Monthly Archives: August 2011

The Wages of Destroying Labor Bargaining Power: Nearly 30% of Job Losses Due to Management Cutting Pie in Favor of Capital

Yves here. This short piece by Robert Gordon is important because it seeks to quantify the impact of a phenomenon that economists have noticed a bit late in the game: that the benefits of GDP growth, which used to go mainly to labor (via increased hiring and better wages) now benefit capitalists fare more than ordinary workers. The shift towards increases in GDP favoring corporate profits at the expense of labor became pronounced in the weak Bush expansion (we commented on it in a 2005 article) and Gordon’s effort to try to translate that into the impact on unemployment levels is a useful step forward in the debate.

By Robert Gordon, Professor in the Social Sciences and Professor of Economics at Northwestern University. Cross posted from VoxEU

The US is missing millions of jobs. This column argues that the total is 10.4 million. It claims that 3 million of these can be traced to the weakened bargaining position of labour and the growing assertiveness of management in slashing costs to maintain share prices. Moreover, this employment gap is not shrinking because of the ‘double hangover’ effect—an excess housing supply and besieged consumers unwilling to spend.

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Mike Wallace 1959 Interview of Ayn Rand

I found this interview intriguing for two reasons. First, I must confess to not realizing that Rand’s philosophy was rooted in the counterfactual belief that people are rational. Every social science (ironically, save mainstream economics) puts human irrationality and inconsistency front and center. Nobel prize winner Herbert Simon studied how woefully limited human cognitive capacities. More Nobels have been awarded for behavioral economics, which (among other things) has catalogued numerous cognitive biases.

Second, the questions that Wallace raises with Rand illustrate how much social values have changed in 50 years.

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Summer Rerun: Quelle Surprise! Bank Stress Tests Producing Expected Results!

Yves here. It’s interesting to note that the point of the stress test exercise was to build confidence in the banks so they could raise equity at not massively dilutive prices and rebuild their balance sheets. But the Administration appeared to believe its own PR and relented on pushing the banks to raise capital levels (if you doubt me, look at how much walked out the door in record 2009 and 2010 bonuses).

This post first appeared on April 9, 2009

Should this even qualify as news? From the New York Times:

For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.

What they are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.

That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government. After receiving many millions, and in some cases, many billions of taxpayer dollars, banks still need more capital, these officials say.

The whole point of this charade exercise was to show the big banks weren’t terminal but still needed dough, and I am sure it will prove to be lots of dough before we are done.

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What is Debt? – An Interview with Economic Anthropologist David Graeber

David Graeber currently holds the position of Reader in Social Anthropology at Goldsmiths University London. Prior to this he was an associate professor of anthropology at Yale University. He is the author of ‘Debt: The First 5,000 Years’ which is available from Amazon.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: Let’s begin. Most economists claim that money was invented to replace the barter system. But you’ve found something quite different, am I correct?

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State Officials Starting to Question Securitization Fail, Whether States Should Tax RMBS

This letter (hat tip Daniel Pennell) by Virginia delegate Bob Marshall is another indicator that mortgage backed securitization issues are not going away any time soon. Notice that the questions are sophisticated and show familiarity with recent litigation.

And look at question 10. I’ve been wondering when cash strapped states might look to the apparent failure of mortgage securitizations to adhere to REMIC rules as a possible trigger for tax assessments.

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How Chase Ruined Lives of People Who Paid Off Their Mortgages

Matt Taibbi, in giving a well deserved thrashing to the banking industry’s Tokyo Rose, aka New York Fed director Kathryn Wylde, said:

[S]tealing is pretty much the worst thing that a bank can do — and these banks just finished the longest and most orgiastic campaign of stealing in the history of money.

Once you read the allegations in the cases included in this post, I strongly suspect you will agree that the “ruining lives” in the headline is not an exaggeration. And as important, these two cases, with very similar fact sets, also suggest that these abuses are not mere “mistakes”. These are clearly well established practices that Chase can’t be bothered to clean up, since cleaning them up costs money and letting them continue is more profitable.

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On the Buffett Purchase of BofA Preferred

Bank of America’s stock is now up 11.6% on the leak that the Charlotte bank is selling $5 billion of 6% cumulative perpetual preferred and in the money warrants ($7.14 strike price), again $5 billion in total

This is an admission of weakness, not strength. Bank of America had maintained it didn’t need equity as recently as yesterday and of course before that too, then does a sweetheart deal to build confidence (FT Alphaville has a nice summary of the terms, hat tip Richard Smith).

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Bombshell Admission of Failed Securitization Process in American Home Mortgage Servicing/LPS Lawsuit

Wow, Jones Day just created a huge mess for its client and banks generally if anyone is alert enough to act on it.

The lawsuit in question is American Home Mortgage Servicing Inc. v Lender Processing Services. It hasn’t gotten all that much attention (unless you are on the LPS deathwatch beat) because to most, it looks like yet another beauty contest between Cinderella’s two ugly sisters.

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Bryce Covert: Recession Has Lit the Fuse on Explosive Student Debt

Yves here. I’ve been surprised that student debt has not become more of a social issue, particularly given high unemployments rates among new graduates. Perhaps that time is coming soon.

By Bryce Covert, assistant editor at New Deal 2.0. Cross posted from New Deal 2.0

Troubling long-term trends have gotten even worse as schools, government, and families cut back and student loans skyrocket.

This week’s credit check: Average student debt can spiral up to $100,000 with interest and late payments. Room and board charges at colleges have doubled in actual dollars since 1982.

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Auerback/Parenteau: Jackson Hole will be a Black Hole for Those Hoping for QE3

By Marshall Auerback, a portfolio strategist, hedge fund manager, and Roosevelt Institute Fellow, and Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute. Cross posted from New Economic Perspectives

Those leading the charge for “fiscal consolidation” now seem positively shocked by the violent gyrations in the stock market, as expectations rapidly seem to be shifting toward an “L” shaped recovery or worse – a possible global recession. To those of us on this blog who have consistently downplayed the prospects of global recovery in the midst of widespread private sector AND public sector retrenchment, none of this sadly comes as a surprise. We are, as Bill Mitchell noted recently, experiencing a “self-inflicted catastrophe”, largely because of dangerously destructive myths in regard to the efficacy (or lack of it) in regard to fiscal policy. But in spite of the shrill rhetoric of the fiscal austerian brigades, the markets are beginning to intuit that a nation cannot have a fiscal contraction expansion when all other spending is flat or going backwards and yet that remains the general trajectory of policy.

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