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Please welcome Pulitzer Prize winning journalist David Cay Johnston back to FDL. He’s joining us in the comments — jh
David Cay Johnston wrote the book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense [and Stick You with the Bill]. I doubt there has been an event in my lifetime that could rival the bank bailout as an explicit example of the rich getting richer on the taxpayer tab, and Johnston was warning about this from the get. From September 2008, when we were being told the world would end unless TARP passed immediately:
In covering the proposed $700 billion bailout of Wall Street don’t repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don’t assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don’t assume there is a case just because officials say there is.
The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.
He said Congress should demand answers to certain questions before running off like a bunch of lemmings like they did over the Iraq war. He wanted the case to be made about why it was necessary to bail out foreign banks. He wanted to know if this was going to be a downpayment on a much bigger bailout. He wanted to know why we weren’t helping the people who took out loans, rather than the people who made them. Above all, he wanted to know if this was all really necessary:
Is there a market solution to this? If so, why impose a government solution? If not what does that tell us about our entire economic theory?
None of these questions were addressed, and here we sit, lighting ever bigger piles of money on fire to save a failed system and enrich the people who destroyed it while we’re told we can’t afford basic health care for the Americans they victimized.
It’s well past time Congress demanded some answers. Please sign the petition No More Dough Til We Know Where It Goes and welcome David in the comments.
Previous chats in the series: Economist James K. Galbraith, Rep. Alan Grayson, Yves Smith of Naked Capitalism
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Thanks so much for being here today, David.
What do you make of this pickle?
which pickle –we have many varities of gerkins and dills right now, though mostly sour
I guess we can start with AIG — WTF?
Well the bailout of AIG is especially troubling. Think of AIG as two companies, One is in insurance — very aggressive, apparently solidedly funded. The other was basically a hiuge unregulated hedge fund, an investment vehicle drowning in credit default swaps. And what are those? Basically it works like this:
1. someone borrows money from you.
2. You worry they may not pay you back.
3. You pay AIG (or someone) a fee to guarantee that payment. If they do not repay then AIG will.
Problem? This works when there is only the occasional default. But if everybody defaults, well AIG does not have enough to pay and, frankly, neither do the taxpayers….
Greetings!
I listened to Dr. Elisabeth Warren yesterday on Fresh Air and talked to Rep. Alan Grayson here a few days ago. One thing that perplexes me is the issue of why the banks are afraid to talk about where the money is going to go.
What specifically are they afraid of? Is there a way to deal with this fear?
Hi, Jane!
Thanks for being here, David!
I’m looking forward to becoming better informed through this discussion.
I agree on the sour pickles. More like straight-up bitter. Like, pickled in Lidocaine. Blergh.
FunnyDiva
Oh, and keep in mind that AIG’s biggest counter-party was Goldman Sachs. AIG may bave been on the hook for $20 billion to Goldman, half of Goldman’s net worth,
And who fostered the credit default market? Goldman Sachs.
And when? When Henry Paulson ran Godman.
And who then decided to bailout AIG? Henry Paulson, who was then Treasury secretary.
Alan Grayson described AIG as a “casino.” People didn’t have to have an interest in a company to buy a CDS, did they? Masaccio was explaining that there were outstanding CDS against GM, for example, far in excess of what the company was worth. How did that work?
Spocko, Elizabeth is a truly thoughtful and fearless academic who before this issue did groundbreaking work on bankruptcy. Listen to her carefully.
First off, I think you ask the wrong question, Why would the banks disclose anything UNLESS REQUIRED to do so?
Second, the reason the banks are mum and the reason our government is propping up Cit, B of A and AIG suggests that there is a much deeper problem, here than bad home loans…..
right on point, I wrote a diary that points out and documents;
since the wealthy spend only a fraction of their income and the middle class spend almost all of their income on taxable goods and services, in fact the middle class pays a far higher percentage of their wage in government costs then the wealthy, (almost double), even though the wealthy use far more of the government resources then the middle class
the “progressive tax structure” as it currently stands is not nearly equitable enough
so I was wondering why this point isn’t discussed when progressives talk about “raising taxes on the wealthy”
that’s bad framing and doesn’t point out real accountability, that should be framed “creating tax equity between the wealthy and the middle class”
plays beter
Correction — far in excess of what GM’s outstanding bonds were.
http://oxdown.firedoglake.com/diary/1884
Imagine you are in the business of lending money and that you have found ways to earn fat fees up front, but fear that the borrowers may not be able to pay you back. What do you do? Forgo those fat fees? No way, because then you lose your job. No, you come up with a way to hedge against losses — you buy unregulated insurance, which is what a credit default swap is. And it works (reducing your profits by the cost of the swap) until the whole system collapses.
Another issue that I discussed with Will Bunch here is how to get you in front of the prime misinformers. Some of the people on RW talk radio are just ignorant. Others are aggressively misinforming their listeners.
How many invitations have you had to be on Fox and Friends, Hannity and Ego, Morning Joe, Rush Limbaugh, Glenn Beck, Mark Levin, Laura Ingraham, Don Imus, Ed Schultz, Mike Gallagher and Neal Boortz?
I keep hearing that the reason they don’t want to say who the counterparties are is because they think Americans would get pissed if they found out the money was going to foreign banks. Since most of AIGs CDS were written out of the London office, I imagine that is certainly a possibility, but I’m curious about what you mean by a “much deeper problem.”
Perris,
Oh progressives, liberals and responsible conservatuives (as opposed to the wild-eyed right-wing corporatist radicals we see on the tube every day) have done a lousy job of framing issues. For example — did you know that Obama is going to CUT taxes by $2 trillion, not raise them overall, over the next ten years if he gets his way with Congress?
Welcome!
Health care for all, first, foremost.
I wonder what would have happened back in the fall if that had been a pre-condition of any help for any bank or Wall Street company…
The original bailout specifically authorized bailing out not just foreign banks, but foreign central banks…..
And on appearances, I talk everywhere people will have me. Cavuto invited me, then backed out in January. CNBC cut me short the last time I was on. I do appear on Lou Dobbs often, have been on Rachel once, never on Olbermann despite repeated tries by my publisher…..I do on average five local radio shows a week….but if you can help me get more, especially national TV, please do.
