Robert L. Borosage

Why Bernie Sanders Will Be a Significant Force at the Democratic Convention

The Democratic National Convention in Philadelphia in July seems set to continue the fierce nomination battle—and launch a major debate about what the party stands for.

Keep reading... Show less

Corporate Profits Muscle Out The Public Opition

We're headed into the end game for health care reform. The president has put himself in the arena. The insurance lobby is unleashing the scare campaign. A strong bill will pass the House. But at this point, too many senators are still standing in the way.

Keep reading... Show less

America in Free Fall

Free fall. The U.S. has lost private sector jobs for 10 straight months. One quarter of all businesses in the U.S. plan to cut payroll over the next year. Retail sales fell in October by the largest monthly drop on record. Auto sales have collapsed, driving the auto companies towards the precipice. Unemployment is up to 6.1 percent, with most analysts predicting it will soar past 8 percent over the next year. (That translates into unemployment among young minority men at rates of 50 percent or more). States are now facing $100 billion in deficits in operating budgets for the next fiscal year. Twelve million homes are "under water," worth less than their mortgages. The U.S. has joined Germany and Japan in what is becoming a global recession.

Keep reading... Show less

Why Trust Paulson With Our Money?

Focused on the election? Might be a good idea to watch your pockets at the same time. Here's a glance at what's happening to the Wall Street bailout.

Hank Paulson is, no doubt, the most impressive of the Bush administration cabinet members (admittedly not a high bar). He made hundreds of millions on Wall Street, ascending to be the head of Goldman Sachs. Now, as Treasury secretary, he has brought in colleagues from Goldman to help manage the $700 billion bailout of troubled Wall Street banks, including Goldman, and ... Wait one minute. Doesn't something ring false here? Hank Paulson no doubt is honorable, but even he has conflicted interests. When the bailout bill was before Congress, a number of outside groups, including the Campaign for America's Future, pushed hard for the bailout to be managed by an independent agency, with an empowered board that included independent representatives of workers and consumers. Whatever the form of the bailout -- Paulson's initial demand for $700 billion left that undefined -- it was vital that the transactions be accountable to more than once and future bankers.

And now we know why. After initially proposing to buy toxic securities from the banks at inevitably elevated prices, Paulson sensibly decided to follow the British model and inject capital directly into the major banks in exchange for equity. The first nine banks -- Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Bank of New York Mellon and State Street Corporation -- are getting $125 billion. This, plus a guarantee of new debt over the next three years, is designed to reassure other banks of their solvency, and hopefully get them to resume lending to one another and to businesses.

But Paulson didn't exactly cut a great deal for taxpayers. He didn't get the terms that Warren Buffett demanded, putting up a lot less cash, to invest in Goldman Sachs. And as a New York Times editorial complained, he made government a passive investor, leaving in place the boards and the directors that led their banks into crippling losses.

Paulson made no demands that the banks begin lending again instead of just hunkering down, girding for future losses. And remarkably -- unlike the British -- he didn't demand that the banks stop paying out dividends to shareholders. Nor is it clear that bank regulators will perform the triage needed, merging and purging the banks of excess capacity.

That failure is likely to be very costly to taxpayers and very generous to the very folks who led us into this mess. In a New York Times op ed, David S. Scharfstein and Jeremy C. Stein show that dividends, if paid at current levels, will redirect more than $25 billion of the $125 billion to shareholders in the next year alone. One in five dollars will go out the door, and thus be unavailable to plug the large capital hole on the banks' balance sheets.

Will those dividends be paid? Most likely, since the directors and officers of the nine banks are leading shareholders. Scharfstein and Stein estimate their personal take will amount to $250 million in the first year, nothing to sneeze at.

