Ben Bernanke Prepares to Rob My Mom

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My mom’s pretty stubborn (I come by it naturally). So in spite of the fact that I have been warning her to move her primary banking out of Bank of America into a solvent bank for over a year, she has yet to do so.

Which is why I’m so troubled that Bank of America is about to use my mom’s savings to back its derivatives counterparties.

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Money’s fungible, right? That’s what the anti-choice people say, anyway. So what’s the big deal that BoA has taken Merrill Lynch’s exposure to the European mess and put that risk where mom keeps her retirement? Yves Smith explains. First, this will make it all-but-impossible to unwind Bank of America when it goes under without disrupting the personal accounts of people like my mom. Significantly, if those derivatives pay off (for example, if Greece defaults) or require more collateral (because BoA gets downgraded again), then counterparties would get their money before mom does.

The reason that commentators like Chris Whalen were relatively sanguine about Bank of America likely becoming insolvent as a result of eventual mortgage and other litigation losses is that it would be a holding company bankruptcy. The operating units, most importantly, the banks, would not be affected and could be spun out to a new entity or sold. Shareholders would be wiped out and holding company creditors (most important, bondholders) would take a hit by having their debt haircut and partly converted to equity.

This changes the picture completely. This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral. [Yves’ emphasis]

As Yves points out, this will quickly result in the depletion of FDIC’s deposit insurance to pay my mom back for the money the banksters snatched. She suggests that Congress will quickly vote to fund the Treasury so it can pay my mom–and millions of other Americans–to replace their insured funds.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.

She’s probably right that even the most Do-Nothing Congress in American history will eventually fund Treasury. I’m just not convinced it’ll happen quickly, or without some really big hostages demanded, first.

Now, mom’s in pretty decent shape for a retiree–between some pensions and other retirement funds, she could wait out the Do-Nothing Congress. And heck, I’m even willing to lend mom a few bob, even if she is so stubborn.

But most Americans are living paycheck to paycheck, and millions of them depend on what they’ve got deposited in Bank of America. It seems to me that Ben Bernanke has just unilaterally decided to make those BoA depositers lend banksters their life savings until such time as the Do-Nothing Congress gets around to fixing what are, as we speak, foreseeable and unacceptable consequences of this move.

Update: Jeebus I had a lot of typos in this. I hope I’ve gotten them all.

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Obama Administration’s Price Tag for Bank Lying, Predation, and (Probably) Securitization Fail: $8 Billion

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Back when the foreclosure fraud settlement was purportedly only going to cover robo-signing abuses, the price tag was going to be $17 billion.

Now that the Obama Administration is desperately trying to craft a settlement deal to include origination problems, the price tag has grown to $25 billion.

Under the proposed terms of the settlement — which could total $25 billion — banks would get broad legal immunity from state lawsuits in exchange for refinancing underwater loans, those mortgages where borrowers owe more than their homes are worth, the sources said.

The deal could provide some relief to the battered U.S. housing market and clear up some uncertainty about banks’ legal exposure that has been a drag on their shares.

Banks have been holding out on a multi-billion-dollar settlement because they wanted broader legal immunity than state attorneys general were prepared to offer.

Originally, the states were only considering immunity for shortcuts taken during mortgage servicing and foreclosures, including the so-called “robo-signing” of documents to evict people behind on their mortgages.

In recent days, the state attorneys general agreed to release major banks from claims that they made legal errors when first originating the loans, such as approving loans for borrowers without verifying any income, according to two people familiar with the talks.

That means for all the additional things the banks would get immunity for–at the very least, the liars loans and the predatory lending, all the things they’re getting hammered for in reps and warrants suits, though the language might well immunize securitization failures–banks would pay just an additional $8 billion.

That, in spite of the fact that FHFA filed lawsuits against the banks that might be worth $40 billion, with $11.5 billion from Bank of America alone.

So basically Obama wants to fund HAMP 2.0 by letting banks out of at least 80% of what they stand to lose in court.

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MOTU Rules: Material Support for Terror Edition

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AmericaBlog’s Chris is right. We should not look at yesterday’s sentencing of Raj Rajaratnam as the first act of justice against the banksters who killed our economy.

