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Economy

Study: Bailed Out Banks Kept Making Risky Loans After Receiving Taxpayer Dollars

According to a new report from the Bank of International Settlements — which provides research to the world’s central bankers — bailed out banks in both the U.S. and around the world continued to be riskier than non-bailed out banks, even after they received taxpayer dollars during the financial crisis of 2008:

We find no evidence that rescued banks reduced the riskiness of their new lending more than non-rescued banks in response to the crisis and the public rescues. Even as lending volumes decreased across the board in 2009, rescued banks continued to write riskier syndicated loans, as reflected by their involvement in the leveraged loan segment and in the spreads charged on the facilities that they originated. We also find, unsurprisingly, that the syndicated lending of banks that later received a bailout was riskier before the crisis than that of non-rescued institutions. [...]

During the crisis, rescued banks did not reduce the riskiness of their new syndicated lending compared to their non-rescued peers. In fact, our results suggest that the relative riskiness of their lending increased.

As Reuters columnist James Saft noted, “This is both astounding and totally predictable. Astounding because it was so clear that those risks were not just foolish but destructive. Predictable because of course the banks realized that they had not been just lucky but had been given a special exemption from death which will be very hard to revoke.”

Despite this and other clear evidence that the banks are totally uninterested in learning any lessons from the financial crisis, Republicans are attempting to bog down or repeal the Dodd-Frank financial reform law. But several prominent banking executives have said that the size and complexity of today’s mega-banks makes them unmanageable. A recent report found that the financial crisis cost the U.S. economy $12.8 trillion.

Florida Governor Blows Off Questions About His State’s Lackluster Job Creation

Florida Gov. Rick Scott (R) has been touting his state’s dropping unemployment rate, which is down to 8.8 percent from a high of 11.1 percent in December 2010. The Romney campaign even asked Scott to “tone down” his positive message about Florida’s improving economy because it clashed with Mitt Romney’s message that President Obama has made the economy worse. But according to Florida’s top economist, the outlook isn’t quite so sunny.

Amy Baker, the Florida Legislature’s chief economist, found that the two-point drop in the state’s unemployment rate is almost entirely attributable to people dropping out of the workforce while job creation has been sluggish. Only a week ago, Scott said that “every economic indicator we have is good,” but when Bloomberg reporter Michael Bender tried to question Scott about the report, the governor dismissed the scrutiny, according to the Miami Herald:

Reporter: “Are you saying those numbers from the state economist are wrong, Governor?”

Scott: “I’m saying we generated 130,000 jobs.”

Reporter: “But that’s not all of the—“

Scott: “Mike, I’ve answered all your questions on that.”

Reporter: “But, no, my question is about the unemployment rate drop—“

Scott: “Mike! I said I’ve answered all your questions.”

Scott ran for governor on the slogan “Let’s get to work,” promising to create 700,000 jobs in addition to normal job growth. Last year, he walked back that campaign pledge after killing thousands of jobs in the state. “I don’t know who said that,” Scott said when asked about the promise.

Labor participation in Florida has fallen to 60 percent, the lowest rate since 1986, and Baker reported that Florida’s unemployment rate would be closer to 10.1 percent if workforce participation had not shrunk. But as Scott dodged reporters’ questions about the number of unemployed workers, he stuck by his lines that the state’s economy is doing fine. “Indicators are very good in our state,” he said. “Biggest drop in unemployment in our state. Tourism is up, exports are up, home prices are up, home sales are up, new home construction is up.”

How Romney’s Tax Plan Reflects His Comments About The ’47 Percent’

In a video released this week by Mother Jones, Mitt Romney explained how, in his view, the 47 percent of Americans who don’t have any federal tax liability “believe that they are victims.” ” I’ll never convince them they should take personal responsibility and care for their lives,” Romney added.

Of course, those 47 percent do pay other taxes, at rates higher than Romney himself. But Romney not only derided those too old or poor to pay federal income taxes; he also turned his beliefs into concrete aspects of his tax plan.

As the Center for American Progress Action Fund’s Michael Linden, Seth Hanlon, Jennifer Erickson, Gadi Dechter, Adam Hersh, and Karla Walter noted in a recent report, Romney’s tax plan calls for the reduction of two key credits that help those at the bottom of the income scale lower (or eliminate) their tax bill:

Reduce the Earned Income Tax Credit for larger families: The Earned Income Tax Credit supplements the earnings of low-income families, rewarding work while offsetting payroll and other taxes. Prior to 2009 families with three or more children received the same tax benefit from the Earned Income Tax Credit as families with two children despite a higher cost of living. A provision enacted in 2009 made such families eligible for an additional benefit, but Gov. Romney’s plan would let that provision, along with another improvement to the credit signed in 2009, expire. A two-parent family raising three children on $30,000 of earnings would lose $1,076 a year.