Worse, Paulson does nothing to curb the bloated compensation levels that characterized Wall Street in the days of debauch. Jonathan Weil of Bloomberg News shows the effect. Morgan Stanley, for example, gets $10 billion in taxpayer dollars. Yet this year it has racked up $10.7 billion in employee compensation -- the vast majority not yet paid out -- even as its stock market value plummeted $34.7 billion since the beginning of the company's fiscal year. With taxpayers' help, Morgan Stanley may well pay those bonuses.

Weil reports that the "five families of Wall Street" -- Goldman, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Sterns -- lost about $83 billion in stock market value from the start of the 2004 fiscal year. At the same time, they reported about $239 billion in employee compensation. For every dollar of shareholder value destroyed, the employees pocketed almost three. And that was before they got taxpayer money. No one doubts that the bailout is needed to prop up the global economy. But under Paulson's plan, we may end up, in Weil's words, "throwing money at an industry that pays too many people more than they're worth, to perform services the world has too much of already."

What's needed is an independent agency with summary powers and an independent board, to work with the Federal Deposit Insurance Corporation and other agencies to sort out the solvent banks from the broke, those that need to be saved from those that should fail. And, as in the Chrysler bailout, a suspension of dividends to shareholders until the government has been repaid.

Now maybe Paulson is making the best choices possible given the extent of the crisis. He's got more information and is far better banker than the rest of us. But with $700 billion in taxpayers' money at stake, surely it would be wise to have an independent board that can hold him accountable.

How Do We Seize the Obama Moment?



Electric. When Barack Obama receives the Democratic presidential nomination before 75,000 people in Denver's Mile High Stadium on the forty-fifth anniversary of Martin Luther King Jr.'s "I Have a Dream" speech, new possibilities will be born. A historic candidacy, a new generation in motion, a nation yearning for change. Even the cynics running the McCain campaign might be touched, if they weren't so busy savaging Obama as a vain celebrity not up to the task of leading a nation.

No one should be blinded by the lights. It will take hard work to turn the nomination into victory in a campaign that has already turned ugly. Moreover, even if victorious, Obama will inherit the calamitous conditions wrought by conservative failures -- a sinking economy, unsustainable occupations in Iraq and Afghanistan, accelerating climate change, Gilded Age inequality, a broken healthcare system and much more.




Obama will also be limited by the constricted consensus of an establishment not yet able to contemplate the changes needed to set this country right again. To be successful, his presidency will have to be bolder and more radical than now imagined.




A historic candidate, the forbidding conditions and the constricted consensus make it vital that progressives think clearly and act independently in forging a strategy over the next months. The following is a contribution to a rich and ongoing discussion. We invite others to join it at thenation.com in the weeks to come.



A Sea-Change Election





The Obama nomination sets the stage for a sea-change election, one that could not only elect a Democratic President and increased reform majorities in both houses of Congress but also mark a clear turn from the conservative ideas that have dominated our politics for three decades.





In recent weeks, the media -- primed by a Republican strategy contrasting Obama's purported doublespeak with McCain's alleged Straight Talk -- have focused on Obama's compromises and backsliding. Much of the alleged retrenchment has been exaggerated. Some of it -- like his fold on the FISA wiretap bill, mixed signals on trade, the compromise on offshore drilling -- has been clear and deplorable. Many on the left were dismayed as the Obama campaign trotted out advisers from a Democratic bench that had championed the toxic Rubinomics brew of corporate trade and financial deregulation.





These concerns should not distract us from the central reality: this election features a stark ideological contrast. Although marketed as a trustworthy maverick, McCain accurately describes himself as a "foot soldier in the Reagan revolution" and attests that "on the transcendent issues, the most important issues of our day, I've been totally in agreement and support of President Bush." He is committed to the full Bush catastrophe: continued war in Iraq, more tax cuts for the wealthiest, more corporate trade deals, more deregulation, more hostility toward labor, more conservative social policies and reactionary judges. Indeed, he's Bush on steroids. McCain seeks not only to privatize Social Security but also to unravel employer-based healthcare, leaving people to negotiate alone with insurance companies liberated from regulation. His bellicose posturing on Iran and Iraq is as disastrous as his pledge of impossibly deep cuts in domestic programs. He embraces the corporate economic and trade agenda that has so devastated the American middle class. If he is defeated, it will mark the end of the Reagan era.