As I’ve said many times before, if Rajaratnam is guilty, fine, find him guilty and send him to prison. But let’s not confuse this case with the much larger problem of Wall Street triggering the recession. Rajaratnam was a swindler and used insider information to profit by tens of millions of dollars. That’s a much different story than the trillions of dollars needlessly lost by Wall Street, yet we see no legal action related to those losses.

Not only doesn’t Rajaratnam’s sentence represent a victory for the 99%, a former FBI Agent claims that he was largely convicted because of his material support for the Tamil Tigers. (h/t scribe)

Jay Kanetkar, who was [FBI Tamil Tiger infiltrator] Rudra’s main F.B.I. handler from 1999 until he left the bureau in June 2006, says that Rajaratnam’s alleged involvement with terrorism was a significant factor in why the F.B.I. and the Department of Justice went to such extraordinary lengths to nail him. “It was a conscious decision,” Kanetkar says, “to treat Raj the terrorist the way they treated Al Capone when they got him for tax evasion.”

[snip]

By 2005, Rudra’s penetration of the Tigers’ network was so deep that the F.B.I. had acquired a comprehensive picture of the group’s fund-raising capability. Raj Rajaratnam’s name came up frequently. “On the recordings, he was spoken of in a reverential way, with all the kudos he got as a financial whizz,” says Kanetkar. “At the same time, he wasn’t a commoner, which is why it was hard for Rudra to get close to him. He was reserved for the big stuff.” For example, in September 2005, two Tamil Tiger members were duped by the F.B.I. In an attempt to have the Tigers removed from the government terrorism list, they agreed to pay $1 million to two “corrupt State Department officials” (in reality, F.B.I. agents) whom Rudra had introduced them to. The Tamils went straight from that meeting to Rajaratnam’s house, apparently to arrange to get the money, according to Rudra and Kanetkar.

“Rudra told us that the L.T.T.E. had given Raj a very large sum of money for him to invest in the Galleon fund,” says Kanetkar. “It was clear that the Tigers did have that kind of money. They were raising $1 million every time they held a function, and also going door to door—extorting people to pay thousands of dollars for the next wave of operations.” Kanetkar and his counterterrorist colleagues had been aware of evidence that Rajaratnam was using illegal insider information since 2001, when wiretaps caught an executive from the Intel Corporation offering him insider tips. The F.B.I. saw the two endeavors—terrorism and insider trading—as connected, says Kanetkar: “Money from insider trading was going into his pocket, and money from his pocket was going to the L.T.T.E.”

In other words, if you believe David Rose, the reason FBI prosecuted Rajaratnam as opposed to all the other banksters who engage in insider trading is because the gains from his insider trading went to fund the Tamil Tigers.

But there’s even something funky with that story.

According to Rose’s story, the FBI was aware of Rajaratnam’s insider training starting in 2001, when they got him on tape getting a tip from an Intel. According to Rose, the FBI was collecting evidence tying Rajaratnam to the Tigers as early as November 2002 (and was reviewing money transfers going back to 2000). And while Rose doesn’t mention it, we know the government was already using SWIFT to track terrorist financing by that point. That doesn’t help you track insider trading, but it does mean any suspicion that rajnaratam was financing terrorism would make his money transfers fairly transparent.

And while I’m not surprised in the least that the Bush DOJ chose not to prosecute Rajaratnam for insider trading (indeed, the implication of the Rose story is that the Obama DOJ is still ignoring a lot of insider trading that doesn’t have a terrorism aspect), the entire story suggests that the FBI was tracking a prominent trader’s alleged financing of terrorism for 7 years and not only never pursued him for that, but didn’t indict him for it when they got around to indicting on insider trading, even though at that same point DOJ was sending non-bankster material supporters to jail for 65-year sentences.

Now, maybe the Rose story oversells Rajaratnam’s ties to the Tamils, or at least his awareness that they were terrorists. Clearly, the case against Rajaratnam, unlike (say) that against Chiquita’s top managers during the same time frame, was not so cut and dry. Perhaps DOJ believed they couldn’t convict Rajaratnam.

But the lesson seems not only to be that this is one very small conviction that doesn’t even begin to touch the much larger crimes, but that MOTUs get treated differently even for terrorism-related crimes than ordinary people.