This week CVBS Evening News did a 2-parter on a story told in Free Lunch, though I was not credited and not interviewed. It was about the EduCap jet and its courting of politicians.
Paulson also let Lehman, a Goldman Sachs rival, go belly up, and saved Bear with which Goldman was counterparties of size. As near as I can tell, Paulson’s only job was to make sure Goldman came thru unscathed.
yes, I happened to know that but most people I understand don’t
most people believe reagan lowered taxes too, when in fact he raised taxes 6 of his 8 years and had the largest tax increase of any peacetime president before him
yet they talk about him like he lowered taxes and shrank government
National healthcare — on society’s books instead of those of individual employers — would save us money, be humane, help business owners focus on their busineses and do more than anything else to help the domestic auto industry. Free Lunch shows how instead we get government-financed fortunes for people who jack up health care prices.
Welcome David Cay Johnson ! – big fans of yours ever since your first appearance with Moyers – can’t wait to read the discussion here
My favorite bone-headed D frame is S-CHIP. Dontcha think they coulda come up with something a little catchier, like KidMed?
Welcome Mr. Johnston. It’s an honor. You state:
“Second, the reason the banks are mum and the reason our government is propping up Cit, B of A and AIG suggests that there is a much deeper problem, here than bad home loans…..”
Can you elaborate?
I am wondering why the government isn’t considering nationalizing the fed.
what kind of moronic principle gives a private company the ability to print our money, make and distribute loans without congressional oversite and create the ponzi scenario where every dollar cost a dollar plus prime?
as far as I can see, we need to take back our money
we know we can still do it, the infrastructure is there sonce the fed doesn’t mint coins, we still do that
Reagan was great at framing — his tax hikes were called “revenue enhancers.” The Washington press corps goes along with this kind of delusion because its leaders have built a culture dependent on sources.
This is a real problem and it is polluting the Obama administration, too. See, when this is over, my piece at the cjr.org blog on the Obama White House Press shop, which continues to refuse to talk on the record. Even the GWB administration always talked to me on the record.
Hi ! I hear that mark to market accounting is part of the problem that homeloans have no market right now and are undervalued but if the government just gives the banks some money one day those loans will be worth something.
My problem is after this crisis nobody is going to buy homeloans for a while the whole once bitten twice shy thing.
Second nobody will buy these loans from the banks at the prices the banks were getting before because of the increased risk.
Third these home loans are based on housing prices prereal estate bubble, real estate bubble prices take years I think around 10 to get back to where they were before the bubble broke when adjusted for inflation.
So under what scenario do the banks pay us back our money with interest above the inflation rate, if it takes years for those assets to break even?
I want the details of the bank bailout plan I do not see how this will work!
Econ wonks fire away explain it to me:)
I’ve heard you speak with Ian Masters. Great interviews.
I also wish the progressives would point out that single payer does not mean the elimination of private care, I will still use private care on top of single payer if private care gave adaquate return on that cost.
that argument can be used against the rediculous meme, “but that’s socialism”, as if our roads, police, firedept, water, electricity and the monetary system itself weren’t social projects
1. On KidCare — or how about — why do we have socialized medicine for Congress, the President and Supreme Court and for our oldest and least economically productive citizens, but not for kids?
2. I suspect if we could see Citi’s and B of A’s books we would find:
— all sorts of credit default swaps or other derivatives that are toxic.
— evidence of lots of dubious tax shelters, especially at B of A which had to disallow one of its big tax dodges
— evidence that Citi is up to its eyeballs again (or always was) in helping dictators move their money around. Barrons reports that Wachovia was actively helping druglords hide money they used to buy jets to ferry drugs, but this is only in that specialized pub for the rich investment crowd and it is in the back pages this week…
If Henry was a lawyer this would be a conflict of interest heck if Henry was to get sued this would be a conflict of interest.
Any chance of a civil suit?
On the Fed, all modern economies have central banks. We choose to outsource this function. The Constitution says only that Congress shall have the power to regulate coinage — so I guess it can outsource it. But look at what outsourcing has done — from paying private guards to protect our domestic military bases (cheapskate service) to lousy accounting rules from the FASB to the utter failure of the private collection of taxes, which cost more than it brought in by some estimates…..
A technical note. If you hit the reply button at the bottom of a comment, a banner will appear to let you and others know who you are replying to.
Glenn Greenwald linked to that piece this morning.
Well written, informative, and disturbing.
Change I can believe in? More like “Plus ca change…” I can’t believe!
Thanks so much for being here.
FunnyDiva
The “model” I see passed around for allowing a market solution is the Lehman failure. Is that an appropriate comparison? What would that (the effect of Lehman’s failure) suggest about the consequences of such for other banks?
Things. I do not know. But generally government officials have immunity for their actions and I have argued that while Paulson may have acted with pure heart, his actions were scandalous…..
Think of the Bush bailouts as the end game of the massive socialist redistribution scheme UP that I exposed in Free Lunch and Perfectly Legal.
Then ask yourself why the news media treat this as they do — seeing the hole and not the donut, seeing the issues on the edges and not the overall scheme.
Answer? Most journalists got into this to write stories (print) or because they could not make it as actors or models (TV) and have little interest in hard edge digging and analysis. And very few delve into the government records which disclose a lot…
Well, Bernanke may well underperform Greenspan at the rate he’s going. There doesn’t seem to be any way of getting him to reveal what the FRB is doing, and the Maiden Lane entities seem like they were designed by Jeff Skilling.
on outsourcing the fed, I am under the impression most ”commons” are done FAR more effifiently by the government then ”outsourced”
roadsa schools and bridges being prime examples
Dusty, by market solution I was hoping to get journalists to think about bankruptcy.
The Constitution provides for it and we have had a bankruptcy law since 1800.
That law came about because a sitting Supreme Court Justice, Frank Wilson, was jailed by his creditors. He continued to serve. (Wilson gave us the infamous “three fifths of a person” language on slaves and the census.)
“because they could not make it as actors”
Ha! If only they could sing and dance!
