[BITList] From a coprerespondent in the US.

[John Feltham]

Here are two op-ed pieces that discuss both ends of what is wrong with this country.  

If we don't fix both ends, we could end up bass ackward.

Excerpts:

<<Our Congress today is a forum for legalized bribery. One consumer group using information from Opensecrets.org calculates that the financial services industry, including real estate, spent $2.3 billion on federal campaign contributions from 1990 to 2010, which was more than the health care, energy, defense, agriculture and transportation industries combined. Why are there 61 members on the House Committee on Financial Services? So many congressmen want to be in a position to sell votes to Wall Street.>>

and 

<<But true social mobility and broadly shared prosperity are not so easily achieved. Remember that those tax dollars, once collected, would not be disbursed with perfect effectiveness to the most deserving members of the American middle class. Instead, they would be used to buy a little more time for our failing public institutions — postponing a reckoning with unsustainable pension commitments, delaying necessary reforms in our entitlement system and propping up an educational sector whose results don’t match the costs.


More spending in these areas won’t necessarily buy us more mobility. The public-sector workplace has become a kind of artificial Eden, whose fortunate inhabitants enjoy solid pay and 1950s-style job security and retirement benefits, all of it paid for by their less-fortunate private-sector peers. Some on the left have convinced themselves that this “success” can lay the foundation for a broader middle-class revival. But if a bloated public sector were the blueprint for a thriving middle-class society, then the whole world would be beating a path to Greece’s door.>>





http://www.nytimes.com/2011/10/30/opinion/sunday/douthat-what-tax-dollars-cant-buy.html?_r=1&ref=opinion

October 29, 2011
What Tax Dollars Can’t Buy

By ROSS DOUTHAT

OVER the last 30 years, the U.S. economy has generated more large fortunes and more stress for the middle class. While the rich have grown extraordinarily rich, median wages have barely increased, the costs of health care and higher education have jumped, and socioeconomic mobility has lagged behind that of other developed nations. Americans have never begrudged the wealthy their success, as long as they had a chance to rise higher than their parents, and perhaps get rich themselves. But our era of diminished expectations is putting that in doubt.

From the drum circles of Zuccotti Park to the hustings of Barack Obama’s re-election push, a suddenly invigorated liberalism thinks that it has the answer to this angst: a renewed demand for higher taxes on America’s richest 1 percent. And if all you care about is reducing measured income inequality, then the Occupy Wall Streeters and their Democratic admirers have it right. Tax millionaires sufficiently and you’ll end up with a more equal society. The tallest poppies will be trimmed, and some of their income will find its way to someone’s else pocket.

But true social mobility and broadly shared prosperity are not so easily achieved. Remember that those tax dollars, once collected, would not be disbursed with perfect effectiveness to the most deserving members of the American middle class. Instead, they would be used to buy a little more time for our failing public institutions — postponing a reckoning with unsustainable pension commitments, delaying necessary reforms in our entitlement system and propping up an educational sector whose results don’t match the costs.

More spending in these areas won’t necessarily buy us more mobility. The public-sector workplace has become a kind of artificial Eden, whose fortunate inhabitants enjoy solid pay and 1950s-style job security and retirement benefits, all of it paid for by their less-fortunate private-sector peers. Some on the left have convinced themselves that this “success” can lay the foundation for a broader middle-class revival. But if a bloated public sector were the blueprint for a thriving middle-class society, then the whole world would be beating a path to Greece’s door.

Our entitlement system, meanwhile, is designed to redistribute wealth. But this redistribution doesn’t go from the idle rich to the working poor; it goes from young to old, working-age savings to retiree consumption, middle-class parents to empty-nest seniors. The Congressional Budget Office’s new report on income inequality points out that growing Medicare costs are part of the reason upper-income retirees receive a larger share of federal spending than they did 30 years ago, while working-age households with children receive “a much smaller and declining share of transfers.” Absent reforms, this mismatch will only grow more pronounced: by the 2030s, Medicare recipients will receive $3 in benefits for every dollar they paid in.

Then there’s the public education system, theoretically the nation’s most important socioeconomic equalizer. Yet even though government spending on K-to-12 education has more than doubled since the 1970s, test scores have flatlined and the United States has fallen behind its developed-world rivals. Meanwhile, federal spending on higher education has been undercut by steadily inflating tuitions, in what increasingly looks like an academic answer to the housing bubble. (If the Occupy Wall Street dream of student loan forgiveness were fulfilled, this cycle would probably just continue.)

The story of the last three decades, in other words, is not the story of a benevolent government starved of funds by selfish rich people and fanatical Republicans. It’s a story of a public sector that has consistently done less with more, and a liberalism that has often defended the interests of narrow constituencies — public-employee unions, affluent seniors, the education bureaucracy — rather than the broader middle class.

The alternative to this liberalism should not, however, be the kind of reverse class warfare currently being championed by the not-Romney candidates in the Republican field, whose flat-tax fantasies would ask working Americans to bear more of the burden for public institutions that have been failing them for years.