Lower the Child Tax Credit for low-income families: The Child Tax Credit also rewards work while defraying child rearing expenses. Only families with earned income can benefit. The credit is generally $1,000 per child, but families at low-income levels can often claim only a partial credit. President Obama’s 2009 reforms allowed low-income families to claim more of the credit. Gov. Romney’s tax plan would repeal those reforms, resulting in a smaller credit or no credit for the families of 15.8 million children.

These credits have garnered bipartisan support for years. But now Romney wants to cut them back while providing huge, new tax cuts for the richest Americans.

NEWS FLASH

America Now More Unequal Than During Colonial Era | A new study published in The National Bureau of Economic Research shows that the American colonies in 1774 “appear to have been more egalitarian than anywhere else in the measureable world” when it came to income inequality. As Jordan Weissmann at the Atlantic noted, on measures of equality the colonies “compare extremely well to the latter-day United States”; today, the U.S. is technically more unequal due to the richest collecting a much larger share of income. (Of course, legions of slaves would likely, and rightly, object to that characterization, even though the researchers controlled for the effects of slavery.) Another study recently found income inequality in the US may be worse than it was in ancient Rome.

Greg Noth

Security

Senate Republicans Kill Veterans’ Jobs Bill

(Photo: Getty)

Senate Republicans prevented a veterans’ jobs bill from coming to a vote today by forcing a budget point of order vote. Democrats came up 2 votes short of the 60 needed to defeat the GOP’s budget measure.

The Veterans Jobs Corps bill — which is part of President Obama’s push to secure jobs for veterans — would have provided $1 billion over five years to hire 20,000 young veterans for public lands jobs and prioritize vets for first responder jobs such as police, firefighter, or EMT. The measure would have also provided young vets access to the infrastructure with which to assist in job searches, such as access to computers, internet and career services advisers.

The Iraq and Afghanistan Veterans of America, a vets group that supported the legislation, called the GOP move “a huge disappointment,” adding, “Today, politics won over helping vets.”

While only five Republicans voted with the Democrats to waive the GOP budget point of order measure, Sen. Tom Coburn (R-OK) led the GOP opposition. “When we find ourselves in $16 trillion of debt and we pay for a five-year bill over 10 years, we make the problem worse,” he said.

However, Veterans Jobs Corps bill co-sponsor Sen. Patty Murray (D-WA) said on the Senate floor today that “this bill is fully paid for and does not violate pay-go rules.” (The New York Times said Murray’s aides say “say the program will be paid for by recovering more money from tax-delinquent Medicare providers and forcing big tax deadbeats to pay up before receiving passports.”)

Murray even tried to include most of the provisions of a competing Republican bill but Democrats still ran into opposition. Sen. Rand Paul (R-KY) said he would block the measure until the Pakistani doctor that aided the CIA in looking for Osama bin Laden was freed, while Coburn claimed the bill would have no chance of passing the House so it wasn’t worth the effort.

“I’ve been surprised at the many obstacles and weird arguments that have been thrown at us,” Murray told the Washington Post.

The jobless rate for Iraq and Afghanistan war vets, while steadily declining, is still higher than the national average, yet congressional Republicans remain “resolute in their commitment to deny the Democrats anything that looks like an accomplishment in an election year.”

In an editorial last weekend referring to today’s vote, the New York Times said, “We’ll know then whether good sense prevailed, or the wheels have come completely off the Congressional machine.” It looks like the Republicans have made sure of the latter.

Four Years Later: Obama Hasn’t Been Very Good At Redistributing Wealth

The Romney campaign today is attempting to draw attention to a 1998 video in which President Obama, then a state senator, says, “I actually believe in redistribution, at least at a certain level to make sure everybody’s got a shot.” Romney’s campaign responded with a statement saying, “Mitt Romney has a very different idea. He knows that we need to foster growth and create wealth, not redistribute wealth, if our economy is to grow the way it has in the past.”

Sen. John McCain (R-AZ) made the same charge in 2008, saying, “that is what change means for Barack the Redistributor: It means taking your money and giving it to someone else. He believes in redistributing wealth, not in policies that grow our economy and create jobs.” But if Obama is truly out to redistribute the wealth, he’s not doing a bang-up job of it, as more wealth has moved to the top of the income scale and the country has gotten more unequal.

