California Free Press

BRICS Banking: A Break from Bailouts, Debt and Poverty?

by Christina Sarich

 

NationofChange       / News Report

 

Published: Monday 22 September 2014

 

Brazil, Russia, India, China, South Africa, etc. are trying to influence the world market and compete with the current American-European based central banking system. Isn’t it time for a new banking system?

The BRICS countries (Brazil, Russia, India, China, South Africa, etc.) with a few being singled out as demographically and economically roseate for their potential to influence the world market in the 21^st century are starting a $100 billion dollar bank to compete with the current American-European based central banking system, the International Monetary Fund (IMF) and the World Bank.

This is no small alliance. Together, just the four original BRIC countries comprise more than 2.8 billion people or 40 percent of the world’s population, and dominate more than a quarter of the world’s land area over three continents, as well as account for more than 25 percent of global GDP.

Liu Haifang, a professor at Peking University’s Center for African Studies, explains that the bank will provide developing countries with more options for financing:

“Finally they got some alternative sources to get funding for infrastructure and they do not come with these conditionalities. So it for me is very symbolic in terms of political meaning, it means the whole world order is not unipolar. It is not a west centered world. It is a multipolar world.  African countries trying to get funding do not have to only follow the rules of the developed world.”

President Vladimir Putin of Russia commented at the 6th BRICS summit in Fortaleza, Brazil:

“BRICS Bank will be one of the major multilateral development finance institutions in this world.”

It is obvious some other type of banking system is desperately needed. Devotion to the all-mighty-dollar has been the cause of bailouts almost too numerable to list. Consider the multi-billion dollar ‘deals’ that have been worked out between the US government, banks and corporations in the past decade. This partial list comprising trillions provided by Pro Publica is staggering. For the sake of space, I was tempted to abbreviate the list more fully, but it makes an all-too-important point:

The first figure is the total disbursed. The second figure is the profit/loss for government.

Education With a Debt Sentence

For-Profit Colleges as American Dream Crushers and Factories of Debt

By Astra Taylor and Hannah Appel from Nation of Change published September 22, 2014

Imagine corporations that intentionally target low-income single  mothers as ideal customers. Imagine that these same companies claim to  sell tickets to the American dream -- gainful employment, the chance for  a middle class life. Imagine that the fine print on these tickets, once  purchased, reveals them to be little more than debt contracts,  profitable to the corporation’s investors, but disastrous for its  customers. And imagine that these corporations receive tens of billions  of dollars in taxpayer subsidies to do this dirty work. Now, know that  these corporations actually exist and are universities.

Over the last three decades, the price of a year of college has increased by more than 1,200%.  In the past, American higher education has always been associated with  upward mobility, but with student loan debt quadrupling between 2003 and  2013, it’s time to ask whether education alone can really move people  up the class ladder. This is a question of obvious relevance for  low-income students and students of color.

As Cornell professor Noliwe Rooks and journalist Kai Wright have reported, black college enrollment has increased at nearly twice the rate of white enrollment in recent years, but a disproportionate number of those African-American students end up at for-profit schools. In 2011, two of those institutions, the University of Phoenix (with physical campuses in 39 states and massive online programs) and the online-only Ashford University, produced more black graduates than any other institutes of higher education in the country. Unfortunately, a recent survey by economist Rajeev Darolia shows that for-profit graduates fare little better on the job market than job seekers with high school degrees; their diplomas, that is, are a net loss, offering essentially the same grim job prospects as if they had never gone to college, plus a lifetime debt sentence.

Much of the American public does not understand the difference between for-profit, public, and private non-profit institutions of higher learning. All three are concerned with generating revenue, but only the for-profit model exists primarily to enrich its owners. The largest of these institutions are often publicly traded, nationally franchised corporations legally beholden to maximize profit for their shareholders before maximizing education for their students. While commercial vocational programs have existed since the nineteenth century, for-profit colleges in their current form are a relatively new phenomenon that began to boom with a series of initial public offerings in the 1990s, followed quickly by deregulation of the sector as the millennium approached. Bush administration legislation then weakened government oversight of such schools, while expanding their access to federal financial aid, making the industry irresistible to Wall Street investors.

While the for-profit business model has generally served investors well, it has failed students. Retention rates are abysmal and tuitions sky-high. For-profit colleges can be up to twice as expensive as Ivy League universities, and routinely cost five or six times the price of a community college education. The Medical Assistant program at for-profit Heald College in Fresno, California, costs $22,275. A comparable program at Fresno City College costs $1,650. An associate degree in paralegal studies at Everest College in Ontario, California, costs $41,149, compared to $2,392 for the same degree at Santa Ana College, a mere 30-minute drive away.

Exorbitant tuition means students, who tend to come from poor backgrounds, have to borrow from both the government and private sources, including Sallie Mae (the country's largest originator, servicer, and collector of student loans) and banks like Chase and Wells Fargo. A whopping 96% of students who manage to graduate from for-profits leave owing money, and they typically carry twice the debt load of students from more traditional schools.

Public funds in the form of federal student loans has been called the “lifeblood” of the for-profit system, providing on average 86% of revenues. Such schools now enroll around 10% of America’s college students, but take in more than a quarter of all federal financial aid -- as much as $33 billion in a single year. By some estimates it would cost less than half that amount to directly fund free higher education at all currently existing two- and four-year public colleges. In other words, for-profit schools represent not a “market solution” to increasing demand for the college experience, but the equivalent of a taxpayer-subsidized subprime education.

Pushing the Hot Button, Poking the Pain

The mantra is everywhere: a college education is the only way to climb out of poverty and create a better life. For-profit schools allow Wall Street investors and corporate executives to cash in on this faith.

Publicly traded schools have been shown to have profit margins, on average, of nearly 20%. A significant portion of these taxpayer-sourced proceeds are spent on Washington lobbyists to keep regulations weak and federal money pouring in. Meanwhile, these debt factories pay their chief executive officers $7.3 million in average yearly compensation. John Sperling, architect of the for-profit model and founder of the University of Phoenix, which serves more students than the entire University of California system or all the Ivy Leagues combined, died a billionaire in August.

Graduates of for-profit schools generally do not fare well. Indeed, they rarely find themselves in the kind of work they were promised when they enrolled, the kind of work that might enable them to repay their debts, let alone purchase the commodity-cornerstones of the American dream like a car or a home.

In the documentary "College Inc.," produced by PBS’s investigative series Frontline, three young women recount how they enrolled in a nursing program at Everest College on the promise of $25-$35 an hour jobs on graduation. Course work, however, turned out to consist of visits to the Museum of Scientology to study “psychiatrics” and visits to a daycare center for their “pediatrics rotation.” They each paid nearly $30,000 for a 12-month program, only to find themselves unemployable because they had been taught nearly nothing about their chosen field.

In 2010, an undercover investigation by the Government Accountability Office tested 15 for-profit colleges and found that every one of them “made deceptive or otherwise questionable statements” to undercover applicants. These recruiting practices are now under increasing scrutiny from 20 state attorneys general, Senate investigators, and the Consumer Financial Protection Bureau (CFPB), amid allegations that many of these schools manipulate the job placement statistics of their graduates in the most cynical of ways.

