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People’s City Council: community perspectives on fiscal crisis

Fifteen hundred community activists from neighborhoods across the city will gather tomorrow evening for a People’s City Council to make sure that the needs of Chicago residents – jobs, housing, education, services and safety – aren’t sacrificed for an agenda driven by corporate greed.

Twenty or more aldermen are expected to attend.

Sponsored by the Grassroots Collaborative and twenty community, labor, and civic groups, the event takes place at 6:30 p.m., Thursday, July 7 at the UIC Forum, 725 W. Roosevelt.

“With all the talk about ‘shared sacrifice,’ we want to make sure that it’s not just community residents sacrificing in terms of service cuts and job losses and their ripple effects,” said Eric Tellez of Grassroots Collaborative.  “We want to make sure the banks and corporations are sharing in the sacrifices and not taking more resources than they need.”

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A failed banking model

Joseph Stiglitz offers a concise list of nine reasons the Obama administration’s financial plan is insufficient. Here are a few:

“Confidence is important, but it must rest on sound fundamentals….

“Bankers can be expected to act in their self-interest on the basis of incentives. Perverse incentives fueled excessive risk-taking, and banks that are near collapse but are too big to fail will engage in even more of it. Knowing that the government will pick up the pieces if necessary, they will postpone resolving mortgages and pay out billions in bonuses and dividends….

“Socializing losses while privatizing gains is more worrisome than the consequences of nationalizing banks….

“Don’t confuse saving bankers and shareholders with saving banks. America could have saved its banks, but let the shareholders go, for far less than it has spent….

“Trickle-down economics almost never works….

“Lack of transparency got America’s financial system into this trouble. Lack of transparency will not get it out.”

Paul Krugman frames it this way:  the deregulation of the Reagan-Clinton era transformed a conservative banking sector at the service of industry, commerce, and consumers into a highly speculative and profitable enterprise based on the securitization and trading of loans.  With the Obama-Summers-Geithner plan, “the administration seems to believe that once investors calm down, securitization — and the business of finance — can resume where it left off a year or two ago.”

Yes, they’re calling for stepped up regulation. “But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.”

Krugman doesn’t share that vision.  “I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.”

TARPoon

We were suggesting that “nationalization” isn’t the best word for the temporary government bank takeovers that are the alternative to endless bailouts, and Nouriel Roubini offers “receivership,” which seems more applicable.  And he argues that it’s more market-friendly than government bailouts to preserve failed ownership.  It “would mean the people who took the big risks and profited from them would pay for them on the downside.”  It would keep the government out of the impossible business of managing toxic assets.  And it would break up banks that have gone from too-big-to-fail to “an even-bigger-than-too-big-to-fail problem, as the current approach has led weak banks to take over even weaker banks.

“Merging two zombie banks is like having two drunks trying to help each other stand up.”

Robert Kuttner says it’s a plan Rube Goldberg would love.

“Geithner’s premise is that banks are not engaging in a variety of lending because they are no longer able to package loans as bonds. So Geithner, using public funds, hopes to restart the engine of loan securitization. In effect, he wants to rebuild the very model that caused the crash, relying on the most unsupervised and speculative part of the system — hedge funds and private equity. One well-placed official told me, ‘It’s as if his goal is to help Wall Street, not to restore a functioning banking system.'”

Dean Baker: “The basic point is extremely simple. We have a large number of bankrupt banks. We have a public interest in keeping the banks functioning, but we have zero public interest in giving taxpayer dollars to bank shareholders or to the executives that wrecked the banks they ran.

“Geithner can design as complex a dog and pony show as he wants, but if his plan takes up hundreds of billions of taxpayer dollars and does not involve wiping out the shareholders and sending the bank executives packing, then he has ripped us off.”

Daily TARP

Robert Reich: “Geithner and Fed Chair Ben Bernanke continue to do pretty much what Hank Paulson and Bernanke did: They hide much of the true costs and risks to taxpayers of repairing the banking system.

“Those risks and costs should be put on the people who made risky bets on the banks in the first place – namely bank shareholders and creditors. Shareholders of the most troubled banks should be wiped out entirely. Bank creditors- except depositors – should take major hits. And top executives who were responsible should be canned.