The Census Bureau reported last week that income inequality increased in 2011. The Gini coefficient, which measures inequality, has only risen (signalling growing inequality) while Obama has been in office, as this chart from St. Louis Federal Reserve data shows:

According to the Census Bureau, the top one-fifth of households made 50 percent of the income in 2008. In 2010, that rose to 50.2 percent. In 2011, it rose further to 51.1 percent. The top 5 percent of households saw a similar increase, going from making 21.5 percent of the income in 2008 to 22.3 percent of the income in 2011. In 2010, a whopping 93 percent of the country’s income gains went to the richest 1 percent.

Of course, with a larger share of the income, comes a larger share of the wealth. As the Congressional Research Service shows, both the richest 10 percent and the richest 1 percent saw their share of total net worth increase between 2007 and 2010:

Romney, meanwhile, has endorsed an economic plan that would redistribute wealth up the income scale.

NEWS FLASH

Floridians Denied Chance To Vote On Paid Sick Leave | Orange County Floridians will be unable to cast their votes for or against paid sick leave in November. The contentious debate surrounding a ballot initiative to provide earned sick days to Orange County employees has come to a sad close for sick leave advocates, after county commissioners stalled long enough to prevent the initiative from making the ballot-printing deadline. Despite a court’s order that the initiative be included, big business and the commission colluded to prevent its advancement.

Politics

Surrogate Unable To Detail Romney’s Spending Cuts: ‘Every Item’ Has To Be Cut

Virginia governor and Mitt Romney surrogate Bob McDonnell (R) appeared on CNN’s Starting Point on Wednesday morning to tout the GOP presidential candidate’s “detailed plan of five items that he can get done that will get people back to work.” But pressed on the details of Romney’s proposal, McDonnell demurred, repeatedly refusing to explain which programs Romney would cut to meet his goal of slashing $500 billion per year within four years after he takes office.

“I think what you need is courage and honesty with the people and say, listen, everybody that’s getting — every item in the — in the budget has got to be cut some,” McDonnell declared, “including defense.” Watch it:

Romney has pledged to increase military spending by $2.1 trillion over 10 years.

How Romney’s Economic Plan Redistributes Wealth To The Wealthy

Mitt Romney yesterday attempted to turn attention away from the fallout of his comments regarding the “47 percent” by pointing to a video from 1998 in which President Obama, then a state senator, says, “I actually believe in redistribution, at least at a certain level to make sure everybody’s got a shot.” The video was aggressively pushed by the Drudge Report and was detailed in a Romney campaign memo today.

This video doesn’t show much of anything new: President Obama has consistently advocated for higher tax rates on the rich, a position most Americans support, and more support for low-income Americans.

Romney’s response also ignores that his own economic plan would redistribute wealth too — Romney would just redistribute it to the already wealthy.

According to a Tax Policy Center analysis, Romney’s plan would increase after-tax income for those making more than $200,000 annually, while lowering it for everyone else:

The upshot of Romney’s plan is that “taxpayers with incomes over $1 million would see their after-tax income increased by 8.3 percent (an average tax cut of about $175,000), taxpayers with incomes between $75,000 and $100,000 would see somewhat smaller increases of about 2.4 percent (an average tax cut of $1,800), while the after-tax income of taxpayers earning less than $30,000 would actually decrease by about 0.9 percent (an average tax increase of about $130).”

This analysis made the most generous assumptions about Romney’s plan, factoring in that he would eliminate tax deductions and loopholes in the most progressive way possible in order to finance his tax cut. And still, it would constitute a dramatic shift in income to the already wealthy.

According to the latest data from the Census Bureau, income inequality increased last year, despite ongoing government efforts to combat the Great Recession. Romney’s plan would make that trend even worse.

Econ 101: September 19, 2012

Welcome to ThinkProgress Economy’s morning link roundup. This is what we’re reading. Have you seen any interesting news? Let us know in the comments section. You can also follow ThinkProgress Economy on Twitter.

  • Members of the Chicago teacher’s union officially voted to end their strike last night and accept a new three-year contract. [Reuters]
  • Saudi Arabia is offering to boost oil exports to the U.S. and Europe through the end of the year. [Financial Times]
  • China remains the largest foreign holder of U.S. securities, according to latest Treasury Department figures. [CNN Money]
  • House Republican leaders are pushing back against rank-and-file Republicans who want to vote on a new farm bill. [The Hill]
  • The Senate returns today to vote on a continuing resolution that will fund the government through November’s election. [The Hill]
  • The Securities and Exchange Commission is conceding that it has no idea when some rules from the Dodd-Frank Wall Street reform law will be finished. [Wall Street Journal]

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