The Iraq and Afghanistan Veterans of America, an organization that offers support in health, education, employment, and community-building to new veterans, put it this way in August 2013: "Using high-pressure sales tactics and false promises, these institutions lure veterans into enrolling into expensive programs, drain their post-9/11 GI Bill education benefits, and sign up for tens of thousands of dollars in loans. The for-profits take in the money but leave the students with a substandard education, heavy student loan debt, non-transferable credits, worthless degrees, or no degrees at all.”

Even President Obama has spoken out against instances where for-profit colleges preyed upon troops with brain damage: “These Marines had injuries so severe some of them couldn’t recall what courses the recruiter had signed them up for.”

As it happens, recruiters for such schools are manipulating more than statistics. They are mining the intersections of class, race, gender, inequality, insecurity, and shame to hook students. "Create a sense of urgency. Push their hot button. Don't let the student off the phone. Dial, dial, dial," a director of admissions at Argosy University, which operates in 23 states and online, told his enrollment counselors in an internal email.

A training manual for recruiters at ITT Tech, another multi-state and virtual behemoth, instructed its employees to "poke the pain a bit and remind them who else is depending on them and their commitment to a better future.”  It even included a "pain funnel" -- that is, a visual guide to help recruiters exploit prospective students’ vulnerabilities. Pain was similarly a theme at Ashford University, where enrollment advisors were told by their superiors to “dig deep” into students’ suffering to “convince them that a college degree is going to solve all their problems.”

An internal document from Corinthian Colleges, Inc. (owner of Everest, Heald, and Wyotech colleges) specified that its target demographic is “isolated,” “impatient” individuals with “low self-esteem.”  They should have “few people in their lives who care about them and be stuck in their lives, unable to imagine a future or plan well.”

These recruiting strategies are as well funded as they are abhorrent. When an institution of higher learning is driven primarily by the needs of its shareholders, not its students, the drive to get “asses in classes” guarantees that marketing budgets will dwarf whatever is spent on faculty and instruction. According to David Halperin, author of Stealing America’s Future: How For-Profit Colleges Scam Taxpayers and Ruin Student’s Lives, “The University of Phoenix has spent as much as $600 million a year on advertising; it has regularly been Google’s largest advertiser, spending $200,000 a day.” 

At some schools, the money put into the actual education of a single student has been as low as $700 per year. The Senate’s Health, Education, Labor, and Pensions Committee revealed that 30 of the for-profit industry’s biggest players spent $4.2 billion -- or 22.7% of their revenue -- on recruiting and marketing in 2010.

Public Bank Gets Off the Dime League of Women Voters of Santa Fe County holds discussion Tuesday at Christus St. Vincent

September 22, 2014, 1:30 pm    from the Santa Fe Reporter

By Justin Horwath                                                                                                

The proposal to create a public bank to inject cash into Santa Fe’s economy has moved from the mayoral campaign trail to the mayor’s office.

Mayor Javier Gonzales said on the campaign trail that his administration would probe the idea of creating a public bank that would turn taxpayer money into low-interest loans for small businesses.

Now the idea is getting attention in a forum held Tuesday, Sept. 23 by the League of Women Voters of Santa Fe County. The forum, says the nonpartisan group, will be a “presentation and educational presentation and discussion of public banking, its possibilities and risks.” It’s at Christus St. Vincent Hospital’s southwest conference room, in the lower entrance near the cafeteria, from 5:30-7:30pm.

Author, playwright and lecturer Craig Barnes, the group says, and state Rep. Brian Egolf, D-Santa Fe, “will describe the history and experience of public, or community, banking, and discuss the possible role of public banks in funding public programs.” The two will answer audience questions, says the group, whose sister organization in Vermont is also conducting a study of a public banks there.

In early September, Gonzales' administration floated a bid to “further research the feasibility of establishing a publicly owned bank to help finance community projects, reduce risk to public funds in existing financial markets, and provide better financial returns on public investments.” Proposals were due Sept. 8.There’s only one public bank in the nation: the Bank of North Dakota, which says it “administers programs that promote agriculture, commerce and industry.” 

Major Foundations and Investors, Including Heirs to Oil Fortune, Pledge Fossil Fuel Divestment

Published on Monday, September 22, 2014

 

by Common Dreams

 

$50 billion in assets will be removed from the fossil fuel sector and placed in clean energy investments

 

by Jon Queally, staff writer

 

John D. Rockefeller built his fortune as the oil baron who built the Standard Oil empire. Now, some of the heirs to that substantial wealth are pledging to remove their holdings from fossil fuels and invest in a cleaner energy future. (Photo: Archive)

Prominent private philanthropies and charitable foundations, including one built from the oil fortune of John D. Rockefeller and Standard Oil, are announcing their intention to divest from fossil fuel holdings on Monday as they make clear statements that the threat of climate change and the irresponsible behavior of the oil, coal, and natural gas companies has fueled their decision.

The pledges from the group of endowments and individuals, which formed earlier this year as the Global Divest-Invest Coalition, will total $50 billion in assets that will be removed from the fossil fuel sector and placed in clean energy investments instead.

As the New York Times reports, "The family whose legendary wealth flowed from Standard Oil is planning to announce on Monday that its $860 million philanthropic organization, the Rockefeller Brothers Fund, is joining the divestment movement that began a couple years ago on college campuses."

The official announcement from the funds comes one day after an estimated 400,000 people marched through the streets of Manhattan demanding strong and immediate climate action and one day ahead of the UN Climate Summit, hosting world leaders from more than 125 nations, on Tuesday.

According to the Times:

The people who are selling shares of energy stocks are well aware that their actions are unlikely to have an immediate impact on the companies, given their enormous market capitalizations and cash flow.

Even so, some say they are taking action to align their assets with their environmental principles. Others want to shame companies that they believe are recklessly contributing to a warming planet. Still others say that the fight to limit climate change will lead to new regulations and disruptive new technologies that will make these companies an increasingly risky investment.

Ultimately, the activist investors say, their actions, like those of the anti-apartheid divestment fights of the 1980s, could help spur international debate, while the shift of investment funds to energy alternatives could lead to solutions to the carbon puzzle.

“This is a threshold moment,” said Ellen Dorsey, executive director of the Wallace Global Fund, which has coordinated the effort to recruit foundations to the cause. “This movement has gone from a small activist band quickly into the mainstream.”

 

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

Extreme Weather Watch: April 2014 - Tornadoes, Flash Floods Pound US

159 Tornadoes, 35 Deaths as Torrential Rain and Flash Floods Pound East, South and Midwest

by John Lawrence

The last week in April saw extreme weather over as much as half the nation. Over 20 states were affected. In some places a month's worth of rain fell in a day. In New York City there was close to 5 inches of rain in one day. In Pensacola, FL there was over 20 inches of rain in 24 hours, 6 inches in one hour alone, more rain than Los Angeles saw all last year. More rain fell in Pensacola than during Hurricane Ivan. There were nearly 6000 lightning strikes in fifteen minutes. First responders rescued people in boats. Roads and bridges collapsed.

