22 December 2011

Mr. Potter’s Christmas Bonus

Filed under: Culture — ktismatics @ 6:52 am

The EU central bank has loosened up its low-interest lending to second-tier banks, charging them very low interest rates and accepting as collateral lower-grade assets like mortgage-backed securities. It’s those very same securities that caused the banks to fail when the housing bubble burst, failures from which they were bailed out by the EU central bank while home mortgage borrowers were allowed to drift in the wind — just like in the US.

The EU central bank is not extending additional low-interest loans directly to troubled governments like Greece and Italy. Instead the 2nd-tier banks will continue financing those governments’ budget shortfalls. Those banks will borrow euros at, say, 1% from the central bank and then lend those same euros back out at, say, 3 or 4% to Greece and Italy. Meanwhile, the EU will impose austerity on the member governments to ensure that the second-tier banks collect their profits.

If the governments can’t keep up with their loan payments — and there’s no reason to believe that their precarious situation will improve any time soon — will these second-tier banks fail? That doesn’t seem very likely given the precedents. What’s more likely is that the central bank would again bail out the banks with more cheap euros, using as collateral the already-existing government securities that the governments aren’t able to pay back. Meanwhile, the Greek and Italian citizens must continue to pay usurious rates to investment bankers while themselves being subjected to government austerity and high private-sector unemployment and decreasing wages.

Here in the US, the Democrats in Congress are purportedly fighting tooth and nail for a temporary extension of the payroll tax reduction. This isn’t a tax in the usual sense. Part of it is an insurance premium that finances Medicare: you pay in now so you can get low-cost healthcare after you’ve retired from working. The other part is a retirement investment program: pay into Social Security now so you can live off the principal plus return when you’ve retired. Both components of the payroll “tax” require that the employer match the worker’s contribution, making it a small but vital part of the employee’s total compensation package.

Reducing the payroll tax accomplishes three things: it undermines two self-sustaining government programs for older people; it reduces employee pay; it increases ready cash available for workers to spend now. Who benefits? Companies and their investors, who get increased consumer spending from their workers while actually decreasing their paychecks. Who loses? Workers, whose financial security at retirement is severely compromised.

Thanks, Democrats. And as part of the “compromise” to gain the necessary votes from Republicans, the Democrats dropped the tax increase on millionaires — this after Dem senate leader Harry Reid already scrapped the tax rise for those making between $350K and $1M because, Reid reminded us, that kind of pay isn’t really high income in today’s economy. Boehner will fold on the payroll tax cut, Democrats in Congress are braying about the Republican Speaker of the House. Of course he will: it’s in the best interest of his constituents. The only debate remaining is whether Congress and the President will make this windfall for employers and investors permanent rather following the usual Washington playbook of staging an ongoing series of  brinksmanship throwdowns  over short-term extensions.


  1. From the National Journal:

    There was no formal cease-fire. Speaker John Boehner didn’t even call Senate Majority Leader Harry Reid to offer up his payroll-tax sword of surrender. The great Christmas conflict over tax cuts ended at the staff level. Boehner’s chief of staff, Barry Jackson, cut the deal with Reid’s chief of staff, David Krone. If the weeklong tussle over a two-month or one-year extension of payroll taxes was over principle, the principal antagonist, Boehner, in the end, had neither the will nor the stomach to directly sue for peace.

    Preordained since at least Tuesday, the only variable on the eventual House GOP retreat was timing. When. Not if. Republicans within leadership circles and those who used to be but now prowl K Street could smell defeat almost from the start. It reeked like reindeer road kill. House Republicans tried for two days to shift public opinion but were met by the Obama megaphone, which grew louder and more visually emphatic by the day. The mechanics of the endgame commenced, in fact, right after President Obama stood with dozens of middle-class Americans who stood to lose–on average–$83 a month if the 2 percent payroll-tax cut expired on Jan. 1…

    This reads like TV commentary on a fixed wrestling match. I forgot that the “compromise” also includes extending a bill that increases physician compensation under Medicare — another Democrat sellout I ranted about several months ago.