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Why Is Thomas Perrelli Negotiating a Settlement If the Banksters Didn’t Commit Fraudulent Actions?

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In his press conference today, Obama said,

Well, first, on the issue of — on the issue of prosecutions on Wall Street, one of the biggest problems about the collapse of Lehman’s and the subsequent financial crisis and the whole subprime lending fiasco is that a lot of that stuff wasn’t necessarily illegal, it was just immoral or inappropriate or reckless.

[snip]

So you know, without commenting on particular prosecutions — obviously, that’s not my job; that’s the attorney general’s job – you know, I think part of people’s frustrations — part of my frustration was a lot of practices that should not have been allowed weren’t necessarily against the law, but they had a huge destructive impact. And that’s why it was important for us to put in place financial rules that protect the American people from reckless decision-making and irresponsible behavior.

[snip]

The president can’t go around saying prosecute somebody. But as a general principle, if somebody is engaged in fraudulent actions, they need to be prosecuted. If they’ve violated laws on the books, they need to be prosecuted. And that’s the attorney general’s job. And I know that Attorney General Holder, U.S. attorneys all across the country — they take that job very seriously. [my emphasis]

His comments are funny for a number of reasons. Apparently, the President can’t go around saying “prosecute somebody,” but he can go around saying, “assassinate somebody.”

More curiously, though, he insists that if someone has engaged in “fraudulent actions, they need to be prosecuted.”

FHFA has sued 18 banks, a number of them for fraud, most of them in federal court. As part of those suits, it has sued a number of named individuals. DOJ, however, seems to have no interest in all those entities accused of fraud.

More troubling still, mortgage servicers have, in sworn depositions, admitted to fraud of a variety of types.

And yet Associate Attorney General Thomas Perrelli is busy trying to craft a settlement–not a prosecution–with those who engaged in this fraud. (And in the wake of CA’s withdrawal from the settlement talks, the banks are crowing that DOJ is still going to sign such a deal.)

The Administration needs to be asked not just why no big banksters have been prosecuted, but also why in the face of massive fraudulent actions, DOJ is choosing to settle, rather than prosecute.

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SuperCongress Transparency: Dave Camp Staffer Lies to Avoid Talking to Citizens

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After the Take Back the American Dream conference yesterday, we had a rally for Jobs and then lobbied SuperCongress to make sure their plans supported jobs, not just cuts.

As Nicole Sandler notes, the staffers in Jeb Hensarling and Fred Upton’s office politely listened to what we had to say.

Not so Dave Camp’s office. After locking the door of their office for about ten minutes, a staffer then walked out, apparently to get rid of us. After telling us clearly that Camp’s Legislative Director, whom we had asked to speak to, was in the Capitol, he ultimately handed me his card.

It read, “Rob Guido, Legislative Director.”

 

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Why Blame the Failure of the 50-State Settlement Solely on Tom Miller?

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Yesterday, CA Attorney General Kamala Harris announced she was withdrawing from the 50-state foreclosure fraud settlement.

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation’s biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation’s five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, a person familiar with the matter said.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street’s role in the mortgage meltdown, the person said.

With CA–the largest state and the one with the greatest foreclosure exposure–this effectively kills the settlement. See DDay for more on why Harris made this decision and what it means going forward.

But Harris’ letter announcing her decision makes something else (which had become increasingly obvious in recent weeks) clear.

Harris gives US Associate Attorney General Thomas Perrelli, not IA Attorney General Tom Miller, top billing on her letter.

This failure has become Perrelli’s baby as much as it is Miller’s.

When they held their last ditch attempt to save this meeting last week, they met in DC, not in IA or some other central location. And the settlement reportedly discussed at that meeting was heavily skewed towards giving the same people who fucked up HAMP another shot at trying to solve the housing situation.

About 80 per cent of the settlement figure, earmarked for the federal government, could be used to fund another round of debt and payment reductions for struggling US homeowners, people with knowledge of the Illinois document said. That would be split between principal reductions on first-lien mortgages and junior liens; payment forbearance for unemployed borrowers; and short sales, blight remediation and transition assistance for homeowners to move into rentals.

