Tag Archives: Wall Street

Puerto Rico: Crisis Point

In a bid to sure up their island’s dire fiscal situation and address its $72 billion in outstanding public debt, Puerto Rican lawmakers narrowly passed a bill on Tuesday to significantly raise taxes on the territory’s inhabitants. The controversial legislation specifically increases Puerto Rico’s sales tax from 7 to 11.5 percent, the highest in the United States, and introduces a new 4 percent tax on professional services. If the bill is ultimately signed by Puerto Rico’s governor Alejandro Garcia Padilla, which seems likely given his avowed pro-austerity views, then the tax hikes will be implemented within the year.

Tuesday’s news comes after an announcement from San Juan that the government will be closing nearly 100 schools and 20 public agencies in the near future in order to save money.

Puerto Rico is in the midst of a crippling 8 year recession, characterized by devastating unemployment and poverty levels and unprecedented population flight. Critics of Tuesday’s bill decried the fact that the burden of the San Juan’s latest austerity scheme falls squarely on Puerto Rican consumers; they argue that the new taxes will seriously undermine already lagging economic demand on the island and ultimately deepen and prolong Puerto Rico’s longstanding recession, making it impossible for the territory to get out from under its smothering debt in the longterm.

Proponents of the legislation, on the other hand, say that such tax increases are desperately needed in order to stave off a government shutdown in the short-term. Foreign creditors, whose ongoing financing of the island’s government has become indispensable, with vested interests in Puerto Rico’s future solvency have long threatened to pull out of the U.S. territory in the absence of substantive austerity measures there. Policy makers in San Juan are hoping that the $1.2 billion in revenue that the new taxation is expected to yield will calm creditors abroad and attract new investors on the international bond market.

While credit rating agencies’ repeated downgrades of Puerto Rican treasury bonds have led many to reconsider their fledgling investments in the territory, one institution is actually seemingly eager to go all in on the struggling island.

You might be wondering who in their right mind could possibly want to purchase chunks of Puerto Rico’s behemoth and seemingly insurmountable debt. Why it’s our old friends over at Goldman Sachs; you know, the infamously predatory Wall Street banking conglomerate, and Federal Reserve junkie, that Matt Taibbi once hilariously, and poignantly, dubbed “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Well, according to recent article from Bloomberg Business, Goldman is currently gobbling up Puerto Rican bonds at breakneck speed, even as other investors flee for the hills. That a firm as historically and continually immoral and incompetent as Goldman Sachs is tripping over itself to buy up junkish Puerto Rican bonds should unnerve everyone. There’s a scam afoot here ladies and gentlemen, and you and I are the marks… again.

We’ve seen this movie before, and we know how it ends. If past is pretext, and -considering the U.S. government’s failure to break up Wall Street’s seemingly omnipotent “Too Big To Fail” banking cartels and fundamentally reform how it regulates and subsidizes such firms in the wake of the 2008 crash- it almost certainly is, then American taxpayers will get stuck bailing out Puerto Rico’s bondholders if and when the island eventually goes belly up fiscally. But by that point, the sharks at Goldman will have presumably already swam off into the Caribbean sunset, having sold off most of their toxic Puerto Rican assets to unwitting investors and simultaneously made lucratively risky and cynical bets against those same sales long before the island’s financial collapse. Wall Street will have transformed another crisis into a golden opportunity for itself, and the dismantling of Puerto Rican society will continue apace.



Cromnibus: a Case Study in American Oligarchy

When the political establishment in Washington D.C. reaches a consensus on an issue, it’s usually a bad sign for the general population. The last-minute passage of an omnibus budget deal (the so-called “cromnibus” bill) by the House of Representatives and, subsequently, the Senate last week is a prime example. Cromnibus allocates $1.1 trillion of federal spending for the next fiscal year; it’s also riddled with under-the-radar corporate giveaways, painful cuts to social programs and dangerous regulatory changes. It was opposed by both the left wing of the Democratic Party (represented by figures like Senator Elizabeth Warren and Congresswoman Maxine Waters) and the right wing of the GOP (with Senator Ted Cruz vocally angry that the bill didn’t contain measures punishing undocumented immigrants). President Obama, seemingly desperate to avoid another politically toxic government shutdown and to get a budget deal through the Capitol before the Democrats lose negotiating leverage when Republicans take both houses of congress next year, bucked the left-wing of his party and aggressively whipped votes for the bill. In reality, Obama’s excuse that he’s simply playing three dimensional chess and thinking in the long-term by supporting cromnibus is laughable. His nearly six-year long presidency has been characterized by one giveaway to the right-wing after the next (from his extremist deficit reduction initiatives to his theft of a healthcare reform program crafted by the Heritage Foundation) and he’s now poised to sign-off on one of the worst pieces of legislation in recent memory.