Two trillion gallons of water fell on the south and the east coast in just one day. Flooding was worse than after some hurricanes. Heavy rain led to the collapse of a retaining wall in a Baltimore neighborhood sending cars tumbling 75 feet down an embankment onto railroad tracks. These cars were not covered by insurance as the collapsing embankment was considered an "act of God."  The Schuylkill River in Philadelphia crested higher than after Hurricane Irene and Super Storm Sandy. Philadelphia received more rain in a day than it usually gets in a month. Golf ball sized hail pummeled the country.

Small towns in some states were wiped off the map. A violent high-end EF-4 tornado with winds of 180 - 190 mph tore through Vilonia and Mayflower, AK on April 27, killing 15 people. A whole neighborhood in Vilonia, which was hit by a tornado just 3 years ago, was wiped out. A brand new school costing $14 million was reduced to a pile of rubble.  This tornado was also the widest (3/4 mile) and longest lived (60 minutes) twister of the outbreak. It was on the ground for almost 100 miles.

In Tupelo, MS an EF-3 tornado destroyed an entire business district and sent trees crashing into houses. Peak estimated wind speeds were 150 mph and the path length was at least 24 miles. The tornado lasted over 26 minutes. In Louisville, MS a tornado rated EF-4 with peak estimated wind speeds of 190 mph, a maximum width of 0.75 mile and a path length of 35.5 miles over 56 minutes left 9 dead and a hospital heavily damaged.

But this was not the only extreme weather event in April. On April 4 the National Weather Service reported a number of twisters across several states. More than two feet of rain caused flooding problems for Gulf Coast communities just days after a severe weather outbreak brought multiple tornadoes to Alabama. There were at least 30 water rescues in the Mobile area alone.

Emergency managers say at least 240 homes were damaged or destroyed by the tornadoes and strong storms that swept through Alabama in early April. An update from the Alabama Emergency Management Agency said that damage was reported in 31 of Alabama's 67 counties.

St. Louis, MO residents awoke April 3 to tornado sirens as a cluster of heavy thunderstorms began moving through. A tornado was spotted around 8:16 PM on the ground in St. Louis County near Glendale. About an hour earlier, the agency reported a "damaging" twister with quarter-size hail about 50 miles west near Washington. And a tornado was earlier reported in the Osage County community of Rich Fountain. The weather service confirmed a tornado touched down about an hour before sunrise in the St. Louis suburb of University City, gouging a half-mile-by-100-yard path. The weather service gave the tornado, packing top winds of 112 miles per hour, an initial rating of EF-1.

In the west there were wildfires as Santa Ana winds topped 100 mph in some places including San Diego County and temperatures approached 100 degrees F. There have already been 1000 wildfires in California this year and fire season has barely gotten underway. More than 1600 homes were evacuated in Rancho Cucamonga as a fire charred 2000 acres.

It's not necessary to have actual tornadoes in order to inflict massive damage as high winds, torrential rains and golf ball sized hail, which is increasingly common during thunderstorms, can cause downed tree limbs, roof and gutter damage and busted windows. A forthcoming National Climate Assessment report shows that the top 1% rain events have increased in all regions of the continental US in the past five decades due to climate change.

There have already been three weather disasters this year which will cost over $1 billion:

1) The January 5 - 8 "Polar Vortex" winter weather outbreak, which is estimated to cost $3 billion in damage.

2) The California drought, with $3.6 billion in agricultural damages so far, as estimated by the California Farm Water Coalition.

3) Severe weather outbreak of April 27 - 30, which is estimated to cost over $1 billion in damage.

The return of tornado season with a vengeance has people asking again about a possible link to climate change. At the same time, tantalizing new preliminary research finds “some evidence to suggest that tornadoes are, in fact, getting stronger.”

Tom Karl, the director of the National Climatic Data Center, explained in a 2011 email:

What we can say with confidence is that heavy and extreme precipitation events often associated with thunderstorms and convection are increasing and have been linked to human-induced changes in atmospheric composition.

Extreme Weather Watch: June 2014 - Torrential Rains, Baseball Sized Hail, Massive Midwest Flooding

by John Lawrence

Another Month, Another Couple of Towns Wiped Out by Tornadoes

June 2014 was one of the worst months on record for extreme weather. Tuesday June 3 saw baseball size hail, 100 mph wind gusts and 11 tornadoes in South Dakota, Nebraska, Iowa and Missouri. In Omaha and Des Moines there were hundreds of reports of hail. Trees toppled on autos. Wind damage was mostly from derecchio winds. Derecchio winds are straight line winds which can be as damaging as tornadoes.

In Blair, Nebraska, officials said nearly every home, as well as any car that was parked outdoors, was damaged. The courthouse alone sustained more than $1.2 million in damage because, after hail shattered windows and skylights, rain penetrated inside. The insurance price tag in Nebraska and western Iowa will soar into the hundreds of millions of dollars. Although a handful of tornadoes were reported, baseball-sized hail and flooding rains left the biggest mark.

Blair resident, Donna Jones, said she saw widespread damage when she went to work Wednesday morning. "Everybody is in a daze," Jones said. "There's not a house that isn't touched." The Woodhouse Auto Family, which owns car dealerships in both Iowa and Nebraska, said on Facebook that about 4,500 vehicles were damaged across their properties. Hoods were dented and windshields were shattered. Company officials Wednesday estimated damages at $162 million. Hail smashed house windows and damaged siding. Police in Blair said 20 people were taken to the hospital with injuries. In several other cities, streets were flooded and trees were knocked down. Power was out.

By Thursday June 5th power outages remained across portions of Kansas, Missouri, Kentucky and Tennessee following strong winds associated with the storms Wednesday night and Thursday morning. More than 6.8 inches of rain fell in two hours early Thursday morning at Centerville, Tennessee, as a flash flood warning was posted for the area.

Omaha, Nebraska, had its wettest June day in history on Tuesday, breaking a 139-year-old record with 5.30 inches of rain and single-handedly wiping out its rainfall deficit for 2014.

By Thursday roof damage was reported in Lindsborg, Kansas, where 90-mph winds were estimated behind an area of decaying thunderstorms. Baseball-size hail was reported in at least two locations in Kansas. The storms then tore across the Ozarks before reintensifying over northeast Arkansas, where at least one building was destroyed by straight-line derecchio winds.

On June 16 tornadoes in Nebraska killed at least one person. 16 others were taken to hospital in critrical condition. At least 2 tornadoes touched down, one a mile wide.

Also on that day there were wildfires near Bakersfield, CA. Gusty winds were not helping. Three and a half square miles burned. Five hundred homes were evacuated.

The Tiny Town Too Tough to Die

On June 18 twin tornadoes ripped through Pilger, Nebraska.There were two EF-4 tornadoes with 200 mph wind speeds. The total devastation belied the town's motto, "The tiny town too tough to die." The rare twin tornadoes wiped out the town's business district, obliterated its fire station and ground 40 or 50 homes into rubble, Stanton County Sheriff Mike Unger said. The City Hall, Public Library, Fire Department and Midwest Bank were gone. As much as three quarters of the town of 350 is gone. Two people died during the storm including a five year old girl.