The remainder, about $4bn-$4.4bn in cash, could be designated for the states, which then would divide the proceeds to fund a variety of programmes, including assistance to borrowers. About half that amount could be used to pay up to $2,000 to an estimated 1.1m aggrieved borrowers who allege they were harmed by improper practices. [my emphasis]

So when Harris wrote…

California is hurting. We have the most homes and most home borrowers in default. During the period we have been negotiating, more than 560,000 additional homes in California have fallen into the foreclosure process. When we began this process 11 months ago, five of the ten cities hardest hit nationally by foreclosures were in California. Today, eight of those ten hardest-hit cities are here. And, recently, at the same time that we have been negotiating in good faith, foreclosures in California have surged again.

[snip]

Last week, I went to Washington, D.C. in hopes of moving our discussions forward. But it became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated. In return for this broad release of claims, the relief contemplated would allow far too few California homeowners to stay in their homes.

What she was saying, politely but nevertheless saying, is that giving a state like CA that has been devastated by foreclosures perhaps $500 million to deal with the aftermath, and in the process let the banks off the legal hook for abuses beyond just robo-signing just won’t fly.

The Obama Administration may have been offering Harris less than $1,000 per each new homeowner who has fallen into default (to say nothing of all the previous foreclosures), whereas in a state settlement, NV Attorney General Catherine Cortez Masto was able to get about $57,000 per affected homeowner in a Morgan Stanley settlement.

That tells you two things. First, the Obama Administration still doesn’t understand the extent of the damage the banksters they are trying to protect have done. They don’t understand the scale of the challenges facing states and towns and homeowners affected by the banks’ crimes. And second, the “Department of Justice” was ready to sign away justice for scraps with which to fund another ineffectual Treasury-run program without, first, having forced the banks to face the full consequences of what will happen if they don’t offer principal write-downs.

In other words, if you didn’t already know it, DOJ was (and presumably still is) actively looking for ways not just to ignore the banksters’ crimes, but to help them avoid the non-legal consequences of those crimes, too. Which sort of explains the vitriol directed at Eric Schneiderman of late. Two prosecutors, after all, can conduct a national investigation of the banksters’ crimes, DOJ, and the NY Attorney General. And by refusing to go along with the criminally stupid deal Perrelli was negotiating, Schneiderman has made it a lot harder for for DOJ to sponsor yet more injustice.

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I Was that Trust-Fund Kid Working as a Supermarket Checker

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I take that back. I wasn’t really a trust fund kid. But my grandfather was an Ag Scientist who shared the royalties from an erosion control plant he developed with his grandkids, so I did get a modest quarterly “weed money” check while I was a teenager, which was sort of like a trust fund. And as is likely for people with a PhD scientist in the family, I was affluent, a great student. And, when I was 14, a supermarket checker.

Which is why I find this pompous Peter Frase discussion, responding to these posts (and seconding Yglesias), about the relative value of grocery self-checkout lines so annoying. And since Frase says the supermarket checker I once was doesn’t exist–“You don’t see a lot of trust-fund kids or lottery winners working as supermarket checkers.”–I feel obliged to weigh in, not with all the PhD babble I’m credentialed to throw around, but with some real details.

This whole debate started when Atrios suggested supermarkets had implemented self-checkouts to eliminate jobs.

It isn’t possible for me to know, but I’ve long been puzzled by the widespread adoption of self-service checkouts in supermarkets and other places. It didn’t seem to me that the additional capital costs would really be offset by labor cost reductions. They still require at least one hovering employee to deal with problems and card people for alcohol purchases. In addition, people aren’t very fast at using the machines so you need a higher number of machines/user to speed people through the line. We may not see “supermarket cashier” as a super high skilled position, but the fact remains that doing it well, as with most things, does in fact require skill. A good cashier is fast and accurate, checking people out more quickly and more efficiently.

So I’m not totally surprised that they’re pulling back a bit, though I’m sure the next scheme promising a reduction in personnel will be embraced as soon as it comes along… [my emphasis]

At which point, as the debate wore on, his central point–backed by the article he linked–was increasingly ignored: checkout machines end up not being the great deal for supermarkets they once thought they’d be.

So let me say this.