Here is what is NOT in the news — we have had 30 years of supply-side economics and we are awash in supply. Capital is so abundant that interest rates are at or below the inflation rate. Factories are idle. Power plants sit unused.
But we are cutting hours and of forcing people to take time off without pay — cutting demand. And what is deficient is demand, the result of decades of pushing down wages and forcing a two-income lifestyle on Americans.
If you could implement three regulatory changes tomorrow, what would they be?
the rediculous meme, “but that’s socialism”
Agreed. What we name things is important. How the right decides to refer to something is harder to fight. Now that we are in the WH we have the “First Namer” advantage. KidMed instead of S-CHIP is a great example.
Do we have a better word than “nationalizing” banks?
What are the connotations for that word? This is where the focus groups of the Right would come in, they usually would rename something so that it would be the opposite of what it is. We could at least come up with phrases or words that aren’t weighed down with scary connotations. This won’t stop the right from still calling it socialism, but it would give them something else to whine about.
Paul C. Light has an excellent book on the costly and inefficient use of contract employees…and the chair he holds at NYU is also fascinating. Turns out the actress Paulette Goddard was a genius and an inventor….
An expansion on that. All modern economies have a central bank. The job of the central bank is managing the fractional reserve system.
In a fractional reserve system, every bank is required to maintain at least a specified fraction of its liabilities (i.e., your deposits) on hand. Money is created in fractional reserve system when loans are made, and destroyed when loans are paid off. So, technically, it’s not necessary for the Fed to print money to create money. All it has to do is change the reserve requirements.
Sadly and as you also observe (@35) getting journalists to think these days is quite the trick.
I have always wondered who the Corporate Managers and folks at places like these banks thought were going to buy the products if they kept pushing down the wages.
Looks like they are finding out the biggest hole in their theories right now. No one.
Good question.
1. Restore Glass-Steagall, which kept investment and retail banking (and insurance) separate.
2. fix the utterly corrupt accounting rules we have (to their credit the American Institute of CPAs had me speak at a national conference, though those from the Big Four firms were mostly not happy with what I said, while the smaller firm folks and professors were delighted) and get us 20 accounting firms at the top, not four.
3. require executives to hold onto their stock for a decade after they leave, selling only 10% a year.
quite right. The point is that the Fed is an outsourcing and we could have the government run the central bank. The fear is that the bankers would be politically, as if Greenspan kept his extreme views in check for the public good….
A great list.
The very best reporting seems to be done by folks who majored in something other than Journalism. Journalism majors seem to learn how to get along and go along. Other majors, whether English, Math, Sociology, or Poly Sci or most any other discipline, seem to learn a bit more about critical thinking and actually searching for information.
Yes, but to be fair it is the audience that I blame here — look at the huge audiences for American Idol and those disgusting “bachlor/bachelorette” shows that make a mockery of marriage….
When Rather asked the president tough questions he was attacked. Reporters have been told by the public to be lapdogs
It is very interesting that you say that, because I was just asking someone from AFL if they thought that a weakened middle class and a decrease in the purchasing power of average Americans contributed to our current economic woes.
I was asking with regard to the Employee Free Choice Act, which would restore the ability of unions to organize through majority sign-up. If the government would stop acting like a corporate protection racket and allow workers to fight for fair wages and working conditions on their own, it seems like it could go a long way toward restoring the middle class.
Yes the best reporters often did not start out as journalists or, like me, were self-taught (I started at age 17). I urge young people to study statistics, history, physics — then then learn how to report and write.
#3 I have not seen considered– sounds excellent.
What did you say at the conference? Is there the text of your speech somewhere?
Very good list. I’m especially keen on item #2, about which there is virtually zero mention anywhere. Enron as an example? Big firm. Partner had a $52M client, used BS to justify the FS and thus mislead the public. I’m guessing that such practices are pervasive at Citi, BofA, and a host of other zombies.
Jane, unions face many more hurdles than the choice act. We have a whole set of laws that literally reward companies for violating the law. One example:
fire someone illegally for trying to organize a union and if they get a new job that pays more money then there are no damages. Someone who can organize may well be under-employed…..
Our economic competitors, meanwhile, have unions not just for rank-and-file, but for everyone except senior executives…..
Its in Free Lunch, now out in paperback, along with many other reforms.
Shoto, except for Floyd Norris and me, almost no one delves into policy issues involving accounting.
In Free Lunch I explain why the LLC/LLP form for lawyers and accountants is an abomination, an issue I have seen discussed only by me and in academic literature…..so long as these forms exist they reward misconduct and fail to deter it.
The other thing to remember is who is offered up as “reliable sources”.
Think tanks spend a ton of money getting their “experts” in front of the media. Not all experts are created equal.
I asked David that question earlier about getting on some of these other shows because I know how important to have someone who is really good at explaining things in front of the public. Unfortunately often they also have to not only explain the situation but they have to correct misinformation spread by think tankers.
David should not have to beg to get on these shows, they should be booting off AEI, Hoover and Heritage people to make room for him. Suze Orman should be telling the producers, “Don’t talk to me, call David Cay Johnson, he’s your man.”
What? Good old Allan would never have let his time with Ayn Rand and her merry band of economic pornographers and adolescent philosophers influence his economic policies. Would he?
Oh yeah. He done did dat ting. Never mind.
My earlier point was that the Fed doesn’t really print money, the Bureau of Engraving and Printing does, the Fed just issues it if necessary.
The funniest part of the whole batch of neo-Objectivist crap that is going on now is that no one points at Greenspan and says, “See how well Objectivism works in practice?”
While very true that public demand seems to have driven a lot of drivel, I really don’t think there was any public demand for CBS to shaft Rather. Seems that was corporate/political driven.
agree. fabulous idea, aint it ?
although I am still chuckling at the thought of Kudlow’s sputtering a response – draconian govt intervention !. . .
at AICPA National Tax Meeting in January I said that the LLP/LLC is bad public policy. I think I got a middling rating on my “technical” knowledge in the evaluations afterwards. I also suggestd that auditors be picked by random number generator, the way judges are, an idea that was REALLY disliked….
I have not seen a trabnscript and did not notice any article on my talk in their official publication…. but maybe I missed it.