On the same day that Pilger was destroyed, a tornado damaged more than 40 houses and dozens of businesses in Wessington Springs, South Dakota. The same system that brought devastating tornadoes to Pilger, Nebraska and Wessington Springs, South Dakota doused parts of South Dakota, Iowa, Minnesota, Wisconsin, Nebraska and Illinois leading to historic flooding in some areas. After a week of heavy rains and rising waters, the floods that have developed in the Midwest had become deadly.

Also on June 18 California banned open burning on 31 million acres. There have been more than 2000 wildfires this year in California, 70% more than average. At the same time temperatures around 100 degrees F were recorded in Philadelphia and Washington, DC. Fire on a Navajo reservation burned 19 square miles on the Arizona and New Mexico border.

In Minnesota a state of emergency was declared in 35 counties on June 19 after days of heavy rain led to widespread flooding. Minneapolis set a record for the wettest June since record keeping began 140 years ago. Homes in over half the counties in the state of Minnesota have been impacted by flooding. In just 8 hours 6 inchs of rain fell in the St Paul/Minneapolis area. More than 25 inches of rain have fallen so far this June in the twin cities area. In Saint Paul the Mississippi River is at 20 feet - 6 feet above flood stage. Rivers will be at flood stage till after the 4th of July and beyond if rain continues to fall. Farm losses in Minnesota are at $7 Million so far. Mudslides threatened a hospital in Saint Paul.

Farm fields are under water, roads have been washed out, dams have failed and water has infiltrated homes from the far north to the far south of Minnesota. Four state parks have been fully or partially closed because of high water. "The damage is really unprecedented and very widespread," Gov. Mark Dayton said before boarding a plane to southern Minnesota along with U.S. Sens. Al Franken and Amy Klobuchar.

Damage assessments already total in the millions even before surveying can start in many places soaked by downpours over the past week. Some lakes and rivers swelled to record levels, with others not expected to crest for days, if not weeks.

Record Rainfall, Record Floods, States of Emergency Declared

Gov. Daugaard declared a state of emergency for South Dakota on Tuesday. Daugaard also ordered the opening of the State Emergency Operations Center to monitor the effects of the torrential rains and coordinate the state's response. The Red Cross also opened an emergency shelter to help people who have been evacuated or can't reach their homes because of the flooding. 

Sioux Falls, South Dakota obliterated its previous wettest month on record, 9.42 inches in May 1898, taking only half the month to do it. Through June 21, 13.39 inches of rain had soaked Sioux Falls, which is over half the average yearly precipitation of 26.38 inches. Sioux City, Iowa, broke its wettest month on record Friday, and by Sunday, Sioux City's total had reached 13.25 inches, well above the old single-month record of 11.78 inches in May 1903.

Along the South Dakota-Iowa border, the town of Canton, South Dakota, was hit hard by flooding earlier in the week, and many homes were destroyed.

"I have nothing left. It's all gone," said Canton resident Dale Larson.

Within a 24-hour time span between Monday morning and Tuesday morning (June 22), 8.43 inches of rain was measured in Canton, about 20 miles southeast of Sioux Falls. According to the National Weather Service, this was the third highest 24-hour precipitation total in state history, narrowly missing the all-time record of 8.74 inches on May 6, 2007 in Groton. 

The flooding stretched over the border into western Iowa, where Rock Rapids and Rock Valley have been partially evacuated. In Rock Rapids, about 60 homes have had water waist deep or higher, Mayor Jason Chase said, and many have shifted from their foundations or have damaged basement walls.

"This is the worst I've seen and I've been here since 1997," he said. Several families remain in a Red Cross shelter, Chase said.

Gov. Terry Branstad and Iowa Homeland Security and Emergency Management Department Director Mark Schouten surveyed damage in Rock Rapids and Rock Valley on Wednesday.

Rock Valley, about 20 miles southwest of Rock Rapids, requested pumps and sandbagging materials from the state after a levee broke on Tuesday night. The river is receding, but a local shelter still is available for residents needing to leave their homes.

The Big Sioux River set record flood levels at Hawarden and Akron where it peaked Tuesday. A levee also was breached in Akron, causing several residents to be evacuated late Tuesday night and early Wednesday. The city pumped out floodwaters to protect City Hall and other buildings.

Downstream, the Omaha Public Power District said it will reduce power as it prepares for rising water on the Missouri River. The district's Fort Calhoun nuclear power plant sits about 20 miles north of Omaha, and was surrounded by water during flooding three years ago.

In southern Wisconsin, a line of thunderstorms that spawned twisters rolled through late Monday and early Tuesday. The town of Madison was hit hard. Mayor Paul Soglin said about 25 homes were damaged by the storm, which caused about $10 million in damages.

The National Weather Service said it appeared a tornado touched down and lifted several times in the Mineral Point and Verona areas. At least 19 homes in Verona, near Madison, were damaged so badly they were uninhabitable. The weather service said two tornadoes touched down in Plateville.

Some parts of the Midwest — including parts of Iowa, Minnesota, South Dakota, and Nebraska — received 5 to 10 inches of rain over the course of a week, an amount that’s the equivalent of two months of rainfall in the region. In Minnesota, the rain caused mudslides and forced evacuations.

“Right now what we’re seeing is a statewide disaster, really,” Sen. Amy Klobuchar (D-MN) said Sunday. “From International Falls on the Canadian border down to Luverne on the Iowa border, it really covered the whole state.”

The rain has damaged corn and soybean crops, according to local reports, with water slow to drain from farmers’ fields. If farmers can get the water off their crops over the next few days, the crops could survive, and soybeans can be replanted this late in the season. The rains also elevated river levels, which could temporarily halt grain shipments in the region.

As rains soak the Midwest, California is parched, with 100 percent of the state in the most severe stages of drought. California Gov. Jerry Brown linked the state’s epic drought and ramped-up wildfire season to climate change last month, saying that the severe weather patterns prove that “humanity is on a collision course with nature.”

Science has shown that climate change will exacerbate — and likely already is exacerbating — heavy rainfall and drought conditions throughout the U.S. These events are sometimes sequential: long periods of drought can be followed by torrential downpours, making it difficult for the parched soil to absorb the rain and leading to flooding.

As the month ended, the midwest was continuing to experience more torrential rain, flooding, damaging winds, tornadoes and hail. The worst was not over.

 

Corporate Deserters Seek to Continue Doing Business in the US While Paying Taxes to Foreign Governments

by John Lawrence from the San Diego Free Press

Corporations are relentless about setting up tax avoidance schemes and finding new and improved ways of getting out of paying taxes. One method is to set up a corporate subsidiary in the Cayman Islands which doesn't require any taxes to be paid. This works well for collecting royalties on patents because the patents can just be transferred to the subsidiary, and, voila, no taxes need be paid at all. Other companies which do a great deal of selling abroad have money piling up in foreign jurisdictions. US law requires them to pay taxes on this money when they bring it back into the US. So these companies like Microsoft, Apple and Qualcomm are always lobbying for a "tax holiday", which would allow them to bring this poor, lonely money home without paying taxes on it. Corporations are people, remember, and money is their Mother's Milk.