Obama clearly offers a change of course. His victory in itself will require overcoming the racial fears that have so long divided this country. He carries a reform agenda -- largely driven by progressives -- into the election: an end to the occupation of Iraq, using the money squandered there to rebuild America; affordable healthcare for all, paid for by raising taxes on the wealthy; a concerted drive for energy independence, generating jobs while investing in renewable energy and conservation. He is committed to empowering labor, to holding corporations and banks more accountable and to challenging our trade policies. A social liberal, his judicial appointees will keep the right from consolidating its hold on the federal judiciary. Obama may not be a "movement" progressive in the way that Reagan was a "movement" conservative, and he may have disappointed activists with his recent compromises, but make no mistake: his election will open a new era of reform, the scope of which will depend -- as Obama often says -- on independent progressive mobilization to keep the pressure on and overcome entrenched interests.





As this is written, an election Obama should win handily is locked in a virtual tie. Both the Obama and McCain campaigns treat the race as a referendum on Obama, with the former focused on getting Americans comfortable with trusting a young African-American with an unusual name, and the Rove minions in the McCain campaign intent on stoking the fears that enabled them to assemble a white majority party in the past.




Obama's campaign will not succeed without the independent efforts of progressive activists. One central task is winning support among wary white blue-collar workers, the core target of the Rovian poison. This will require persuasion as well as mobilization; the work of the AFL-CIO, Change to Win, Working America, religious groups and others with a base in these communities in swing states will be of critical importance.





Progressives generally -- and independent media and the blogosphere specifically -- can contribute by reminding voters there's a clear choice in this election, with McCain representing the same old, same old. While exposing McCain's doubletalk, his Bush-redux agenda and the money and interests behind the scurrilous right-wing independent expenditure campaigns, progressives can also help build support for reform. The new Health Care for America Now coalition, for example, has the resources to expose McCain's healthcare folly, thereby building a mandate for universal coverage. The antiwar movement should be challenging McCain's saber-rattling on Iraq, Iran and Afghanistan, helping to strengthen US support for a change in course. With gas prices at the center of American concerns, the environmental alliance around jobs and energy can consolidate support for a concerted drive toward energy independence, while challenging absurd claims that we can drill our way out of the crisis.


Keep reading... Show less

The Great Corporate Tax Heist

Remember the old Steve Martin routine on how to make a million dollars and not pay taxes: "First, make a million dollars. ... Second, don't pay taxes." Turns out Martin's joke is standard operating procedure for corporations in the United States -- only, in comparison, Martin was a piker.

Wednesday, the Government Accountability Office (GAO) released a study on taxes paid by corporations. In what Sen. Byron L. Dorgan, D-N.D., mildly called "a shocking indictment of the current tax system," the GAO found that about two-thirds of corporations operating in the United States did not pay taxes annually from 1998 to 2005.

Now, most corporations in America are start-ups or small, mom-and-pop operations that have adopted a corporate form to lower their tax rates. And a greater percentage of large corporations do pay some taxes. But in 2005, with corporate profits reaching new heights as a percentage of national income, the GAO found that more than one-fourth -- 28 percent of large corporations -- paid no taxes. (It defined large corporations as those with assets of at least $250 million or gross receipts of at least $50 million.) They can tell you how to make $50 million and not pay taxes.

Not surprisingly, the income collected from corporations has been declining as a percentage of GDP, with the burden transferred to your income and payroll taxes. According to a study by the Treasury Department, from 2000 to 2006, an average of 2.2 percent of GDP was collected in corporate taxes. This compares to an average of 3.4 percent in other industrial countries. The nonpartisan Congressional Budget Office projects that, under current law, corporate revenues will decline to 1.9 percent of GDP by 2017.