One of the biggest scams going is the number of professional people who are designated as “management/exempt staff” in order to avoid having to pay them any OT or allow them to join a union.
I’ve been looking at the demand situation for years. In the absence of rising real wages, more household members went to work to afford rising standards of living. When that ran out, they borrowed more. Now that’s run out too. There’s no way that tax cuts and infrastructure spending can do more than give the economy a temporary boost (if even that) unless wages start to rise above inflation, a highly unlikely event at current and higher unemployment rates.
That’s rather like teaching. I tell young people interested in teaching to learn something, then learn to teach. Learning to teach without knowing the subject matter is a great way to develop useless teachers.
A bit off-topic, but do you think the NYT will survive in its current form? Are there suitors?
Could you expand on that, please. Why are LLP/LLC entities bad public policy. I’ve suspected that for a long time, but don’t have the legal background to show it.
Hopefully they will ask for JOHNSTON and not some guy whose last name lacks a T…. (laughter, please).
The rise of the Big 12 organizations in Washington — Heritage, CEI, etc. — is the story of how Corporate America and the extreme right segment of the super rich (Mars Family, DuPont Family, Olin Foundation, the Coors Beer Family among others) went to school on Ralph Nader, co-opted his t=straegies ande exploited the weaknesses of American journalism.
These outfits are not think tanks, as I wrote in Perfectly Legal. They are instead marketing orgabnizations and what they are marketing is an ideology. But if you do not quote them, as a journalist, then you get attacked for being biased……
Yes, talk about exploding talking heads!
Yes calling people supervisors is a sham. One of my sons was an “assistant manager” and exempt from wage and hour laws at Food Lion — but then they posted his hours and a few weeks they literally posted him for almost 100 hours (to make up for another assistant who was furloughed for a week for leaving some door unlocked. Illegal? Yes. Enforced? No.
Reaganism was in good part about denigrating and then destroying law enforcement, white collar cops divisions like IRS, SEC, etc.
The NYT is more likely than any newspaper other than the WSJ to survive.
It has a huge and growing audience. The problem is that Google and its like have taken part of the ad base while Craig’s List and Monster have taken another part.
Young people also have this bizarre notion that news is free. I have spoken at colleges where young people say they would never pay for news because it is free and when I ask who they think paid my salary and, especially, the huge expenses of serious reporting they callowly say they get their news free from Google or Yahoo…. There is no free lunch and even FREE LUNCH costs money.
On Rather, you are quite right. And in the “documents” case keep in mind that the secretary to the general told Kate Zernike of the NYT that while she did not type the documents, they said exactly what the general was telling her at work…..makes me wonder (and I am NOT a conspiratorial thinker) that someone might have ginned up fake documents so they could be discredited, which has been known to happen before and in particular in a case involving a client or, drum roll, Karl Rove…..
Hello, David!
Just wondering: What do you think of the stimulus’ predicted effect, as plotted out by Hale “Bonddad” Stewart here: http://bonddad.blogspot.com/20…..-pt-i.html
On LLC/LLP…
In the traditional partnership format each partner is personally liable for misconduct by any other partner/ So if your colleague down the hall is breaking the rules you can lose your house. That is a powerful incentive for you to police your partners.
Under the Limited Liability rules you become liable only if you stick your nose in and ask questions… and all you can lose is your partnership interest, which is why these firms try to operate as virtual partnerships with no real assets except their name’s goodwill.
The best regulation is self-reinforcing and yet in this crucial area we destroyed a virtuous system.
And on a related note…
Michael Wolf, Murdoch’s biographer, thinks Murdoch will sell the Post and buy the Times, and that the latter will improve in the process.
The head of one of the Big Four firms once told an NYT luncheon that no firm could survive on audit fees alone and they needed to do consulting, which is a blatant conflict of interest.
I told him that seemed to deny market economics, that if in fact there were audit-only firms then prices would have to rise to the level needed to attract talent to do the job right.
His response? Well, yes but they would not rise high enough for the standard of living he and his peers had become accustomed to.
In other words, we need a corrupt system so the auditors can live better than market economics would allow….
Sorry, have not seen that. I will look later
Ellen Hodgsen Brown has suggested what seems to be a great fix to the fic we’re in:
http://www.lonestaricon.com/ab…..#038;z=337
Simply stated, nationalize the FED. Your thoughts?
Personally,I’m so damned pissed of fthat it seems as though taking some of these -adjective- out [edited] is the only answer.
I do not think much of Wolff’s work and the notion that the Sulzbergers – who have given up profits for a century to do public service — would sell to Murdoch is beyond imagining. They would shut it down first.
Fair trials first, selise would remind. *g*
Oops, typing too quickly Mr. Johnston. I blame Microsoft.
I’m very aware of the marketing nature of those “think tanks” My friends at the Center for Media and Democracy have been exposing them for years with SourceWatch.
Which TV show/shows do you most want to be on?
If you were to be offered a chance to interview someone live on camera, UNDER OATH, who would that be? What would you like to ask him or her, under oath, so that the world could find out?
I don’t have your favorable opinion of Pinch, who strikes me as a snot-nosed know-it-all, who I think would sell out in an eyeblink at the right price. The rapidly deteriorating quality of the NYT (Judith Miller, anyone?) under Pinch is evidence that supports my opinion of him.
There are no simple solutions.
I warned that this crisis was coming years ago and warned again and again and again and even managed to slip a few stories into the Times that pointed to the facts.
We have had policies that artificially inflated prices and assets and that redistributed income up through government policy. There is no escaping the collapse of these values and the pain that it must cause.
Existing law is not designed to catch and punish the malefactors of pain.
But this was what Reaganism was — a system to take from the many and give to the richest among us.
And what I find amazing is that this is exactly what the Bible (Old T and New) denounces again and again, as I show in Free Lunch. And who were and are the biggest backers of these policies that violate Biblical standards? Oh, hypocrisy in which pews do we find thee residing?
Sourcewatch is a good place to learn important stuff. So is John Stauber’s Weekly Spin, So is Fox, which I watch a lot….
Yes, I wish selise and Hugh were here for this wonderful thread, eCAHN.