I was a damn good supermarket checker. I took great pride in what a good supermarket checker I was. It involved knowing all the codes for vegetables cold, knowing where the buttons for large items were. It involved being physically fit–with a lot of standing and bending and twisting–as well as the ability to get in a zone where you’re consistently scanning an item in one movement without breaking the rhythm of that movement, passing the item from one hand to another, left hand right hand left hand right hand. Since I was quick and consistently got the busiest registers, being a damn good supermarket checker also involved chumming up to the bagboys to make sure I always had someone bagging to keep up with my checkout pace (and, frankly, I was a pretty crummy bagger, which tended to piss off the rich ladies we served in that store when I did do their bagging). And in spite of the fact that machines are supposed to do the math for you, you do end up having to do math when the rich ladies throw weird amounts of money at you.

So I come to these self-checkout machines with a bit of expertise on how they compare to a trained supermarket checker. I was curious to use them when they first came out–I admit I wanted to see whether I still had that old touch. And now, I buy so little in big grocery stores that I’ve consistently got just a few items when I do check out in a store with self-checkout lanes, so I use the machines to avoid the long lines of people with very full carts.

Even as someone who once was a damn good supermarket checker, the machines are much less efficient. Partly, that’s because I don’t know all the codes now, and I tend to buy odd fruits and vegetables–things like key limes and nopales–that aren’t loaded into the machine properly. Partly, that’s because those self-checkout machines aren’t built to allow you to get into that Tayloresque rhythm. Partly, that’s because you’ve got a suboptimal bagging set-up (and, no, I’m still not a very good bagger, but luckily I’ve just got myself to blame now).

The point being, at least from my somewhat informed position, Atrios’ guess is correct. Those machines aren’t very efficient. And while I wasn’t unionized as a grocery checker (so my labor was really really cheap), I would imagine even union supermarket checker wages are less than these inefficient machines, to say nothing of consumer satisfaction.

Which is another way of seconding Atrios’ supposition that these machines, in spite of the fact that they replaced workers with machines, were not productivity improvements.

But that point–that replacing a worker with a machine does not always result in productivity gains–appears to have been entirely lost in the debate. djw ignored it when he accepted the terms of the debate as a choice between menial jobs or greater productivity through machines. Yglesias ignored it when he blathered about whether productivity growth was good or bad for workers. Frase ignored it when he called others conservative for exulting in the disappearance of machines that didn’t improve productivity.

So let me make the issue clear: We are talking about whether we should have machines (which lead to lower customer satisfaction) for machines sake or whether we should, in cases where people end up being more efficient and better for business than the machines, employ the people.

Choosing the first option–as Frase and Yglesias seem to do–is stupid for their cherished productivity and stupid for workers. (Note, the productivity battle they’re fighting is likely an earlier one, on whether to shift to scanning machines in the first place.)

Now, the simple return to employing real people instead of self-service machines will not make these great jobs. I didn’t have to keep up that standing and bending and twisting for a lifetime, and unlike my workmates who faced a lifetime of this work, I didn’t opt to sleep with the sexually harassing boss to get better work conditions. And even the bosses in that grocery store worked night jobs, mostly as cops, to survive on the low wages.

But rather than taking an example where machines turned out not to equate to productivity gains as an opportunity to establish new lefty litmus tests on whether machines are good or bad, the lesson here ought to be that not all claims that fewer workers equal more productivity turn out to be true.

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Is Democracy the Problem, or Money-Corrupted Governance?

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I’ve been pondering this NYT story–which is presented as news yet which in fact is analysis attempting to provide a general explanation for protests in democracies–since it came out. Its general explanation for why so many people are protesting is that people–primarily youth–have grown disillusioned with voting.

Hundreds of thousands of disillusioned Indians cheer a rural activist on a hunger strike. Israel reels before the largest street demonstrations in its history. Enraged young people in Spain and Greece take over public squares across their countries.

Their complaints range from corruption to lack of affordable housing and joblessness, common grievances the world over. But from South Asia to the heartland of Europe and now even to Wall Street, these protesters share something else: wariness, even contempt, toward traditional politicians and the democratic political process they preside over.

They are taking to the streets, in part, because they have little faith in the ballot box.