Rather, it should be a kind of small-government egalitarianism, which would seek to reform the government before we pour more money into it, along lines that encourage upward mobility and benefit the middle class. This would mean seeking a carefully means-tested welfare state, a less special interest-friendly tax code, and a public sector that worked for taxpayers and parents rather than the other way around.

This was the potential message that had some of us excited about the prospects of either a Mitch Daniels or a Chris Christie candidacy. Given his background and his bank account, Mitt Romney is an unlikely champion for a more egalitarian conservatism. But it wouldn’t be the first time that an American patrician has emerged as a champion of the common man.

___  

http://www.nytimes.com/2011/10/30/opinion/sunday/friedman-did-you-hear-the-one-about-the-bankers.html?ref=opinion

October 29, 2011
Did You Hear the One About the Bankers?

By THOMAS L. FRIEDMAN

CITIGROUP is lucky that Muammar el-Qaddafi was killed when he was. The Libyan leader’s death diverted attention from a lethal article involving Citigroup that deserved more attention because it helps to explain why many average Americans have expressed support for the Occupy Wall Street movement. The news was that Citigroup had to pay a $285 million fine to settle a case in which, with one hand, Citibank sold a package of toxic mortgage-backed securities to unsuspecting customers — securities that it knew were likely to go bust — and, with the other hand, shorted the same securities — that is, bet millions of dollars that they would go bust.

It doesn’t get any more immoral than this. As the Securities and Exchange Commission civil complaint noted, in 2007, Citigroup exercised “significant influence” over choosing $500 million of the $1 billion worth of assets in the deal, and the global bank deliberately chose collateralized debt obligations, or C.D.O.’s, built from mortgage loans almost sure to fail. According to The Wall Street Journal, the S.E.C. complaint quoted one unnamed C.D.O. trader outside Citigroup as describing the portfolio as resembling something your dog leaves on your neighbor’s lawn. “The deal became largely worthless within months of its creation,” The Journal added. “As a result, about 15 hedge funds, investment managers and other firms that invested in the deal lost hundreds of millions of dollars, while Citigroup made $160 million in fees and trading profits.”

Citigroup, which is under new and better management now, settled the case without admitting or denying any wrongdoing. James Stewart, a business columnist for The Times, noted that Citigroup’s flimflam made “Goldman Sachs mortgage traders look like Boy Scouts. In settling its fraud charges for $550 million last year, Goldman was accused by the S.E.C. of being the middleman in a similar deal, allowing the hedge fund manager John Paulson to help choose the mortgages and then bet against them without disclosing this to the other parties. Citigroup dispensed with a Paulson figure altogether, grabbing those lucrative roles for itself.” (Last Thursday, the U.S. District Court judge overseeing the case demanded that the S.E.C. explain how such serious securities fraud could end with the defendant neither admitting nor denying wrongdoing.)

This gets to the core of why all the anti-Wall Street groups around the globe are resonating. I was in Tahrir Square in Cairo for the fall of Hosni Mubarak, and one of the most striking things to me about that demonstration was how apolitical it was. When I talked to Egyptians, it was clear that what animated their protest, first and foremost, was not a quest for democracy — although that was surely a huge factor. It was a quest for “justice.” Many Egyptians were convinced that they lived in a deeply unjust society where the game had been rigged by the Mubarak family and its crony capitalists. Egypt shows what happens when a country adopts free-market capitalism without developing real rule of law and institutions.

But, then, what happened to us? Our financial industry has grown so large and rich it has corrupted our real institutions through political donations. As Senator Richard Durbin, an Illinois Democrat, bluntly said in a 2009 radio interview, despite having caused this crisis, these same financial firms “are still the most powerful lobby on Capitol Hill. And they, frankly, own the place.”

Our Congress today is a forum for legalized bribery. One consumer group using information from Opensecrets.org calculates that the financial services industry, including real estate, spent $2.3 billion on federal campaign contributions from 1990 to 2010, which was more than the health care, energy, defense, agriculture and transportation industries combined. Why are there 61 members on the House Committee on Financial Services? So many congressmen want to be in a position to sell votes to Wall Street.

We can’t afford this any longer. We need to focus on four reforms that don’t require new bureaucracies to implement. 1) If a bank is too big to fail, it is too big and needs to be broken up. We can’t risk another trillion-dollar bailout. 2) If your bank’s deposits are federally insured by U.S. taxpayers, you can’t do any proprietary trading with those deposits — period. 3) Derivatives have to be traded on transparent exchanges where we can see if another A.I.G. is building up enormous risk. 4) Finally, an idea from the blogosphere: U.S. congressmen should have to dress like Nascar drivers and wear the logos of all the banks, investment banks, insurance companies and real estate firms that they’re taking money from. The public needs to know.

Capitalism and free markets are the best engines for generating growth and relieving poverty — provided they are balanced with meaningful transparency, regulation and oversight. We lost that balance in the last decade. If we don’t get it back — and there is now a tidal wave of money resisting that — we will have another crisis. And, if that happens, the cry for justice could turn ugly. Free advice to the financial services industry: Stick to being bulls. Stop being pigs.




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