I am thoroughly pleased with the conversations going on here.
DW
Hi David love your stuff.
I had a recent diary about your appearance on Lou Dobbs about a year ago when you talked about how the Reagan and Bush tax cuts stole 1.8 trillion from Social Security
Have you seen this? Why should we trust them?
UPDATE: SEC Approves ICE’s Credit-Default Swap Clearing Plan
This raises a huge red flag for me
If you ask me this is the problem. The economy is over-leveraged as it is, especially for these bankers and Wall Street fatcats who hardly contribute anything tangible to the economy – unless you count yachts and antique furniture and caviar
You have a far stronger stomach than I do to watch Faux Noise Channel.
Arthur — no one calls him Pinch — has made plenty of mistakes. He also sat in the Oval Office (with Keller) and was threatened with being executed if the Times did not back off its wiretapping stories — but they did not back off. How many other publishers do you think would have the backbone to stand up to that?
I worked at five major papers in 40 years and unlike the cowardly LATimes, I found the NYT editors to be valiant in every issue I was engaged in — and if you know my work you know that was a frequent concern.
You hit the nail on the head. I can tell you to a certainty that this is the way it works. I can see why you got the accountants at the AICPA conference lathered up by saying auditors should be picked at random. Right now, it’s a bidding war and the firms will low-ball to get the client, assuming at least a three-year gig with lots of tax and consulting…the gravy work.
The situation with the stock market would seem to be impacting a lot of the very rich. Madoff’s investors are little covered by any bail out. It seems to me that even the rich (besides the ones looting the banks/bailout) are feeling some pain these days. I am surprised not to see the impact of that in how the Republicans talk about the crisis.
It seems like there would be hell to pay for the stance the Rs have taken. But I hear nothing.
Why?
The theft of Social Security funds is explained in both FREE LUNCH and PERFECTLY LEGAL (more in that one).
Basically Boomers were taxed in advance for their old age benefits. A tax paid today costs a lot more than one paid in the future. Indeed, that is the opposite of what the rich do — collect day, pay the tax decades later when the real costs is close to zip, no matter how big the numbers.
I have not studied up on the clearinghouse issue, sorry.
I’ll reconsider my opinion on your recommendation. But even on the wiretapping story, the NYT held it until W was reelected.
And we hire security guards for senstive military bases the same way — low bidders. Why we cannot have privates walk patrol is beyond me — oh, I forgot, we have a volunteer military…..
In re the Rs (I am a registered R) and the crisis, we live in what I call the Age of Delusion and Denial.
We live in a world where people who barely scrape by think that plutocrats are their friends and unions are their enemies.
You can have a more sophisticated talk about economics or politics with the typical waiter in small town Europe or Canada than the typical MBA in first class. Trust me, I have spent hundreds of hours doing just this…..
have you computed the actual tax rate on middle class as opposed to the wealthy when we look at the point you just made and the point I made, that since the middle class spends a far greater percentage of their wage, they are taxed far more (federal, state, local and usage) tax then the wealthy?
I didn’t even consider the point of deferred payment in the case of the wealthy
David, any thoughts on KC Fed president’s Hoenig’s speech “Too Big Has Failed”?
On holding the wiretapping story, all my life I have had stories I thought were done and that editors wanted more. Jim Risen had, as I understand it, two solid sources. He went on book leave. He came back and had six. Then the story ran.
Imagine if the story had been knocked down because there were only two sources…..think how much worse it would be.
And keep in mind that Obama so far wants to keep on wiretapping. There are even some bloggers who assert (one with purported photos) that the repeal of the Posse Comitatus Act is now real with soldiers patrolling in Alabama this week. I do not know if this is so, but the fact is that Congress has made such conduct legal and I have not seen Obama take one step to restore that crucial law.
Surely David, someone is profiting from our two recent ‘adventures’?
Why, just today some of us learned about the ‘venture capital arm’ of the CIA, … In-Q-Tel …
Do you think we should reinstate the draft?
Assuming that war is, indeed, our best investment for the future (which statement is made in full SNARK)?
Just had a stellar example of that at a party several weeks ago. An ordinary middle-age woman worker thought unions are terrible. I think she even went so far as to argue that they steal wages from people who really work, and could not be convinced that unions set a higher floor and ceiling for all workers.
These both (books) look very good- have to get.
never on Olbermann despite repeated tries by my publisher…..I do on average five local radio shows a week….but if you can help me get more, especially national TV, please do.
————–
lets call Keith en masse
I guess they can delude themselves to the pawn shop. But it seems the wealthy constituents would be raising some hell with these Rs in the government.
I sure don’t hear anything, including from the media today who reported that the Madoff victims were raising hell, but then did not cover it, if it was happening. Of course these victims have no recourse.
Too Big to Fail is a good example of bad framing….
In a competitive market no bank can become too big to fail and if it does get that way we have legal tools to break it up.
Too Big To Fail is the result of Reaganist policies that destroy competitive markets.
There is no such thing as a free market, only competitive markets. In Free Lunch I show how in many arenas our government has or is in the process of destroying competitive markets and replacing them with rigged markets that raise prices and squelch competition, I hope everyone here reads about that and then tells others because you cannot understand the reasons for our economic disaster without understanding the underlying principles. And I explain these mostly through the stories of individuals so it reads as narrative, not text book.
And that is a perfect example-as well as the related story about those who think there is ‘free news’- of why there is n’t a singular,simple solution. BUT -and watch what is occurring regards ‘mark to market’- what evidence is there that ANY change is actually occurring? All that seems to be happening is efforts to restore the pre-existing systems.
Hi, I came late. The defense of Paulson’s $700 billion bailout was that it was better than doing nothing. Everyone uses this with a straight face. They don’t mention that almost anything would have been better, or that the centerpiece of the TARP the reverse auction was canned almost immediately, or that about half of the funds have yet to be spent.
Do you happen to catch Kashkari’s testimony yesterday? He was saying that the banks should not be forced to lend to anyone. It sort of makes you wonder why all this money was pumped into them then.
I’m no Obama fan, and so far he has not exceeded my expectations.