“But Geithner and Bernanke don’t want to take these steps for fear of spooking the Street. They think it’s safer to put the costs and risks on taxpayers — especially in ways they can’t see.”

TARP truth: banks busted

At Grist, Tom Philpott reports that bank lobbyists praised Geithner’s New TARP; investors less so.  He cites Martin Wolf of the Financial Times’s argument that “the U.S. banking system appears to be insolvent, sunk under the weight of bad investments. According to Wolf, the Obama team is too ‘politically frightened’ to tell the public and investors that our banking system has essentially failed.”

Philpott: “What’s weighing the system down is bad real estate bets. Essentially, our bank execs — decorated with fancy b-school degrees and robustly compensated for their trouble — bet heavily U.S. real estate prices would rise indefinitely. Now that prices have plunged, they’re left with reams of essentially worthless mortgage-backed paper. And as the economy continues to unravel, real estate prices look set to continue falling — which means still more of the assets held by the banks will become ‘toxic,’ i.e., worthless.

“And here’s where we get to the trouble with the Geithner plan: He seems to be assuming that private investors can be convinced, by government guarantees and financing, to buy assets that are essentially worth nothing. But where’s the upside in buying worthless assets in the first place?

“One of two outcomes now look likely: (1) a wholesale nationalization of the U.S. banks (an extremely dicey proposition for a Democratic president); (2) or the the descent into bancruptcy of a vast and iconic bank like Citigroup — with who knows what consequences.”

I think “nationalize” is the wrong word.  No one’s suggesting the federal government operate banks on a permanent basis.  A better word is “takeover” — even “temporary takeover” — what the FDIC did when IndyMac failed.  The goal is to straighten out the books, get rid of the crooks, and get the operation back to private and hopefully responsible (how about well-regulated?) ownership.

Meet the new TARP

The new TARP regime will tweak the old one, with taxpayers ponying up with incentives for private investors and buying up assets of little value — and still no requirement that banks actually use the money we’re giving them to lend.  That won’t work, according to Krugman and Stiglitz.

“Why not just play by the existing rules and rescue the economy, rather than the banks and their foolish shareholders and counterparties?” asks Reuters columnist James Saft.  Not only would it be fairer, he says, it would be more likely to work.

There are rules for banks that are undercapitalized — they’re supposed to be shut down — and we flout them at our peril, he says.

Dean Baker points out that U.S. banks capitalized at $1.4 trillion — much of which consists of highly questionable “good will” — have sustained losses of $2 trillion.  They’re busted.

“Geithner wants to use taxpayer dollars to keep bankrupt banks in business. In effect, he wants to tax teachers, fire fighters, and Joe the Plumber to protect the wealth of the banks’ shareholders and to pay high salaries to their top executives.”

ProPublica reports that taxpayers got a far worse deal than advertised in the first round of TARP spending.  Also, the new executive compensation limits, designed to make the bank bailout less odious, have plenty of loopholes.  (Dirt Diggers Digest has more, including Neil Baroksy’s “tantalizing” statement that criminal investigations have been opened.)

“The plan is very smart,” according to Senator Charles Schumer (D-Wall Street).

Workers win at Republic Windows

Last Friday, the day Republic Windows workers occupied their factory, the Department of Labor announced 533,000 jobs lost in November, the largest loss in over 30 years.

The news on unemployment gave national resonance to the window makers’ plight. It also meant that for Republic workers, “it was riskier to leave the plant and go into this labor market” than to stay inside and face possible arrest, said Mark Meinster of United Electrical Workers.

It was one a number of extraordinary factors that strengthened their hand. There was the bank bailout initiated in October, which had generated widespread outrage — and now had failed to stem cascading job loss. There was the presence of President-elect Obama’s transition team, and the national press, in Chicago — and Obama’s remarkable statement of support for the workers’ demands on Sunday.

“We never expected this,” Republic worker Melvin Maclin, vice president of UE Local 1110, commented on the support of major public officials. “We expected to go to jail.”