Other industries like fast food operations make most of their money in the US. They have been stumped until recently as to how to get out of paying taxes on it. But now they have discovered an ingenious new way. The latest wrinkle is called inversion. A US corporation merges with a corporation in a foreign country and then for tax purposes lets its headquarters be located there. Nothing changes as far as US operations are concerned. Executives continue living in the US and US operations continue as usual. The corporation pays taxes to the foreign government which has a lower tax rate while leaving the US high and dry. Such a scam is being perpetrated by Burger King which is merging with a Canadian corporation called Tim Hortons. Burger King will cut its tax obligations in the US, pay a reduced tax bill to Canada and continue in the US with business as usual. No physical change of headquarters is necessary. No executives need move to Canada. As an added bonus, money made in Canada doesn't require begging for a tax holiday. It moves freely here with no strings attached.

Congress could eliminate the tax loophole which makes this possible, but Congress is in the business of creating loopholes not eliminating them. They are all for expanding loopholes instead of contracting them. Actually, Congress is the "Loopholes R Us" guys. Expect even more not fewer loopholes in the future.

Dick Durbin, Democrat from Illinois, blasted the deal. He said he was disappointed in Burger King's decision to renounce its US citizenship. They have effectively renounced their US citizenship for the purposes of paying taxes but not for the purposes of making profits. And Wall Street demands that they and all corporations maximize profits. Else they will be downrated and their stock might lose value. One of the chief ways they maximize profits is to minimize taxes. So Wall Street, who is their Big Daddy, cheers when corporations get out of paying taxes, and corporations dutifully listen to their Big Daddy and do what he says. Or else they'll be taken to the woodshed of lower stock values and sell orders. Investors will not be pleased.

Inversions let companies which earn money outside the US transfer money to the US without paying additional monies to the US. No need for a tax holiday. So don't be too surprised if Qualcomm or Apple decides to merge with a company in southeast Asia which would allow it to bring all the money, that has been sitting there waiting for a tax holiday, back to the US without further ado and with no additional taxes. So for money generated in the US, taxes are paid to the foreign government and for money generated outside the US that money gets to come home tax free. More and more companies are going to ditch Uncle Sam, and companies that are thought to be quintessentially American are going to be unAmerican when it comes to paying taxes. This means a greater tax burden on the middle class or perhaps it means that the Fed will just print more money. Inversions could cost the US $20 billion in lost tax revenues over the next decade.

In the last two decades more than 75 American companies have moved their official addresses abroad. The consulting firm Price Waterhouse Coopers moved its corporate address to Bermuda in 2002. Underwear manufacturer Fruit of the Loom moved its corporate address to the Cayman Islands in 1998. Sara Lee merged in 2012 with DE Master Blenders which has corporate headquarters in the Netherlands. Chiquita Bananas and medical device manufacturer Medtronic will both move their corporate headquarters to Ireland this year which brings up an interesting anomaly. Will the US government continue to pay millions in Medicare and Medicaid money to a corporation which in return pays taxes to a foreign government?

Bugger King says that Tim Hortons offers a real good business synergy since Tim Hortons is breakfast oriented while Bigger King specializes in lunch and dinner, but that's no reason why the corporate structure needs to be such that Buegher king is the subsidiary of Tim Horton. Bugger King is making itself subservient to Tim Horton to get out of paying US taxes pure and simple. The US loss is Canada's gain. Wow, Canada has free health care and what used to be US tax revenues. What's wrong with this picture?

The US stands alone among major nations in taxing on a residence basis instead of letting taxes be collected where the money is made. If your corporate headquarters are in the US, then you must pay corporate taxes on all the money you earn anywhere in the world to the US. Tim Hortons is resident in Canada so it pays taxes in whatever jurisdictions its money is earned. If they make money, for instance, in Britain, they pay taxes on that money to Britain not to Canada. So it's not just the fact that the US corporate tax rate is higher than Canada's. It's the fact that other modern industrialized nations pay taxes in whatever jurisdictions they operate in to those jurisdictions while US based companies pay taxes to the US wherever they make money anywhere in the world.

Burgher King is not the first corporation to pull this stunt. Walgreen's, the largest US drugstore chain, thought about it too. While pondering the move, Walgreens came under pressure from Democratic lawmakers and activists to remain headquartered in the United States. Senator Dick Durbin of Illinois, took a shot at Walgreens' folksy motto, writing, "Is 'the corner of happy and healthy' somewhere in the Swiss Alps?" Such a move might have cost U.S. taxpayers $4 billion over five years. There were calls for a national boycott. After announcing that it would not locate its corporate headquarters in Switzerland, Walgreen's stock went down. Shareholders were not amused that Walgreen's was giving money away by not locating there.

ThinkProgress reports:

At the same time, Walgreen is currently considering merging with European drugstore chain Alliance Boots and move to Switzerland as part of a plan to dodge up to $4 billion in U.S taxes. The company that gets almost a quarter of its $72 billion in revenue directly from the government through Medicare and Medicaid is trying to reap even more profits while leaving taxpayers holding the bag. 

Walgreen isn’t the only one. Pfizer, the pharmaceutical company, tried merging with the smaller U.K.-based AstraZeneca earlier this year and switch its address, where the tax rate is lower. It was estimated the move would save them at least $1 billion a year in tax obligations to the U.S. (the deal ultimately didn’t go through). Medtronic, a medical device company, plans to move its corporate address to Ireland, a tax haven, to avoid paying U.S. taxes on $14 billion. Chiquita, the banana distributor, is also heading to Ireland after acquiring Fyffes.  These tax dodges, as Fortune magazine calls them in this week’s issue, are “positively un-American.”

Huffington Post reported:

In May, Senate Democrats introduced the Stop Corporate Inversions Act of 2014, which recommends, among other things, forcing a large portion of a merged company's management and workforce to relocate to the new overseas location if the company wants to dodge U.S. taxes.

The bill "allows corporations to renounce their corporate citizenship only if they truly give up control of their company to a foreign corporation and truly move their operations overseas," Massachusetts Sen. Elizabeth Warren, who backed the bill, said last month.

Congress has the power to solve this problem. They merely need to change the rules so that the level of foreign partnership changes from the current 20% to 50% which would effectively make the corporation a foreign owned entity. But since our American method of governance is by corporate lobbyists, Congress will do the right thing only if it benefits corporations and right now that would be the status quo which allows corporations to do most of their business in and extract most of their propfits from the US while paying taxes to a foreign government.