There’s some act that allows the federal govt to patrol within a 100 mile radius of any U.S. border, which covers somethink like 90% of the population. Don’t know if military is used for such patrols, but what’s the diff?
david, this is a frigging pulitzer story!
can this be documented?
Photos here
It never ceases to amaze me at how otherwise reasonably intelligent people can be so dead set against looking after their own best interest. Goes back to that whole American Idol crap mentality instead of…oh I dunno…real news?
The CIA has funded many business — how do you think Oracle got started? You think our national security apparatus would get by with the kind of lousy databases the IRS gets?
As for the draft, as the son of a 100% disabled WW2 vet (who never saw combat) and the father of three sons and eight grandsons, I have given this a lot of thought.
I suspect that if we got rid of the volunteer miliutary – an idea heavily promoted by one of the economics professors at the U of Rochester whom I once had lunch with — it owuld be a powerful force against going to war.
Think otherwise? Well I could be wrong, but imagine what would have happened in 2002 if GWB had said he was going to ask for a draft to get enough soldiers to properly invade Iraq (assuming any invasion was to take place) and maintain the Powell doctrine….Do you think our college students would be so passive and disinterested as they clearly are (and I lecture at some college or high school just about every week so I have asked and asked about this)…..
Such a ‘picture’ is worth a thousand … john.
Thanks for sharing …
DW
One of the subjects that I hear little about in the media is depression. There are only fleeting mentions as if it is taboo to say it, as if whoever says it will be blamed for causing it.
Yet while there is no explicit definition for depression, it looks like we already have the two most important characteristics of one: a severe recession and deflation.
One of the testifiers on today’s House Foreign Affairs hearing (MIT guy, forget his name, will look up and be back with it) said that the European banks are too big to rescue. That kinda waked me up.
WRT markets, I used to say that the most important field of economics would be industrial organization, that studies market imperfections. (That was back in the 1990s when I thought supply side economics had been trashed, and that we were all Keynesians now.) Only if you know in what way each market fails to reflect Smith’s atomistic model, can you know how to take action to get around that imperfection in the most efficient way.
Boy, was I naive.
Better to do nothing — the problem is we do not know. The government has not been open.
I think we need a stimulus right now and that Obama made a grave error by not asking for much more, not focusing on bigger jobless benefits (and benefits for the third of laid off workers who are not eligible) and not putting much more money into education and keeping public service workers like cops and nurses on the job….but he is a centerist Democrat surrounded by Reagan-light Democrats on economics who brought us our UNFAIR trade with China/Korea/Southeast Asia policies…..
(In the long run global trade enriches us all, but the way we have manage this has been devastating to everyone but the Wall Street class).
Also, see above what I wrote about market solutions — bankruptcy…
Besides your books, I suggest this as reading: “Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism” by University of Cambridge economist Ha-Joon Chang; except for the latter half of last century, the U.S. WAS a ‘proterctionist’ society. In fact it was the mechanism by which we gained our position of power. Now, as you indicate, ‘intellectual property rights ‘ are how we are enforcing ‘protectionsim’; but such is never said of course.
Whoa…
If I had to pick one person to re-write the tax code, it would be Mr. Johnston.
“Perfectly Legal” is a must-read for anyone who wants to understand what happens when you let rich, powerful people write the tax code for long enough.
Kudos to you, Mr. Johnston. And thank you. I wish the whole damn code hadn’t gotten so boring and incomprehensible before you wrote your book. Lots more would’ve read it.
Also, Jane!!!!!!
I have been saying that a solution should include “nationalizing banking” but not “nationalizing banks”
the last thing we should be doing is rewarding gamblers by paying dollars on the penny for their ridiculous bets and seems
I was told yesterday that the infrastructure for that is years away
that defense bewilders me, the banks are already there, if they do the foot work for a set commission but the loan comes directly from the fed, specifically used for specific applications, I don’t see the need for a new infrastructure
This is the guy:
“…I think we need a stimulus right now…”
Are you referring to infrastructure here?
sir, thank you for joining us today to answer our questions.
do you still have hope that we can survive this?
Re the NYT, it seems like they are killing themselves with their business model. You have a populace that is starving for real news reporting and most of the time the NYT delivers up warmed over talking points and Beltway wisdom. As for Keller and Rosenthal, both are neocons. I suppose the chief difference is that Rosenthal is liberal on social issues.
I came of age during Vietnam, and refused to go, David.
I agree with you, but lost many friends to the lies made concrete in the Gulf of Tonkin …
Until the lies (not ‘misleading’) are perceived, the ‘cost’ is quite high for those whose family ties don’t afford them the ‘out’ enjoyed by G.W.Bu$h.
In an ostensible democracy, there MUST be a better way, don’t you imagine?
Too much power to the few always results in much suffering for the rest of society, as the Depression we are now well into shall, once again, prove.
simon johnson – ex imf economist, now at mit, likes to be introduced as a blogger – baselinescenerio.com
… came late, just catching up now….
“supply side” economics was trashed long before reagan re-issued the marketing concept
he couldn’t even find an economist to get on board and had to hire someone who wasn’t an economist pushing the scheme
Yahoo, google et al certainly are not free. They may pay a lower portion of their ad revenues for the news they aggregate than traditional media, I don’t know. How much does Reuters receive from Yahoo? I think your “young people” at colleges are aware that their “free news” is paid by advertising, the same as traditional media.
Do you get an appearance fee for TV commentary? My point being that sometimes the remuneration a reporter gets is in exposure of their ideas, and possibly some royalties from additional book sales.
I’m curious about how to provide high information content news and opinion in the digital age. Your time is valuable, as it the time of other commenters. The model now seems to be we do it out of altruism, wanting to expose truth for each other.
I hope we are not going into a Depression.
One reason we may not is GOVERNMENT.
In 1929-32 spending by government was so small it had little effect. Now government is a third of the economy (net) and we have pensions and forced payoputs from retirement plans for those 70/5 and older and so we should be able to keep up enough demand to escape depression.
But be worried that so many companies are forcing people to take time off without pay, which cuts demand.
And wish that more people were like my wife, who runs a big charitable endowment and could make 3x her pay if she went into business and just had her own pay cut more than 15% so she would not have to lay off anyone….
