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Sunday, April 17, 2011

Two Americas drifting further and further apart,

The 'Two Americas' meme has become somewhat trite over the past decade or so but as long as the the earnings and wealth of the middle class were growing and job security was more or less a given the idea didn't resonate nearly enough. Since 2000 income for the bottom 90% has stagnated, in reality it has declined slightly, while that of the top 10% has increased at a more rapid pace than virtually any time in American history and even among that 10% most if it has been concentrated in the top quarter of that group. More surprisingly upward social and economic movement, once the bright light of the 'American Dream' but that upward mobility has been surpassed by most of Europe where accent alone and an entrenched class system made it that much harder.

Two articles published in the past week perfectly highlight this schism. The first is by the irrepressible Matt Taibbi in Rolling Stone titled "The Real Housewives of Wall Street." It's about the secret bailout fund that was designed to ensure access to credit when even well run companies (mainly smaller ones designated as a company with under 500 employees. All such bailouts after 2008 were cloaked in a veil of absolute secrecy. You will see why, because through an act of Congress sponsored by Bernie Sanders the Fed has been forced to disclose much of the information of these secret bailouts. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous." There are over 21,000 transactions worth trillions, or at least equal to normal Federal budget.

Until a recent act of Congress these loans were cloaked in secrecy and even now, some of the details are kept secret.

The second article, 'Poverty in John Boehner's District' published in The Nation. Over 14% of the people in his district live under the Federal poverty level while the burden of a local foodbank has more than doubled in three years from 7 to 16 million pounds of food in that short time.

First the America most of us only know from afar. That of the job creating, tax cut deserving few percent at the top of the pyramid. Many do deserve to be there, others, not so much. Take Christy Mack and Susan Karches. Christy is married to Morgan Stanley's Chairman while Karches is the widow of the company's former president of their investment banking division. Neither woman has any business experience at any level other than a little philanthropic dabbling.

The executive wives were given nine loans totaling $220 million under a program called TALF (Term Asset-Backed Securities Loan Facility) or as Taibbi describes it, "giving already stinking rich people gobs of money for no fucking reason at all."
He describes Mack as a "thin, blond and rich — a sort of still-awake Sunny von Bulow with hobbies."

For putting up $15 million of collateral they were given the loan they "used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment." Student loans are becoming riskier and riskier with graduating student finding it a lot harder to get the sort of jobs that would allow them enough income to repay the loans while the less said about commercial mortgages the better.

The loans had one purpose in mind, to let investment bank obligations to transfer the risk to the taxpayer while while helping the super wealthy to make even more money with no risk attached but hey, if the lucky women get to spend some of the money on jewelry and possibly hire an extra butler or two, the system works and a job or two might even be created.

There was still one stumbling block in the transaction. Loans have to be repaid. That minor inconvenience was solved by the Fed, turning them into non-recourse loans so the Wall Street wives, the hedge fund managers and other beneficiaries of the fed's largesse were under no obligation to repay them. Everyone wins except the taxpayer.

The Feb valued the investment t $253 million although they have steadfastly refused to explain how they arrived at that number. As of last fall, $150 million of the loan. They are under no obligation to pay back a penny more, sticking the taxpayer with the bill.

What started out as a much needed bailout to stabilize the financial markets soon exploded into a free-for-all with the investment backs throwing any loans they felt might be "at risk' at the Fed for handouts. In the end the investment banks were borrowing money from the Fed at virtually zero interest and then using it to buy T-Bonds from the Feb, charging them 3% interest. Nice business, if you can get it.

These bailout loans weren't limited to America. Among other recipients of the Fed's largesse. They gave similar loans to BMW, Volkswagen, Nissan, Mitsubishi and Honda. Or how about the $9.6 billion to the Central Bank of America, another $2.2 billion to the Korea Development Bank whose objective is business development in Korea. Most egregious is the $35 billion in loans to to the Arab Banking Corporation of Bahrain at interest rates as low as one quarter of one point? The biggest shareholder in the bank? It's the Libyan Central bank which owns 59% of the bank in Bahrain.

Many beneficiaries of this largesse are Hedge Funds and investment banks registered in the Cayman Islands. If ever these free handouts turn a profit America won't even see the potential tax revenues from the profits.

All of this has been done under cover of complete darkness. The fed was reluctantly forced to open some of their books but much more remains hidden and no one save a few at the Fed have any idea of just how much the government is still on the hook. My guess is that it's in the trillions.

Financial reform anyone? Not if the Republicans have their way.

Meanwhile on the other side of the tracks in House Speaker Boehner's district.

Indeed in 2009, childhood poverty rose over six points in the Boehner district to reach 19.1 percent, or 29,173 kids. Overall, 14 percent of Boehner’s constituents live below the federal poverty line of $22,400 per year for a family of four. Shared Harvest’s work has more than doubled—it distributed approximately 7 million pounds of food in 2007, and 16 million pounds in 2010.

“These are kids ages three to twelve who are at a critical point in their brain development and need adequate nutrition,” says Osso. “We’re only in eleven of the forty-eight school districts in our territory and we now serve about 2,100 children a week. It’s stunning.”

Boehner has many constituents living above the official poverty line who are struggling with hunger as well. In 2010, the number of residents enrolled in the food stamp program (SNAP) in the six counties represented by the Speaker climbed to over 152,000, an increase of over 47,000 people since 2008. Nevertheless, food stamps would be slashed under the House GOP 2012 budget.

Tina Osso, who runs the foodbank has reached out to Boehner on a number of occasions both by letter and by inviting him to visit the foodbank in Hamilton Ohio and meet some of his constituents.

Boehner hasn't responded to either the letters or the invitation. He did however find time to get in 92 rounds of golf last year.

“It’s not just the cuts to the programs that we manage. It’s the overall meanness of this budget that targets the most vulnerable populations in our country—the weakest and the ones with the smallest voice,” she says.

Despite years of frustration in trying to get Boehner to respond to his constituents who are struggling, Osso hasn’t entirely given up, and she still has a message for him.

“We just want you to meet your constituents who are involved in making sure their neighbors have enough to eat, and we want you to meet those neighbors who are suffering silently behind closed doors. They are so embarrassed to be hungry,” she says. “We’re fighting each other over crumbs when we should be seeing each other for who we are and working together.”

And if anyone even dares to bring up the contrast between the Kings of Wall Street and John Boehner's constituents they are greeted with a chorus of "class war, class war!" For fuck's sake, it is a class war. It's straight out of the Gilded Age at the end of the 19th century. They say a nation should be judged by the way they treat the least fortunate among us. America is getting an F. Shame on us.

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