President Obama and other Democrats have proposed that any corporation moving its headquarters abroad to avoid paying taxes should not receive any government contracts. "They're technically renouncing their U.S. citizenship," Obama said of the companies. "They're declaring they are based someplace else even though most of their operations are here. You know, some people are calling these companies corporate deserters." But Democrats do not control Congress so anything they want to do is moot. The American way of governance is ineffectual and dysfunctional as long as corporate interests supersede the interests of citizens and taxpayers. That is why a parliamentary democracy would better serve the US citizenry. In that form of government the winning party can get its agenda accomplished with far less interference from other parties.

Millennials, Rise up! College is a Scam — You Have Nothing to Lose But Student Debt

by Randall Collins

Sunday, Nov 24, 2013 03:59 AM PST from Salon

Students chase degree after degree, adding crushing debt, as jobs vanish. It is time to radically rethink college                       

Excerpted from "Does Capitalism Have a Future?"

(Credit: meshaphoto via iStock/Salon)

Educational degrees are a currency of social respectability, traded for access to jobs; like any currency, it inflates prices (or reduces purchasing power) when autonomously driven increases in monetary supply chase a limited stock of goods, in this case chasing an ever more contested pool of upper-middle-class jobs. Educational inflation builds on itself; from the point of view of the individual degree-seeker, the best response to its declining value is to get even more education. The more persons who hold advanced degrees, the more competition among them for jobs, and the higher the educational requirements that can be demanded by employers. This leads to renewed seeking of more education, more competition, and more credential inflation.

Within this overall inflationary process, the most highly educated segment of the population has received an increasingly greater proportion of the income; at least this has been so in the United States since the 1980s. One should be wary about extrapolating this particular historical period into an eternal pattern for all times and places. Those at the top of the inflationary competition for credentials have benefited from several processes: [a] they were in the relatively safe havens when technological displacement was hitting, initially, the last of the decently paid manual labor force, and then low-paid clerical work. [b] The quality of work performance between different levels of the educational hierarchy has apparently widened.

What has been insufficiently recognized is that the inflationary spiral in schooling has brought increasing alienation and perfunctory performance among students who are not at the top of the competition, those who are forced to stay in school more years but get no closer to elite jobs. Grade inflation and low standards of promotion are symptoms of this process. There is considerable evidence, from ethnographies of teenagers, of youth culture, and especially youth gangs, that the expansion of schooling has brought increasing alienation from official adult standards. The first youth gangs appeared in the early 1950s when working-class youth were first being pressured into staying in school instead of going into the labor force; and their ideology was explicitly anti-school.

This is the source of the oppositional youth culture that has grown so widely, both among the minority who belong to gangs and the majority who share their antinomian stance. Employers today complain that jobs in the lower half of the service sector are hard to fill with reliable, conscientious employees. But this is not so much a failure of mass secondary education to provide good technical skills (one hardly needs high-school math and science to greet customers politely or ship packages to the right address) as a pervasive alienation from doing menial work. The mass inflationary school system tells its students that it is providing a pathway to elite jobs, but spills most of them into an economy where menial work is all that is available unless one has outcompeted 80% of one’s school peers. No wonder they are alienated.

Although credential inflation is the primary mechanism of educational expansion, overt recognition of this process has been repressed from consciousness, in virtually a Freudian manner. In this case, the idealizing and repressing agent, the Superego of the educational world, is the prevailing technocratic ideology. Rising technical requirements of jobs drive out unskilled labor, the argument goes, and today’s high-skilled jobs demand steadily increasing levels of education. Thirty years ago, in The Credential Society, I assembled evidence to show that technological change is not the driving force in rising credential requirements. The content of education is not predominantly set by technological demand; most technological skills—including the most advanced ones—are learned on the job or through informal networks, and the bureaucratic organization of education at best tries to standardize skills innovated elsewhere. In updated research on credential inflation vis-à-vis technological change, I have seen nothing that overturns my conclusions published in 1979. It is true that a small proportion of jobs benefit from scientific and technical education, but that is not what is driving the massive expansion of education. It is implausible that in the future most persons will be scientists or skilled technicians. Indeed, the biggest area of job growth in rich countries has been low-skilled service jobs, where it is cheaper to hire human labor than to automate. In the current US economy, one of the biggest growth sectors is tattoo parlors: a non-credentialed occupation, small-scale business, low-paying and thus far immune from corporate control—and selling emblems of alienation from mainstream culture.

Although educational credential inflation expands on false premises— the ideology that more education will produce more equality of opportunity, more high-tech economic performance, and more good jobs—it does provide some degree of solution to technological displacement of the middle class. Educational credential inflation helps absorb surplus labor by keeping more people out of the labor force; and if students receive a financial subsidy, either directly or in the form of low-cost (and ultimately unrepaid) loans, it acts as hidden transfer payments. In places where the welfare state is ideologically unpopular, the mythology of education supports a hidden welfare state. Add the millions of teachers in elementary, secondary, and higher education, and their administrative staffs, and the hidden Keynesianism of educational inflation may be said to virtually keep the capitalist economy afloat.

As long as the educational system can be somehow financed, it operates as hidden Keynesianism: a hidden form of transfer payments and pump-priming, the equivalent of New Deal make-work setting the unemployed to painting murals in post offices or planting trees in conservation camps. Educational expansion is virtually the only legitimately accepted form of Keynesian economic policy, because it is not overtly recognized as such. It expands under the banner of high technology and meritocracy—it is the technology that requires a more educated labor force. In a roundabout sense this is true: it is the technological displacement of labor that makes school a place of refuge from the shrinking job pool, although no one wants to recognize the fact. No matter—as long as the number of those displaced is shunted into an equal number of those expanding the population of students, the system will survive.

The rub is on the expense side. The two main ways to pay for schooling (at all levels: elementary, secondary, tertiary, and whatever further levels become added on) are either by government provision or by private purchase. Both of these come under pressure in times of economic downturn and squeezed government revenue. In the years around 2010, both in the United States and many other countries, the costs of public education became such a substantial proportion of government budgets (especially at the local level) that they gave rise to movements to cut educational spending. In Chile, for instance, where 50% of the youth cohort now attends university, there is a struggle between the organized students demanding free university education for all and administrators and tax conservatives who push an increasing proportion of higher education into the private marketplace. Similar issues have roiled the student population in France and elsewhere. In the United States, where higher education is funded largely (and increasingly) by the students themselves and their families, there has been much concern over the amount of debt in the form of student loans—now (as of 2011) approaching 10% of GDP. If one extrapolates both the numbers of students extending their stay in schools in response to technological displacement, and the proportion of the economy made up by student debt, one can see that another twenty years or so of technological displacement and credential inflation will become enormously expensive to the system as a whole. What would happen if student debt rose to 50% of GDP, or 100%?

Education is a major cost of government, and this tends to limit future expansion. With higher costs, there are pressures to privatize, shifting the burden of funding to students or parents; but this too faces a limit as the middle class is economically squeezed. By 2012, there was a wave of publicity in the United States about what kinds of degrees are not worth the cost of acquiring them, in terms of the jobs one can get or one fails to get. Although one individual solution would simply be to drop out of the educational competition, the more popular choice among youth has been to seek specific vocational education, and there has been an upsurge of schools in areas like apparel design, computer programming, business, etc. But the shift to vocational education does not evade the dynamic of credential inflation, and we can predict increasing competition inside those vocational sectors, and rising inflation of vocational degrees. One indicator has been controversy, both in the political sphere and in accrediting and regulatory agencies, critiquing the low rate of job success for such vocational students, and denying them access to government loans. That is to say, the inflated value of educational degrees has become an explicit problem.