I know a few fellow business owners (two of my sons and I run a small hotel management firm) have cut their pay to save workers jobs, but I wonder whether people who have supped with not spoons but buckets like the head of Verizon are going to cut their pay to minimize layoffs….
In any event be worried that these subtle pay cuts will push us closer to the edge
The other key issue, in housing, is that houses cannot sell for more than 2.5 to 3 times worker earnings. That means the median house price should be, nationally, no more than about $200k…..we are still above that.
Bad Samaritans is worth reading
You just missed the plate twirling and the dancing bears, but glad you’re here…
As with the argument re ’single payer’ and that there are too many ‘existing institutions’ to just change, someone pointed out that medicare came into being and was in effect 1 -ONE- year after the law was signed.
‘Nationalized Banking is addressed here
the very problem is giving a voce to rediculous arguments simply in the name of “ballance”
liberals for the most part form their opinion around facts, “concervatives” gather their facts around their idiology
for that reason, facts have a profound liberal weight
Jane:
David
I’ve run across some videos of you on the internet and ran across one where you’re being interviewed by someone from the Law School at UMass (I think?) and you’re asked about the 100 million dollar gift by the state of NY to Warren Buffet
Could you tell us about that?
It’s not the size of govt that matters wrt preventing depression, it’s the rate of change, and the stim is not big enuf. And as I typed in an earlier comment, the stim cannot roll the economy over into self-sustaining growth. Only rising real wages can do that, and that’s not gonna happen.
there are levels of the term “depression”, don’t forget, the “great” depression is by it’s very name as large as we’ve seen, there are others less severe
real wages have been depressed for about three years, real investment in “american” products has been down and depressed for about three years and about three years ago, for the first time since the “great” depression we borrowed more then we saved
I cannot see how this has been anything BUT a depression for about three years
what we have now is the boil not the infection
Yes, I have been trying to point this out for a while. Bush’s job creation was poor before the recession hit. Since then, we have lost something like 4.2 million jobs. We will likely lose several million more. And none of this takes into account the normal job creation needs just to stay even, about 1.44 million a year.
So if you look at Obama’s plan to create 3.5 million jobs, it doesn’t begin to meet the need, which by the end of the stimulus at the end of 2010 will be 10-11 million. This is another fact that doesn’t get discussed in the media.
Good questions.
First, Goggle et al do not pay for the links they provide to news organizations. They are parasites and they are killing the economic model for news. Any minor fees they pay (like ads on rarely viewed pages at the NYT website) is minimal compared to the damage they do,
As to fees, I do NOT get paid for shows like Lou Dobbs, Bill Moyers, David Brancaccio. And unless I am in Manhattan I have to drive my own car to the studio and pay for parking…..in the big city they send a car usually.
I do lecture for fees and it is crucial part of my making enough money to finance my research. For the Hilton chapter (the publicly pious Hiltons stole a fortune from poor children) just the bill for photocopying came to $2,500.
Places like The Nation pay $500 or less so that is never going to finance the kind of work I do.
So I hope some of you will ask your local college, university or other forum that has a budget for speakers to hire me — my lecture agent is Trinity Ray at apbspeakers.com (the firm that formed to represent civil rights workers on the lecture circuit when no one would). Last year I made less than $20,000 and I gave about 100 of speeches, many pro bono, but two of them paid most of the money.
An economist friend of mine says that we may well be in the muck deep enough now that getting out will require making the Federal Government the employer of last resort.
That is, back to FDR, the CCC and the WPA.
Sure…
Warren Buffett gets lots of public money, as I show in Free Lunch.
Three years ago near Buffalo he got $100m for a GEICO call center. It cost $40 million. It did not create a single job. The Buffalo News, which he owns, ran articles about how great this was and even about how to become an executive — start out at a call center!
Oh, and while Buffalo has very high inner-city joblessness, this subsidized operation was built in one of the whitest suburbs where there is almost no public transportation from the city…..
And that is not even his biggest ripoff of taxpayers….the others are in the book.
The key term is last resort…
We want an economy that is based on competitive markets. It will be the most efficient and effective.
But Adam Smith, whom I quote at length, notes that that in a truly competitive market businesses will earn in profits just enough to justify staying in business — and that business owners are always trying to get government to put its thumb on the scale.
Well we are seeing the results now of years of business getting government to put a whole fist on the scale…..
I have been hoping that I would not become more depressed than I was after November 2004.
Now I think it is becoming difficult to keep that hope alive.
I think you misunderstand me. I am saying we already in one. It took the NBER until November 2008 to call the recession beginning in December 2007 and in that decision job lost weighed heavily, not just the standard definition of two quarters of negative growth. So it could well take a while for economists, politicians, and media to accept we are in one. But as I said, you look at how fast the economy is contracting and how deflation has become a real factor in the contraction and that is depression. It may not be soup lines but in economic terms that is what it is.
OK…
So is there a better way to get paperback copies of Free Lunch and Perfectly Legal than through Amazon? (better way= more $ directly to the author).
Wow. This discussion is a-frickin’-mazing.
FunnyDiva
Have you been in touch with the Clinton library?
Just a fist?
Seems like at least an amply-upholstered Southern Cheek to me!
FunnyD
David, there are many of us who have chosen to ‘make’ far less than we could, because, as you and your family obviously realize, if we don’t do ‘it’, whatever the ‘it’ is, ‘it’ simply won’t get done.
That you are one of ‘us’, raises your stature (if not your income) very substantially.
For what it is worth, therefore, I offer you my profoundest thanks, and please know that I shall buy your books, suggest that others do so, and encourage those who would hire you to speak, to do so …
Thank you for spending time with us and I hope you may consider so doing again (and again) whenever you may be able, and have the time.
DW
“…Well we are seeing the results now of years of business getting government to put a whole fist on the scale…..”
Sort of gives the lie to the idiotic meme that government needs to get out of the way and let business operate…
“but yes, I mean, there’s no question that this is as big or possibly even bigger a crisis than what we saw in 1929. “
BTW, I’ve said before many times but I’ll say it again…Free Lunch is one of the best, most insightful books you will read. Highly, highly recommended. It pulls the covers back on the system like no other.