Then there was Governor Balogjevich. On Monday, the day before his arrest, he appeared at Republic and promised the state would stop doing business with Bank of America, Republic’s main creditor, which had cancelled the company’s credit and put the kabosh on paying workers what they were owed.

Blagojevich’s statement was taken as a threat, but in the chaos of the next day, when he was taken off in handcuffs by the FBI, the state did indeed shut off business with the bank. BoA provides financial services for tollways and other state operations. It was “a big hit” for the bank, Meinster said. And the city and county were considering similar actions.

On the ground, support for the workers swelled. There were daily demonstrations on LaSalle Street. In Little Village, community supporters protested at a BoA branch. The union reported demonstrations at BoA offices in New York, San Francisco, Buffalo, and Florida. Dave Lindorff reported a similar action in Philadelphia.

Jobs With Justice, which held rallies around the country for a “People’s Bailout” this week, began talking about a boycott of Bank of America.

On Wednesday, the day negotiations were concluded, there were hundreds on a picketline that stretched two blocks outside BoA’s LaSalle Street office. And in Charlotte, N.C., local labor groups picketed the banks national headquarters and tried to deliver a letter to bank executives. (As in Little Village, they were prevented from entering.)

Victory

Under pressure from many directions, BoA sidestepped its statements claiming no responsibility for compensation due Republic workers and ponied up $1.35 million to meet their demands. JPMorgan Chase, recently revealed to be a 40 percent owner of Republic — where midwest chairman Bill Daley must have been concerned about political fallout — came up with another $400,000.

Workers got the eight weeks of pay and health coverage they were entitled to under plant closing laws, as well as the vacation pay they had accrued.

The victory demonstrates the value of militant action by labor in addressing the economic crisis, Meinster said. He notes the rejuvenating effect on the movement — particularly the outpouring of support from unions that might not have taken this action themselves, at least before the example of Republic workers.

Recalling Rosa Parks, Rev. Jesse Jackson called the factory takeover “the beginning of a larger movement for mass action to resist economic violence.” Chitown Daily News quoted UE regional president Carl Rosen calling the victory “a wakeup call to corporate America that the rules have changed in this country.” AP quoted Chicagoland Chamber of Commerce president Jerry Roper saying, “I’d be the first to say to companies that what you saw with workers at Republic will be repeated over and over across the country.”

Green Jobs

The union announced the creation of a foundation dedicated to reopening the plant, seeded with thousands of dollars donated to support the workers along with money from the national union. It will probably fund some initial planning efforts, in the hope that federal support may be forthcoming next year in connection with further bailout efforts or from economic stimulus focusing on green jobs.

It may not be an unreasonable hope, given strong support from local congressional leadership — and given the surge in demand for Republic’s energy-efficient windows that an anticipated national energy conservation program would create.

Phil Mattera of Good Jobs First pointed out that in the web of issues raised by the confrontation — including unemployment and the loss of manufacturing jobs; fairness for workers in plant closings; and accountability for the federal bank bailout — the issue of green jobs was overlooked in media accounts. (Indeed the connection with the bailout was largely elided in earlier accounts — presented in photos of picketers’ signs but left out of accompanying articles — before politicians began raising it.)

The union kept raising the issue of green jobs even as it focused on immediate demands for fairness. The issue is now the basis of any hopes of reopening Republic.

“The workers want Bank of America to keep the plant open and the workers employed,” Carl Rosen said after the settlement. “With Barack Obama’s stimulus proposal, there will be even greater demand for the products made by Republic’s workers. It doesn’t make sense to close this plant when the need is so obvious.”

There is also the question of how labor addresses longterm disinvestment and deindustrialization. Dan Swinney of the Center for Labor and Community Research argues for a proactive role for unions, monitoring their companies for signs of problems and seeking alternatives to shutdowns by working with community groups and public agencies and seeking business allies.

He points to a remarkable parallel: In 1993 Steelworkers Union members at Sharpsville Quality Products, a decades-old foundry in western Pennsylvania, were told (like Republic workers) that their plant was closing in three days. Like Republic workers, they occupied the plant. They occupied it for 42 days, sought out community allies and worked with the regional industrial retention agency (as well as salaried employees) to take over the business. (See chapter five of Swinney’s Building a Bridge to the High Road.)

