding is consistent with the literature on the relationship between volatility and growth (Ramey and Ramey 1995) and that on the persistence of negative output shocks (Cerra and Saxena 2008)."

Data on how Tax Day Loans Hurt the Poor

• A typical tax refund loan carries an APR rate of 149
• 7.2 million taxpayers used them in 2009, costing 606 million in fees, 58 million in additional charges
• 64% of those who took these loans out were eligible for the Earned Income Tax Credit, a credit for low wage-earners
• Their primary market, according to John Hewitt, CEO of Liberty Tax Service, is the 17 million Americans who do not have their money in 'traditional' banks
• "Taxpayers living in extremely low-income communities are 560% more likely to use these loans"
• Banks like Wells Fargo are closing traditional banks in these communities while they invest in predatory loan firms

  Statistics taken from Tax Day Temptation Full of Tricks and Traps by Bryce Covert New Deal 2.0

Herbert Hoover Left False Evidence to Hide Influence of J.P. Morgan, Thomas W. Lamont

According to Thomas Ferguson, Hoover wrote diary entries which directly conflicted with his private account of events:

"The onset of the Great Depression opened a new phase in the decay of the now creaking system of '96. As the Depression grew worse, demands for government action proliferated. But Hoover, who gradually became so in thrall to the big banks that he concealed Morgan's crucial role in initiating his famous European debt moratorium of June 1931 by deliberately faking entries in a "diary" that he left historians (one of whom years later cited it as evidence for the independence of Hoover, and the American state from the bankers), opposed deficit-financed expenditures and easy monetary policies.⁷⁹ After the British abandoned the gold standard in September 1931 and moved to establish a preferential trading bloc, the intransigence of Hoover and the financiers put the international economy onto a collision course with American domestic politics. Increasingly squeezed industrialists and farmers began clamoring for government help in the form of tariffs even higher than those in the recently passed Smoot-Hawley bill; they also called for legalized cartels and, ever more loudly, a devaluation of the dollar through a large increase in the money supply." Golden Rule: The Investment Theory of Party Competition Thomas Ferguson, pp. 145 (my emphasis)

Obama's Graft and the Woeful State of Consumer Arbitration

I've occasionally cited industrial investment in party politics as the primary motivator in party competition (a point I've largely refined from my reading of Thomas Ferguson: Golden Rule: The Investment Theory of Party Competition...). Yves Smith agrees - its donations that manage the presidential policy positions:

"Obama needs to raise an estimated $1 billion to win the 2012 election. He’s moved further and further to the right over the course of his Presidency. Why is he going to change gears and alienate one of his biggest donor groups by appointing Warren?"

Also, Yves points out to these startling statistics on the bias of consumer arbitration:

"An example we cited a few days ago, that of the settlement reached between the Minnesota attorney general and the National Arbitration Forum, illustrates this point. The [NAF] was so successful in stacking the deck on mandatory arbitrations in favor of its clients, big busineses, via the roster of arbitrators it chose that consumers won in only 4% of the cases." Yves Smith: Why Liberals Are Lame (Part 2)