Why is this important? Well, the Bush administration, led by Treasury Secretary Henry Paulson, and conservatives, led by John McCain, are mounting a major campaign to cut the corporate tax rate even more, arguing that we are crippled competitively by having a U.S. rate higher than any industrial nation other than Japan. "America has the second-highest business (tax) rate in the entire world," says John McCain. "Is it any wonder that jobs are moving overseas? We're taxing them out of the country." But the GAO study confirms what we already knew: Whatever the nominal tax rate, U.S. corporations pay an effective rate among the lowest in the industrial world.

Yet the core of the McCain economic agenda consists of breathtaking corporate tax breaks. He calls for cutting the top corporate rate from 35 percent to 25 percent and allowing corporations to write off investments in the first year. Combined, the Tax Policy Center wonks cost these at more than $1.3 trillion over 10 years. Len Burman of the Tax Policy Center estimates that in total, McCain would cut corporate revenues by about 50 percent from current levels. They'll be making hundreds of millions of dollars and not paying taxes. This is no joke.

To pay for these tax breaks, sustain the Bush tax cuts, add more tax breaks and balance the budget in four years, as McCain promises, will require heroic cuts in spending. Not military spending; McCain promises to increase that. How will he do this? On the stump, McCain promises to veto any earmarked spending. But that is a gesture, providing about $18 billion a year. (And he isn't exactly consistent. McCain often tells folks who defend a local project that it is the process, not the individual project, that he opposes.) Perhaps that's why McCain calls for raising Medicare taxes on seniors with incomes of $50,000 or more per year and taxing employer-based health care benefits for families. Working people and seniors will help pay the tab for the corporate tax giveaway.

It's hard not to wonder about the pure, contrary inanity of the current conservative position. Our military is by far the strongest in the world, while our trains are among the slowest and our sewers are collapsing. So they propose raising spending on the military and cutting domestic investment. We suffer gilded age inequality, with the wealthiest 15,000 families -- one one-hundredth of 1 percent of the population -- capturing fully one-fourth of the entire income growth from 2000 to 2006. Their average income rose from $15.2 million per year to $29.7 million per year. Meanwhile, the rest of us -- 133 million households that make up 90 percent of the country -- divided up 4 percent of the nation's income, adding about $305 to our average $30,354 income. So conservatives push for more tax cuts for the wealthy, while proposing to tax employer-based health benefits. Corporate profits (prior to the recession) have catapulted to what is by far the highest percentage of national income in the past half century. So they want to cut corporate taxes, inevitably increasing the burden on labor. The economic future looks dim because consumers, drowning in debt, are cutting back. So they suggest cutting taxes on corporate investments to generate new investments and growth -- as if companies don't need someone to buy the products they make.

Maybe that will be Steve Martin's next routine: how to sell more stuff and not have customers. Somehow, it doesn't sound so funny.

Your Health Care May Decide the 2008 Election

Now we're in the presidential campaign's silly season. The primaries are over; the conventions are yet to come. Americans are tuning out politics and dialing in baseball, the Olympics, vacations and the price of gas.

Barack Obama is traveling abroad, demonstrating that he really is a responsible driver. And John McCain seems intent on running into every pothole in the road. This week, he published an op-ed in the New York Post slamming Obama for agreeing with the Iraqi prime minister that the troops should be brought home by 2010. Sure, McCain admitted, "Iraq's army will be equipped and trained by the middle of next year," but it will still need a lot of help. "The Iraqi air force, for one, still lags behind, and no modern army can operate without air cover." Particularly not against the fearsome al Qaeda air force. And McCain didn't even mention the need to build Iraq a blue-water navy. The $3 trillion that Nobel Laureate Joe Stiglitz estimates we've squandered on the war -- about a billion a day in direct and indirect costs -- isn't nearly enough.