You can buy it here.
On jobs creation, GWB created almost no jobs, but tell that to Larry Kudlow…
I did a chart the other day of jobs by administration back to 1948 (the year I was born) and job creation was overwhelmingly done under Dems. Take Eisenhower and Nixon out (and you notice a lot of rightists now denounce them as liberals) and the picture is overwhelming.
But jobs alone are not the right measure. A quarter if all jobs pay under $9…..the average family with children does 900 plus hours MORE paid labor today than in 1973. Today most mothers of small children work. That comes with a cost…
Back in 1971 on a reporter’s pay I bought a house with 20% down ($for $29.75k; it sold for just under $1m two years ago), owned two new cars on a 36- and an 18-month notes, saved money every week and even flew my kids to a vacation. On one income.
On that same income, adjusted for inflation, today I would be driving a beater car, my kids (all eight now grown) would be eating crap and I could not afford my house.
Our low wage, anti-demand strategy has done us lots of harm…..
In Sweden last year I spoke to a dozen bus drivers for an hour, Turned out every one of them owned two residences, a city place and a country place — free and clear. What are the odds that in America you could find a dozen bus drivers on a corner who all owned a single residence free and clear?
Swedes pay the highest taxes in the world, 51% of their economy.
Their taxes for to grease the wheels of commerce and to ease economic shocks. They have well paved streets, public health and good transport.
This year every dollar of income taxes you pay through mid-May will equal interest on the national debt (remember Reagan’s promise to balance the budget?). The rest will go for wars past, present and future…..
I do not want to live in Sweden, but I do want America to be a better place and to fulfill the six promises of the preamble to our Constitution…..
Around our house we joke that Kerry would have won except that he stopped campaigning for 3 days to read my book Perfectly Legal, which probably cost him just enough votes to lose….the NYT, by the way, never reported this because it was seen as self-aggrandizing, unlike the story last week about how columnist David Pogue’s e-book is a best selling iPhone application…..Hmm, what books a presidential candidate reads versus…..
Do you live in the NY area? Would you (or have you) come to SUNY-New Paltz, 85 miles NW of NYC? I am on the Finance Committee of the Foundation, so have some contacts. However, their budget is tight, owing to the economy. But if you like, I’ll see what I can do.
Thanks, DW.
I have done better than I ever imagined and I never got into this to get rich, just to make enough to do what I wanted, to never compromise on any issue of ethics (ditto my wonderful wife of 27 years) and to help make America a better place.
Sadly, while we have made much progress in judging people not on the color of their skin, we now judge too much on the presumed content of one’s wallet instead of on character. Read what I say in Free Lunch about the purposes of our Constitution, which do NOT include individual riches….
Wouldn’t it be truly ironic if-in order to have societal stability- Milton Friedman’s call for ‘guaranteed income’ were to come to pass?
Why was it that Geithner was given pretty much of a pass by the media in his confirmation process until he hit the tax snag? It came out in the last week that he was a real villain in the Asian bank crisis in 1997. And only brief mentions were made of his roles in the Bear-Stearns and AIG deals which really smelled.
Why does it take so long to the get the skivvy on what is a fairly public figure?
I live in Rochester — home of Susan B. Anthony, Elizabeth Cady Stanton and Frederick Douglass as well as the original American democracy which met on the street where I live before the Europeans came hence its name, Council Rock Avenue — and we have an itsy-bitsy studio apt. in Manhattan. But mostly I live in airplanes….
Jobs: 3.5%/year average Ds, 1.2%/year average Rs, W 0.2%/ years. Table 3 here.
New Paltz is 5 hour drive from Rochester. Lotsa relatives there in Fairport. Would you be interested in speaking at SUNY-NP or not?
Nobody knew Geithner. I wrote in TAX NOTES that he should be approved.
Why?
Because we need to get away from this silliness about saints. It was that old stick swindler Joe Kennedy who gave us an SEC that at one time knew how to regulate markets….
I wrote that Geithner should be pressed to work for real tax reform, to stop the excessive harassment of IRS workers on their personal income taxes and other changes to the SYSTEM.
Sure.
contact tray@apbspeakers.com
And
Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich – and Cheat Everybody Else
And despite the warning and exhortations by George Washington and others, corporations rule. And I haven’t even started on the interpretations of the Commerce clause.
Unless-and until- monetary expenditures are NOT considered free speech, I personally do not hold any hope for change BUT I will keep working to change the basis upon which we are supposedly represented.
Folks this has been fun. My typing is showing I am weary and I have a Tax Notes editor needing me about my column and Mother Jones’s fact checker calling about my piece for the May-June issue and have yet to hit the gym so….bye.
One notes that quality of ‘justice’ one receives, in virtually any court in the land, is also tied to the plumpness of one’s wallet, David.
;~(
And that is why CNBC is a joke. We see this over and over again in the media where they just say things, no evidence, in fact mountains of countervailing data, and it has no impact.
I agree about job creation. We lost a quarter of our manufacturing jobs under Bush. They currently account for less than 10% of American jobs. What you are describing is how wages have been stagnant over the last 30 years while until recently family income increased (because more people, mostly women, entered the workforce to make up for the lack in wage growth.).
Thanks for coming by. Wish I had gotten here earlier.
Thanks very much for your time today. It’s been illuminating.
this has been among the very best book salons
EVAH
thanks for visiting us mr johnston – please stop by again soon.
thank you for your time here today and all the work you do and have been doing for so many years.
Seconded!
Most happily!
Google is a free rider on news reporting. The value that it provides to research seems to mitigate some of the negative economic effect on the reporter though.
We need to find a model that adequately compensates people like yourself for the value you create, while keeping what I see as a common good in efficient indexing and searching that google enables. Frameworks like Creative Commons don’t really get at the compensation and free rider problems, they do provide a start to thinking about ownership in this new non-traditional media environment.
Your personal story about single income prosperity is very strong. Families should be able to thrive with a single income, and when you started this was possible.
Productivity is up over the intervening years, that is output per labor unit has risen substantially. This should translate into more prosperity for everyone, if the American Dream is to have any meaning at all.
Thanks so much for being here, David. You’re an iron man.