Employee ownership is only one possible alternative (and it doesn’t always benefit employees, as the Tribune Company is demonstrating). In the mid-1980s CLCR worked with UE and community groups in an unsuccessful effort to support a local investor’s bid to acquire electronics manufacturer Stewart Warner and keep 2,500 jobs in Chicago. Swinney points to a number of models, including large-scale community-labor cooperative enterprises in Canada and Europe. In any case, he says, unions need to be proactive and creative — and move beyond their focus on wages, benefits and working conditions.

Bailout

In another coincidence, while Republic workers were protesting Bank of America’s credit cutoff to Republic, the failure of banks receiving bailout funds to use them for their intended purpose came under new scrutiny in Washington.

When the Treasury Department started handing out funds under the Troubled Assets Relief Program in October, the Federal Reserve and three regulatory agencies issued a statement: “The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers.”

But as the New York Times pointed out in November, “that admonition wasn’t accompanied by any real requirements to lend.” Instead, “nervous lenders are demanding that even healthy loans be paid back. Banks and other financial institutions, meanwhile, are reducing exposures to borrowers and doing whatever they can to discourage the assumption of further debt.”

Last week the Government Accountability Office issued its first report on the bailout, noting that Treasury has no way of knowing how bailout funds are being used by financial institutions. This week a congressional oversight panel issued a report with similar conclusions, and the House and Senate passed measures requiring banks receiving bailout money to report on their lending. After first rejecting the GAO’s recommendation that bank regulators track the spending of bailout funds, Treasury subsequently agreed to carry it out.

As Talking Points Memo points out, oversight of the bailout is getting underway two months after the program was initiated — and after virtually all of the first batch of multiple billions has been allocated. It may be “too little, too late.” Under one legislative proposal, we would find out next July whether bailout recipients are extending credit or just acquiring weaker institutions — and trimming their loan portfolios.

The Project on Government Oversight points out that a similar bailout program in the United Kingdom (instituted at the same time as ours) had far more stringent requirements on financial institutions, including banning executive bonuses and dividend payments until the government is paid back — and requiring recipients of bailout funds to maintain lending to businesses and consumers at last year’s levels.

Yesterday the Sun Times reported on another local company that, like Republic, went out of business after Bank of America shut off a credit line it had inherited when it acquired LaSalle Bank last year. Senator Durbin and Representative Gutierrez might push regulators to examine what’s happened to LaSalle’s business customers since the BoA acquisition. More generally, are big banks issuing blanket orders to shut down credit for businesses below a certain threshold — including businesses that were served by smaller banks that have been acquired, in some cases with bailout money?

Ultimately, as Rosen and Jobs With Justice have argued, the Republic workers dramatized the basic problem of the bailout, which has accelerated the concentration of wealth at the top that is squeezing the living standards and spending power of working families and dragging the economy into deeper crisis.

TIF

Finally, Mayor Daley has said he’ll try to recoup TIF money awarded by the city to Republic on the basis of promises of job creation. But he knows that TIF agreements contain projections of job creation or retention figures but no real requirements or clawback provisions.

Jeff McCourt of Good Jobs First-Illinois points out that Chicago and other municipalities successfully opposed efforts to include TIFs in the Corporate Accountability Act that was passed in 2003, which contained extensive reporting requirements and clawbacks if promises for job creation or retention weren’t met.

The Republic saga makes a good case for upgrading TIF accountability, McCourt said. As it is, the public can’t even examine the Republic TIF deal without filing a freedom of information request, he said.

He adds that “the people who run Republic apparently had enough funds to buy a similar operation in Iowa” where workers may be paid even less than in Chicago, which he called “disturbingly reminscent” of the kind of runaway shops that have plagued workers and communities for three decades.

Perhaps we need “some kind of data base of corporate bad actors who would not be considered suitable for government incentives in the future,” he said.

Credibility crisis at Republic Windows

The resolute action of Republic Windows workers, with the attention they’ve commanded and the widespread support they’ve won, has brought to the fore serious questions of credibility for the company, for Bank of America, and for the federal bank bailout program — questions that would have otherwise been swept under the rug.

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