Note, the title of the article (which presumably the authors didn’t write) refers to a “scorn for vote,” but even this last sentence focuses on the ballot box, rather than the system the ballot box supports. The article doesn’t offer any polling to show this generation (or even just protest participants) are objecting to voting, per se, nor does it question why the record number of youth who came out to vote in the US in 2008 are now among those occupying Wall Street. Rather, it offers these quotes from a protest participants.

“Our parents are grateful because they’re voting,” said Marta Solanas, 27, referring to older Spaniards’ decades spent under the Franco dictatorship. “We’re the first generation to say that voting is worthless.”

[snip]

“We elect the people’s representatives so they can solve our problems,” said Sarita Singh, 25, among the thousands who gathered each day at Ramlila Maidan, where monsoon rains turned the grounds to mud but protesters waved Indian flags and sang patriotic songs.

“But that is not actually happening. Corruption is ruling our country.”

[snip]

Mr. Levi, born on Degania, Israel’s first kibbutz, said the protests were not acts of anger but of reclamation, of a society hijacked by a class known in Hebrew as “hon veshilton,” meaning a nexus of money and politics. The rise of market forces produced a sense of public disengagement, he said, a feeling that the job of a citizen was limited to occasional trips to the polling places to vote.

“The political system has abandoned its citizens,” Mr. Levi said. “We have lost a sense of responsibility for one another.”

All three of these speakers are talking about something more than democracy. They’re talking about democracy that has been delegitimized by its insulation from voters; two specify that corruption is the culprit.

In other words, the article claims to report something about protestors’ attitude towards democracy, while mostly downplaying the role that money has had in the failed governance that results from that democracy, though the protests focus on the latter.

The authors fail to distinguish between democracy and capitalism in other ways, too. In one case, for example, they use a quote talking about capitalism to support a claim they make about voting.

Frustrated voters are not agitating for a dictator to take over. But they say they do not know where to turn at a time when political choices of the cold war era seem hollow. “Even when capitalism fell into its worst crisis since the 1920s there was no viable alternative vision,” said the British left-wing author Owen Jones. [my emphasis]

And while they say, “the protest movements in democracies are not altogether unlike those that have rocked authoritarian governments this year,” they only examine the technological similarities, the reliance on social media in both. They don’t bother to consider the commonality between Tunisians demanding jobs, Israelis demanding affordable housing, Europeans fighting austerity or (in the case of London’s riots) for some kind of future. And while they link to news on Occupy Wall Street, they don’t even mention Wisconsin, perhaps because the involvement of unions and middle class teachers would spoil their desired narrative, which claims protestors are also bypassing unions.

A globalized economy has presented similar problems leading to similar protests in democracies and authoritarian regimes alike, but the NYT’s reporters want to claim this is about democracy and not economics.

All of which builds to their judgment, one terribly sourced paragraph spinning these protests as a profoundly undemocratic movement.

While the Spanish and Israeli demonstrations were peaceful, critics have raised concerns over the urge to bypass representative institutions. In India, Mr. Hazare’s crusade to “fast unto death” unless Parliament enacted his anticorruption law struck some supporters as self-sacrifice. Many opponents viewed his tactics as undemocratic blackmail. [my emphasis]

“Critics have raised,” “many opponents viewed.” None of them named or quoted in the article, but all critically deployed to interpret the evidence the reporters set forth as being primarily about democracy and not about so-called capitalism (otherwise known as elite looting).

For the record, I do believe there’s commonality among these protests. Not just the ones the authors puzzle through in Israel, India, and Europe, but also those in Madison, Wall Street, Egypt, and Tunisia. I do believe it’s worth reflecting on this commonality. But I find it telling that an article published in the most elite news institution and complaining that, “protesters have created their own political space online that is chilly, sometimes openly hostile, toward traditional institutions of the elite,” interprets the commonality here as a rejection of democracy, not a rejection of elite looting.

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The Problem with Purportedly Apolitical Policy Wonks: Their Faulty Logic

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Peter Orszag opines from the politically sheltered comfort of his gig at Citigroup that we have too much democracy.

I’ll say more about specific claims he makes below, but first, let me point out a fundamental problem with his argument. He suggests we need to establish institutions insulated from our so-called polarization to tackle the important issues facing this country. That argument is all premised on the assumption that policy wonks sheltered from politics, as he now is, make the right decisions. But not only is his own logic faulty in several ways–for example, he never proves that polarization (and not, say, money in politics or crappy political journalism or a number of other potential causes) is the problem. More importantly, he never once explains why the Fed–that archetypal independent policy institution–hasn’t been more effective at counteracting our economic problems.