The contents of the intentionally dense nearly 1600 page budget deal are too byzantine to describe fully, but there are several especially glaring measures that warrant attention. For one thing, cromnibus appropriates $479 million for four new F-35 joint strike fighter planes, something that the Pentagon didn’t ask for. Despite their constant wailing over the state of the country’s finances, most right-wing legislators are conspicuously silent about the notoriously expensive ($400 billion thus far to be exact) and problem ridden F-35 program. Then again, that may have something to do with the $28 million that the manufacturer of the F-35, Lockheed Martin, spent on political contributions during the last election cycle. Consider cromnibus’s generous military expenditures alongside its devastating reductions to spending on various social programs and one’s stomach really begins to churn. Funding for the Special Supplemental Nutrition Program for Women, Infants and Children (a.k.a. WIC), which provides vouchers for nutritional food to low-income mothers and their children, was cut by $93 million in cromnibus. It’s too bad all those mothers and their children didn’t think to hire lobbyists like Lockheed. To make it even easier for special interests to purchase politicians and dictate public policy, cromnibus allows for individuals to now donate up to $300,000 annually to political parties (in case super-pacs, which are almost totally unregulated, aren’t your thing), that’s ten times what was previously permitted. There are a litany of other harmful provisions in the cromnibus bill (including the nullification of D.C.’s recent legalization of marijuana and attacks on pension agreements, EPA regulations, and nutritional standards), enough to make one’s head spin.

The most idiotic and dangerous component of the cromnibus legislation is undoubtedly the measure rolling back a vital aspect of 2010’s Dodd-Frank financial reform bill, legislation crafted in the wake of the 2008 global financial crisis that wrecked the global economy and left millions of Americans homeless, jobless and hopeless. Though Dodd-Frank was far from perfect, most notably failing to both break apart the gargantuan Too-Big-To-Fail Wall Street banking conglomerates and untether commercial and investment banking by reimplementing some form of the Glass-Steagall act (which had come into existence after the Great Depression but was repealed on the eve of the new millennium), it at least addressed what was arguably the most glaring cause of 2008 meltdown: reckless and predatory derivative trading by Wall Street traders with government insured money. Specifically, Dodd-Frank’s Lincoln Amendment required large banks to separate derivatives (which are, often high risk, financial assets that were infected with toxic mortgages and knowingly, and highly profitably, sold by Wall Street traders to unwitting foreign and domestic investors, public pensions, etc. during the period leading up to the 2008 housing market crash) from regular government backed consumer assets. Taxpayers from across the political spectrum were disgusted at having had to fork over nearly $30 trillion to bailout Wall Street firms whose derivative dealings brought about the crash, and almost everyone agreed that the regulations laid out in the Lincoln Amendment were necessary and good measures. Everyone, that is, except Wall Street banks and their paid cronies in D.C.

Citi-Group, the firm which received the most bailout money during and after the crisis, shamelessly snuck a last-minute provision into the cromnibus bill that strikes down the Lincoln Amendment. In language that is apparently blatantly copied and pasted from a Citi-Group document (see here: http://www.motherjones.com/files/citigroup-side-by-side_0.png) cromnibus again puts taxpayers on the hook for risky Wall Street derivate trading. The top three Wall Street firms currently hold $182 trillion in derivative contracts, much of which is infected with toxic student loan debts. Make no mistake, the stage is set for repeat of 2008 and its aftermath. The inherent “moral hazard” of socializing the risk involved with predatory and volatile Wall Street behavior doesn’t seem to bother the CEO of banking conglomerate JPMorgan Chase, Jaime Dimon, however, who (along with President Obama) spent an entire day last week lobbying congressional Democrats over the phone to support the cromnibus bill. He need not have worried though, money, as always, did the heavy lifting. The 57 House Democrats that broke with Minority Leader Nancy Pelosi and joined with 162 House Republicans to make the GOP/White House’s cromnibus bill a reality cumulatively received twice as much in donations from Wall Street as those Democrats that rejected the bill. It seems as though the $1.5 million that Wall Street firms spend daily on D.C. lobbying efforts is, unlike so many of their now taxpayer insured derivative assets, a sound investment.

The state of U.S. politics is sorry to say the least. According to a recent Princeton study, Americans no longer live in a representative democracy. The authors contend that the disproportionate political resources of concentrated private power (the super wealthy 1%) have, in effect, turned the U.S. into a de-facto oligarchy. After examining the disturbing contents of the cromnibus bill, it’s difficult to take issue with that conclusion.

Source(s): 1) Josh Silver “5 Awful Things that Congress Snuck into the Omnibus Budget Deal” HuffingtonPost (December 11, 2014): accessed December 17, 2014 http://www.huffingtonpost.com/josh-silver/omnibus-budget-deal-2014-5-worst-things_b_6307852.html
2) Gregg Levine “Cramming the CRomnibus: Rushed spending bill creates systemic moral hazard” Aljazeera America (December 15, 2014): accessed December 17, 2014 http://america.aljazeera.com/blogs/scrutineer/2014/12/15/cramming-the-cromnibusrushedspendingbillcreatessystemicmoralhaza.html
3) Barry Ritholtz “Bailout Total: $29.616 Trillion Dollars” The Big Picture (December 9, 2011): accessed December 17, 2014 http://www.ritholtz.com/blog/2011/12/bailout-total-29-616-trillion-dollars/
4) Cheryl K. Chumley “America is an oligarchy, not a democracy or republic, university study finds” the Washington Times (April 21, 2014): accessed December 17, 2014 http://www.washingtontimes.com/news/2014/apr/21/americas-oligarchy-not-democracy-or-republic-unive/