Information Technology is again being invoked as a solution. There is a rush toward university courses online, thereby achieving great economies of scale. Some of these are for sale, albeit at rates far lower than the cost of actual tuition at a bricks-and-mortar institution. Others are offered altruistically for free. Neither method will hinder credential inflation; indeed, both add to it, by putting still more educated persons on the market. As of now, the new kinds of credentials are being labeled as distinct from university degrees, and in that sense not directly competing with them. This remains to be seen; in effect a new form of cheap educational currency is being created, alongside a more traditional and expensive educational currency. If educational currencies are strictly like money, Gresham’s law would apply, and the cheap currency would drive out the expensive one. On the other hand, in economic sociology, as we know from Viviana Zelizer (1994) and Harrison White (2002), high-quality economic objects can exist in separate circuits alongside cheap ones, and that may well continue to be the case in the production of educational credentials.

The dilemma is this: efforts to make education cheaper have the effect of reducing employment in the educational sector itself; if a few famous universities monopolize teaching through online courses, and a few professors can do the vast amount of the teaching with electronic assistance, one more sector of employment becomes technologically displaced. The result is the same through the pathway of old-fashioned tax revolts; a short-term reduction in the population’s tax burden has the roundabout effect of reducing jobs available for that same population.

Of the five escape routes from capitalist crisis, continued educational inflation seems to me the most plausible. An expanding educational system driven by credential inflation reaches a potential crisis point within the educational system itself. This is not necessarily final. One can envision a series of such plateaus, stopping and restarting as our secular faith in salvation through education goes through disillusionment and revival. But if this becomes increasingly government sustained, it amounts to socialism in the guise of education. It is conceivable that liberal governments might find their way to keep expanding educational systems, using them as a Keynesian safety valve, and a form of transfer payments from the capitalists and the diminishing sector of the employed, to sustain the otherwise unemployed. But to get such a government might well take a near-revolutionary disillusionment with capitalism.

When Will Full-Blown Crisis Happen?

Computerization of middle-class labor (since the last decade of the 20th century) is proceeding at a much faster pace than the mechanization of the manual labor force (which took approximately the entire 19th century and three-quarters of the 20th). Technological displacement of middle-class labor is not much more than twenty years old; whereas it took almost 200 years to destroy the working-class labor force.

Another estimate of the timing of future capitalist crisis is provided by world-system (W-S) theory. In earlier writing on the capitalist world-system, Wallerstein and colleagues presented a theoretical model of systemic long cycles. The core regions of the W-S in their expansive phase generate their advantage by resources extracted under favorable conditions from the periphery. Hegemony is periodically threatened by conflicts within the core, and especially by semiperipheral zones rising to threaten the hegemon. Eventually the core gets caught up with, just as increasing competition in a new area of entrepreneurial profit brings down the profits once gained by the early innovator; in this respect, the W-S operates like Schumpeter’s cycle of entrepreneurship, but on a global scale. With each new cycle, new opportunities for expansion and profit arise, under the leadership of a new hegemon. The crucial condition in the background, however, is that there must be an external area, outside the W-S, which can be incorporated and turned into the periphery of the system. Thus there is a final ending point to the W-S: when all the external areas have been penetrated. At this point the struggle for profit in the core and semiperiphery cannot be resolved by finding new economic regions to conquer. The W-S undergoes not just cyclical crisis but terminal transformation.

On the basis of past cycles, Wallerstein (also Arrighi, 1994) project the crisis of the W-S at approximately 2030–2045. My own estimate of the crisis point generated by the mechanism of technological displacement of the middle class depends on the rate at which structural unemployment grows. (This must be measured not merely in convenient technical terms such as, in the United States, the number of applications for unemployment compensation, but by our best measure of the proportion of the adult population unable to find work and driven out of the employment sector entirely.) An unemployment rate of 10% is painful, by American standards; 25% (found in crisis economies) is big trouble, but it has been sustained in the past. But when unemployment reaches 50% of the work-capable population, or 70%, the capitalist system must come under such pressure—both from under-consumption and political agitation—that it cannot survive. If we think such unemployment rates are unimaginable, let us imagine again, through the lens of technological displacement of all categories of work by electronic machinery. It is clear that the rate of technological displacement has accelerated in the last fifteen years. We could well reach 50% structural unemployment by the year 2040, and 70% not long after that. In gross terms, this agrees with the W-S projection of a terminal crisis of capitalism around the middle of the 21st century.

Anti-capitalist Revolution: Peaceful or Violent?

If the crisis of technology displacement becomes severe enough—a highly automated, computerized world in which very few people work, and most of the population is unemployed or competing for menial low-paid service jobs—would there be a revolution?

Here we must leave economic crisis theory and examine theory of revolution. Since the 1970s, the theory of revolution has been revolutionized. Skocpol [1979], Goldstone [1991], Tilly [1995], and others, by their comparative researches on the rise and fall of state regimes, have established what can be called the state breakdown theory of revolution. Successful revolution depends on what happens at the top, not on disaffected and impoverished masses from below. The chief ingredients are: first, a fiscal crisis of the state; the state becomes unable to pay its bills, and above all to pay its security forces, its military and police. State fiscal crisis becomes lethal when it is joined by the second ingredient, a split among elites over how to deal with it. We could add secondary factors, back in the chain of antecedents, typically although not always including military causes; a state fiscal crisis often comes from accumulated military expenses, and elite deadlock is especially exacerbated by military defeat, which delegitimates government and provokes calls for drastic reform. Splits among elites paralyze the state and open the way to a new coalition with radical aims. It is in this power vacuum—what social movement theorists now call the political opportunity structure—that social movements are successfully mobilized. Often they do so in the name of grievances from the bottom, but typically such radical movements are led by upper-middle-class fractions with the best networks and organizing resources. As de Tocqueville recognized long ago, the radicalism of a movement is not correlated with the degree of immiseration; exactly what does determine the degree of radicalism is more in the realm of the ideological and emotional dynamics of exploding conflict, although just how to theorize this remains unfinished.

Virtually all revolutions, up to this point in history, have come not from economic crisis of capitalist markets, but from government breakdown. The key component is fiscal crisis in the government budget itself, but this is usually independent of major crisis in the larger economy. This means revolutions can continue to happen in the future, through the narrower mechanism of state breakdown, the state-centered fiscal crisis, elite deadlock, and ensuing paralysis of state enforcement apparatus. State crises are more frequent than full-scale economic crises. What happens when we put this in the context of the long-term trend to technological displacement of the labor force? Several things are possible: revolutions can happen in particular states, not necessarily those with the greatest amount of technological displacement. Or, revolutions can happen that do not act on a policy of solving technological displacement. But also, revolutions can happen which do take an explicitly anticapitalist turn.