Americans will begin to tune in to the election again around the conventions. And in the fall, they'll start to take a closer look at who the candidates are and what they believe. Issues matter less in this assessment than broad measures of the candidate's character and sense about whether he has a clue.

In this assessment, I suspect that one issue, seldom mentioned now, is going to matter a great deal by November. Iraq will be big, no doubt; the economy bigger. But health care may just be the pothole that cracks up McCain's Straight Talk express.

People worry a lot about affording health care. Workers accept lower wages with employers that offer health care. They hang onto lousy jobs to keep their health care. Most labor negotiations and disputes center largely on the costs of health care. On this issue, attention is paid over kitchen tables across the country.

So this fall, Americans will discover an inconvenient truth about John McCain: He wants you to lose your employer-based health care. He thinks you aren't sufficiently conscious about the cost of your health care, and you are using too much of it.

His plan is designed -- with sugar and sticks -- to push you to negotiate on your own with the friendly insurance companies. He'll give you a tax credit -- $2,500 for an individual; $5,000 for a family -- to help you pay the price. And he'll revoke the tax exemption for any health benefits your employer provides. Under his plan, those benefits will be taxed as income. McCain says this will reduce our health care expenditures. He might be right. His preferred option -- health saving accounts -- generally features low monthly payments and very high deductibles. People tend to insure themselves against catastrophe and take a chance on routine health care.

On average, this will work pretty well if you are young and healthy and lucky. But if you are sick, if you have suffered serious illnesses in the past, if you have what insurers call a "pre-existing condition," or if you are older and at higher risk, you're in trouble. For many, insurance won't be available at any price. That's why Elizabeth Edwards noted that neither she nor McCain would be eligible for such coverage since both have struggled with cancer. Many more will find adequate coverage unaffordable. Others will have to choose between paying to see a doctor or buying the weekly groceries. You'll be more "sensitive to price," but you might not think that a good thing.

McCain extols the benefits of private health insurance, but he's never had to negotiate with insurance companies. He's been on government-provided health care virtually his entire life. He was raised on military health care, as the son of an admiral. He then went to the Naval Academy and to the military. A year after leaving the military, he was headed to the Congress and enjoying the best government-supplied health care of all.

For the 9 of 10 voters who have some kind of health insurance at work, the contrast will be clear. Obama will give them a choice between the health care they have and being able to buy into a public plan, something like Medicare. McCain will tax their employer-based health care and give them a break to negotiate their own deal with the insurance companies. At the same time, he will liberate the insurance companies from the state-based regulations that have provided some protection for consumers.

Invest in the Iraqi air force. Tax employer-based health care. Liberate the insurance companies. Leave you on your own on health care. If this keeps up, voters may decide it is time to take the keys away from the Straight Talk Express.

Wall Street Socialism

Editor's note: George W. Bush, apparently unaware of what the word "bailout" means, said this week of the Fannie Mae/ Freddy Mac ... rescue: "This isn't a bailout. The shareholders will still continue to own the company." To which we can only add: it's a good thing we didn't elect an elitist smarty-pants like Al Gore!

******



This weekend, Treasury Secretary Henry Paulson, former head of the Goldman Sachs investment house, provided us with a perfect demonstration of Wall Street socialism.



He announced that the Bush administration would seek congressional approval to bail out Fanny Mae and Freddy Mac, the government created, but privately owned, profit-making housing finance companies that hold or guarantee nearly half of the US mortgage market -- some $5 trillion in debt. Paulson seeks and will get an unlimited line of credit to guarantee their debt, as well as authority to purchase their shares to supplement their capital base. The Federal Reserve announced it was ready to provide lending while waiting for Congress to act. Paulson said the new subsidies were designed to sustain the two institutions in "their current form."



