Revised formula puts 1 in 6 Americans in poverty as ...
Bailout Helps Fuel New Era of Wall Street Wealth
| Both poverty and bank-profits are swelling -- and the two are connected. We trim, blend, and append two 2009 articles from (1) Associated Press, Oct 20, on poverty by Hope Yen, and (2) The New York Times, Oct 16, on our enriching banks by Graham Bowley. |
by Hope Yen and by Graham Bowley
- Revised formula puts 1 in 6 Americans in poverty
The level of poverty in America is even worse than first believed. A revised formula for calculating medical costs and geographic variations show that approximately 47.4 million Americans last year lived in poverty, 7 million more than the government's official figure.
The National Academy of Science formula shows the poverty rate to be at 15.8%, or nearly 1 in 6 Americans, higher than the 13.2%, or 39.8 million, figure using the government formula.
More Americans are taking advantage of tax credits and food stamps under the federal stimulus program. Food stamp assistance currently is at an all-time high of about 36 million.
JJS: Crumbs for the poor, feasts for the rich.
- Bailout Helps Fuel New Era of Wall Street Wealth
Many of the steps that policy makers took last year -- reducing interest rates to near zero, bolstering big banks with taxpayer money, guaranteeing billions of dollars of financial institutions’ debts -- helped set the stage for this new era of Wall Street wealth.
Even as big banks fight efforts in Congress to subject their industry to greater regulation -- and to impose some restrictions on executive pay -- Wall Street has Washington to thank.
Gary Richardson, a research fellow at the National Bureau of Economic Research, said, “We have just shown them that they can have the most frightening things happen, and we will throw trillions of dollars to protect them. I have big concerns about that.”
For many banks, it is business as usual. Over the last decade the financial sector was the fastest-growing part of the economy, with two-thirds of growth in GDP attributable to incomes of employees in finance.
But not all banks are doing so well. Giants like Citigroup and Bank of America, whose fortunes are tied to the ups-and-downs of ordinary consumers, are struggling to turn themselves around, as are many regional banks.
The decline of certain institutions, along with the outright collapse of once-vigorous competitors like Lehman Brothers, has consolidated the nation’s financial power in fewer hands. The strong are able to wring more profits from the financial markets and charge higher fees for a wide range of banking services.
Titans like Goldman Sachs and JPMorgan Chase are making fortunes in hot areas like trading stocks and bonds, rather than in the ho-hum business of lending people money. They also are profiting by taking risks that weaker rivals are unable or unwilling to shoulder -- a benefit of less competition.
A year after the crisis struck, many of the industry’s behemoths -- those institutions deemed too big to fail -- are, in fact, getting bigger.
Some large institutions, like Goldman and Morgan, have since repaid their bailout money. But the industry still enjoys government support.
With interest rates so low, courtesy of the government, banks can borrow money cheaply and put those funds to work in lucrative ways, whether using the money to make loans to companies at higher rates, or to speculate in the markets. Fixed-income trading -- an area that includes bonds and currencies -- has been particularly profitable.
Goldman Sachs and its perennial rival Morgan Stanley were allowed to transform themselves into old-fashioned bank holding companies. That switch gave them access to cheap funding from the Federal Reserve, which had been unavailable to them.
Those two banks and others like JPMorgan were also allowed to issue tens of billions of dollars of bonds that are guaranteed by the Federal Deposit Insurance Corporation, which insures bank deposits. With the F.D.I.C. standing behind them, the banks could borrow the money on highly advantageous terms. While some have since issued bonds on their own, they nonetheless enjoy the benefits of their cheap financing.
Granted, banks are also benefiting from the markets. Stocks, corporate bonds, even risky corporate i.o.u.’s -- have all rallied from their bear market lows, some spectacularly so. The Dow Jones industrial average has soared 50 percent this year, and touched 10,000 this week for the first time since the crisis.
Banks that had marked down the value of the assets on their books during the dark days of the crisis are now enjoying a rebound in the value of many of those assets.
Banks that have waded back into the markets have been able to exploit large gaps in the prices of various investments, a feature of the postcrisis financial markets. The so-called bid-ask spreads -- the difference between the price at which banks are willing to buy things like bonds, and the price at which they are willing to sell -- are roughly twice what they were two years ago.
Still, the newfound success is largely limited to the big securities houses on Wall Street. This week, Citigroup and Bank of America reported losses from credit card delinquencies and mortgage defaults -- a sign of the lingering pain on Main Street.
JJS: Rather than fund special programs for rich and poor, let’s just pay ourselves a Citizens Dividend, a share of the commonwealth, of society’s surplus, which is all the money we spend on the nature we use. At the same time, forgo taxes on our earnings, enterprises, and buildings; doing that lets the value of locations rise even higher, thus fattening the people’s “rent-share”. Called geonomics, it has worked wherever tried.
---------------------
Jeffery J. Smith runs the Forum on Geonomics.
|
Also see: Dancing with the Czars
Lobbying is a Lucrative Investment, Researchers Find
Both your public treasury and private investment are ATMs for ... |
| Email this article | Sign up for free Progress Report updates via email |
What are your views? Share your opinions with The Progress Report:
| Page One | Page Two | Archive |
| Discussion Room | Letters | What's Geoism? |