If the Fed doesn’t work–and it arguably has not and at the very least has ignored the full employment half of its dual mandate–then there’s no reason to think Orszag’s proposed solution of taking policy out of the political arena would work.

Here’s Orszag’s initial claim that polarization is dooming our country.

During my recent stint in the Obama administration as director of the Office of Management and Budget, it was clear to me that the country’s political polarization was growing worse—harming Washington’s ability to do the basic, necessary work of governing. If you need confirmation of this, look no further than the recent debt-limit debacle, which clearly showed that we are becoming two nations governed by a single Congress—and that paralyzing gridlock is the result.

There are a couple of problems with this. First, in response to the debt limit charade, voter approval of Congress and the President pretty much tanked. And while we don’t know how voters will act on their disgust with Congress’ (and the President’s) inaction, polling at least suggests that Congress will pay for the debt limit fiasco. It also suggests that support for the Tea Party, the architect of that fiasco, continues to decline. Which seems to suggest that democracy is working, it will end up punishing elected representatives for playing games with our country’s future, it will have precisely the result you’d want for such idiocy.

Add in the fact that Orszag later points to the automatic triggers that that flawed political process put in place.

Beyond automatic stabilizers, we also need more backstop rules: events that take place if Congress doesn’t act. In this sense, the fiscal trigger created as part of the debt-limit negotiations is a good step forward. It leads to automatic spending reductions if Congress doesn’t enact measures to reduce the deficit; in other words, it changes the default from inaction to action.

In other words, Orszag points to the debt-limit fiasco (and returns to it in his closing paragraph) as the best example of the problem with politics, but then points to the automatic triggers that resulted from that fiasco as a good thing. I don’t necessarily agree with him on that point, but his own logic doesn’t make any sense. He’s simultaneously saying the debt limit fight was the worst thing ever, but applauding the result.

Curiously, while Orszag tries to claim that the problem with all of Congress is polarization, rather than polarization being a problem in the House and Senate rules being a problem in the Senate (plus, the money in politics and crappy political journalism I mentioned earlier), he makes no mention of the number of centrists in the Senate. Perhaps that’s because the centrists back policy proposals (like immediate cuts) to the right of what Orszag proposes in his piece (which notes that economists advocate holding off on cuts and advocates for progressive taxation). The most likely outcome of more non-partisan or bipartisan commissions, then, are policies that aren’t the ones Orszag champions.

Which means the key to these so-called independent commissions would immediately get us into the question of who chooses them? Peter Orszag cites, among others, former Vice Chair of the Fed, Alan Blinder with approval; but he has been criticized for his own failed independence. Will we use the process that resulted in the selection of Ben Bernanke and the rest of the current Fed, that hasn’t even fulfilled its mandate, much less necessarily made the right decisions on restoring our economy?

In short, Orszag promises that independent wonks will make the right decisions for the country. But in making that argument he shows that even policy wonks sheltered from politics, like him, allow bad logic and personal biases to cloud their decisions.

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Take Back the American Dream Conference Next Week

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One of the highlights of Netroots Nation this year was Van Jones’ way-too-early keynote. He offered a speech–and an organizing opportunity, Rebuild the Dream Movement–that addressed a lot of the angst of progressives. Since that time, there have been a series of Rebuild the Dream meetings, but it has yet to take off in the way it should.

I’m hoping that next week’s Take Back the American Dream conference will change that.

Campaign for America’s Future has been changing its name for the last several years as the politics merit it, and CAF has been involved in the Rebuild the Dream movement.

But their conference has also long been one of the best coalition building opportunities. (For example, it got unions working with bloggers long before Netroots Nation did.) In addition to several appearances from Jones and further organizing the Rebuild the Dream movement, there will be good panels on foreclosure and manufacturing and combating Koch money in elections.

I’ll be there, reporting on the shindig. But if you’re able, I really encourage you to come too. (And if you do, let me know so I can look out for you!)

Update: Added the right Van Jones video.

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