    Comment by ktismatics — 23 December 2011 @ 7:06 am

  2. From the NY Times:

    Vin Weber, a Republican Party strategist and former congressman, acknowledged that Mr. Obama had won at least “a nice tactical victory to end the year” as well as higher approval ratings in recent polls. Mr. Weber said he learned long ago from a pollster to President Ronald Reagan that “one of the central ingredients of a president’s approval rating is the public’s sense of his ability to dominate Congress. The substantive issues,” he said, “are secondary.”

    Right. So the important thing for Obama and the congressional Democrats was to stage the appearance of winning. In all likelihood the mainstream Republicans weren’t unhappy to see Boehner look like a loser. There’s something about his Tea Party that’s too hard to control by the usual apparatus; plus, public opinion is largely against them. Better to accomplish the same economic objectives incrementally, without the radical fascist-fundamentalist undertones.


    Comment by ktismatics — 23 December 2011 @ 7:17 am

  3. So–to be accurate for those (many) bleugers who just think American politics is irrelevant, since not Marxist-hard–you mean Boehner himself doesn’t mind ‘taking the fall’, because he’s mainstream, isn’t he? The ‘his Tea Party’ is partly true, but he’s not ‘Tea Party’ himself. Lord, who’d have ever thought there’d be a party that even the Bushies would have thought was too freaky?

    We’ll see. I’m not quite as pessimistic as you are, but it is true that, since the summer, there is a sense of terror of total paralysis always threatened by these people who seem to have found a way to literally hide in Washington, given that what you say about their public opinion standing. They’re another form of North Korea, I’m sure, and I would imagine all Communists are secretly extremely thrilled at the success of the Tea Party. After all, the ‘elite’ Tea Party people are even in a greater majority than the mourners of Dear Leader…

    I hate to say it, but I think Christmas is very exciting in its violence, especially here in NYC. Although I’ve usually been happy enough to do my LA trip Dec. 17-24 to avoid this, the $150 reduction to go earlier, plus the perfect weather, has made it easier to watch this terrifying period (which always disappears here on Xmas Eve rather late in the day, and Xmas Day is always hushed and sweet, but the two days BEFORE…fuggedaboutee…it’s horrifying and murderous, Jack and I were just out and people and sirens all hysterical). Happy Christmas once again, after all, Christmas is for those who know how to do it, and I’m being generous this time too.)


    Comment by illegal dances of new york city — 23 December 2011 @ 1:57 pm

  4. You’re probably right. Boehner is solid conservative but he’s been in the House for 20 years and can take one for the team once in awhile. He’s an old ally of Newt Gingrich, and like Newt he has played to the religious right even if that’s not how he rolls personally. It looks like Newt’s campaign may have already peaked, and now Ron Paul is going down.

    When Obama was elected I’d never have guessed that he’d be pushing funding cuts for Social Security and Medicare, both of which have been among the strongest Democratic achievements and which have long been targets of Republican efforts toward privatization. Obama’s ability to champion what amounts to a Republican policy and spin it to look like populism is I suppose a sign of continued electability. In Boehmer’s supposed showdown it’s likely that Boehner’s colleagues and handlers told him to drop the bone, since they’d already gnawed all the meat off it (terrible metaphor, but I’m sticking with it).

    We have a white Christmas assured, owing to15 inches of new snow that fell yesterday.


    Comment by ktismatics — 23 December 2011 @ 3:20 pm

  5. “When Obama was elected I’d never have guessed that he’d be pushing funding cuts for Social Security and Medicare, both of which have been among the strongest Democratic achievements ”

    No, I wouldn’t have either, and I didn’t even notice it till the late spring or early summer, hadn’t been paying attention. I was totally caught off guard when I read it, and could tell that the talk had been going on for some time, I guess since the mid-term elections–was the Tea Party immediately entrenched and shoving policy at the beginning of 2011? Maybe no presidents have a ‘core’ anymore, there was much talk like that back in the days of Clinton’s waffling about foreign policies in his first term.


    Comment by illegal dances of new york city — 23 December 2011 @ 6:39 pm

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