Perfect. The two institutions have always been more foul than fish. Created by the government in the 1930s to help lubricate the US mortgage market by buying mortgages from the banks so they would have the cash to make more mortgages, Fanny and Freddy were able to borrow money at a discount because of a widely shared assumption that the government would stand behind their debts if push came to shove. Their operations were regulated, limited by laws detailing what mortgages they could assume (they were essentially prohibited from diving directly into the subprime muck). But as they grew and profited, their executives pocketed lavish salaries and bonuses -- giving them an incentive to grow even more (and as we discovered earlier this decade, to cook the books). Last year, for example, the Chair of Freddie Mac took home a cool $18,289,575. Fannie Mae CEO Daniel Mudd reaped a 7 percent rise in pay to $13.4 million in 2007 while the company lost $2/1 billion and its shared fell 33%. Nice work if you can get it.

Obama Shows His Punch

Yesterday in Raleigh, North Carolina, Barack Obama opened the general election fight, taking the gloves off against the "tired and misguided [economic] philosophy that has dominated Washington for too long," and offering a clear challenge to the Bush-McCain economic misrule. In Washington before the National Federation of Independent Business, McCain counterpunched, suggesting the choice was between low taxes and "the largest tax increase since World War II."

This argument will be the big kahuna in this election. Despite ritual boosterism, soothing rhetoric and quiet prayers by Wall Street pundits, the economy is foul and likely to get much worse. We've lost jobs for five months in a row. Gas, food, health care costs are soaring. For workers, the mess is worse than the stagflation of the 1970s. Then growth was stagnant, while prices and wages were spiraling up. Now we've got stagflation squared -- with growth and wages stagnant, prices on basics soaring, while the value of homes, the largest investment Americans have, is plummeting.

Many aren't making it. Home foreclosures are the highest since the great depression. One in six homes in America is worth less than the mortgage. With prices down 14% from last year, Americans have seen $2.5 trillion in wealth erased. No wonder credit card debt has soared, and workers are rifling retirement accounts.

President Bush and John McCain say the "fundamentals are strong," so the downturn is a "rough patch." As the president left for Europe, he once more celebrated our "open and flexible" economy, with "some of the deepest and most liquid capital markets" [he's apparently been AWOL the last months], arguing that the "long term health and strong foundation of our economy will shine through and be reflected in currency values."

Bush and Republicans in Congress have been resisting any new stimulus measures, arguing that the $600 rebate checks going out in the stimulus package are just kicking in, and that things will get better.

Not likely. Gas prices will chew up the rebates -- while racking up rising trade deficits. And beginning in July, states and localities will be laying off teachers and police, deferring construction projects as they struggle with rising deficits. And the banks staggered by the collapse of the financial bubble are now about to face the rising credit card, auto loan and mortgage defaults that come with an economic downturn.

Why are we in this mess? Obama put the blame for this directly on the Bush-McCain economic strategy. The current crisis, he argued, wasn't simply "some accident of history," or "an inevitable part of a business cycle." It was the "logical conclusion" of a "worn dogma" that has failed this country.

Obama called for a second short term $50 billion stimulus, for aiding homeowners facing foreclosure through no fault of their own, and for extending unemployment benefits for those workers caught in the economic ebb tide. Bush and Congressional Republicans have resisted these measures.

But he also began to contrast his longer range strategy for rebuilding America to the failed trickle-down, market fundamentalism and fiscal irresponsibility of the past years: "For eight long years, our president sacrificed investments in health care, and education, and energy, and infrastructure on the altar of tax breaks for big corporations and wealthy CEOs -- trillions of dollars in giveaways that proved neither compassionate nor conservative.

And with McCain pledging to sustain that same course -- top end tax cuts and cuts in domestic spending -- Obama draws the contrast:

Keep reading... Show less
BRAND NEW STORIES

Thanks for your support!

Did you enjoy AlterNet this year? Join us! We're offering AlterNet ad-free for 15% off - just $2 per week. From now until March 15th.