Since history is driven by multiple causes, the future is like rolling multiple dice, as in the Chinese game Yahtzee—waiting for sixes to come up on all five dice simultaneously. Thus we could have the general anticapitalist revolution sometime in the future, through the right combination of state breakdown, perhaps plus war defeat, plus the omnipresent technological displacement.

The crisis of capitalism sets the agenda. At some point the politically mobilized populace will have to deal with it. This could happen by the classic route of state breakdown: the legitimacy of the state is called into question; the state itself stops functioning (paralyzed by fiscal crisis and/or political splits within its own ranks, mirroring political polarization outside); the monopoly over organized violence breaks apart, as police and the military lose organizational coherence and factionalize. This may or may not produce extensive violence, whether in riots and crowd suppression, or in civil war. In some moments of revolution (for instance the French Revolution of February 1848) the period of tense crisis was resolved with relatively little violence, as the existing regime lost organizational coherence, no one wanted to take charge of continuing the existing regime, and a new parliamentary power was quickly constituted. Similarly in Russia in February 1917, after several days of sporadic violence and wavering between crowds and soldiers, the Czarist regime ended in a flurry of abdications and refusals to pick up the reins. These cases also show that in ensuing months and years the new revolutionary regime may have trouble consolidating power, especially when restorationist movements mobilize against it, and later violence is often more severe than the initial revolutionary transition. Separating the revolutionary moment from its aftermath, the process of revolutionary state breakdown need not be very violent. Political sociology has not yet taken up the issue of under what conditions postrevolutionary consolidation of government is peaceful or violent. All we can say is that the range of violence seen in historical revolutions and their consolidation would also be possible in the terminal crisis of capitalism. The most dangerous possibility is that the prospect of anticapitalist revolution, seen by its enemies as the threat of violent change, would give rise to a neofascist solution: an authoritarian regime supported by popular movements nostalgic to save capitalism, which would carry out enough redistribution so that the massively unemployed population would be kept alive, but under a police state constantly on the alert for subversion. We do not know how to estimate the chances of an attempted fascist solution, compared to a democratic postcapitalism. Wallerstein has conjectured that it may be 50–50.

But a favorable alternative may be quite likely: the institutional transformation from capitalism to a noncapitalist system of political economy—an institutional revolution—could come about through peaceful political process. If the crisis of capitalism is severe enough—a majority of the population structurally unemployed, robots and computers doing almost all the income-generating work but owned by a small number of wealthy capitalists, the economy in deep depression—at some point a political party could win electoral power on an anticapitalist program. Some governing party or coalition would have to replace capitalist production, distribution, and finances with a system that redistributes wealth outside the system of labor market and profit-taking.

This kind of electoral politics might seem far-fetched in the political atmosphere on the present—just twenty years after the fall of the Soviet bloc, coinciding with an enormous market expansion in nominally communist China and with the triumph of market ideologies everywhere. But political moods are prone to wide swings every twenty or thirty years: think back through each twenty-year segment of the 20th century. If the structural trend to technological displacement continues to deepen, a vast reversal of opinion another twenty years into the future is not at all unlikely.

A peaceful institutional revolution is possible. The deeper the structural crisis of the middle class, the more mobilization for electoral politics is facilitated. Along that route lies the prospect for a relatively nonviolent transition.

Excerpted from “Does Capitalism Have a Future?” by Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derleugian & Craig Calhoun, with permission from Oxford University Press USA. Copyright © 2013 Oxford University Press USA.

 

Why College Isn't for Everyone, Explained in a Single Chart

by  Chris Matthews @crobmatthews

September 5, 2014, 1:37 PM EDT from Fortune

The bottom quarter of earners with a college degree don’t make more money than the average high school graduate. And this hasn’t really changed much in 40 years.

If you listen to the experts, they’ll tell you that, despite the rising cost of a degree, college still pays off.

And the statistics bear this argument out. A college graduate will on average make $1 million more than a worker with just a high school degree over the course of his lifetime, making even a six-figure upfront investment well worth it in the end. Yet anecdotal evidence abounds of students who either flunked out of college or graduated with large debt loads and are still unable to land jobs that will make the investment in a degree pay off.

How do we reconcile the statistics with these stories? This chart from the Federal Reserve Bank of New York shows that we can miss a lot when looking at just the average experience:

The bottom quarter of earners with a college degree don’t make more money than the average high school graduate. And this hasn’t really changed much in 40 years. In fact, this graphic shows that a college degree has become more valuable even for the bottom quarter of earners, likely as a result of the evaporation of high-paying blue collar jobs, like those in the manufacturing industries. Of course, over the past 40 years, the cost of a degree has increased 12-fold, while a degree holder isn’t making more money at all, when accounting for inflation.

So, it’s quite likely that, given the huge upfront investment for a college degree, many more workers today would have been better off not going to college at all. There are a few caveats that should be mentioned, however. First, we don’t know for sure how much money this bottom quarter of degree-holding earners would have made without their college education. Furthermore, much of this could boil down to career choice: there are many jobs that require a degree but don’t pay very well. If someone earns a degree for reasons beyond making more money, it could be that the upfront investment is worthwhile regardless.

That being said, the above graph is certainly evidence that both the public and private sector need to make serious changes to provide higher education more efficiently. Unfortunately, this bit of information isn’t really helpful for the millions of Americans who need to decide how and where to send their kids to college.

There is a well-established principle in behavioral economics that people systematically overestimate their abilities in general, and we can see this in the exponential increase in college costs. Up to 25% of college grads would probably be better off not pursuing a degree, yet nobody actually thinks they’re going to be the ones for whom the investment doesn’t pay off.

Further compounding the problem is the fact that students usually don’t have a great idea of how they are going to fare in college, or what sort of degree or career they will pursue until after they’ve already made the decision to attend.

One could argue that all this uncertainty is evidence that we should be investing more in public support of higher education. There’s plenty of evidence that there are what economists call “spillover effects” from students educating themselves, that society as a whole benefits from higher education. So there is justification for paying for higher education with tax dollars. And since students don’t know ahead of time what degree they will personally benefit from, it’s possible that students will just begin to forego college altogether, hurting society in general. There’s evidence that this is beginning to happen.

In the meantime, students who are unsure of what they want to study or do are probably best advised to be very cost-conscious when choosing a college, and to be unafraid to wait until they are sure how they will use their degree before they start to pursue one.

A Progressive Estate Tax

by Bernie Sanders from truthdig.com

The founders of our country declared their independence from what they viewed as a tyrannical aristocracy in England. More than two centuries later, today’s tyrannical aristocracy is no longer a foreign power. It’s an American billionaire class which has unprecedented economic and political influence over all of our lives.

Unless we reduce skyrocketing wealth and income inequality, unless we end the ability of the super-rich to buy elections, the United States will be well on its way toward becoming an oligarchic form of society where almost all power rests with the billionaire class.

In the year 2014, the U.S. has by far the most unequal distribution of wealth and income of any major country on earth. This inequality is worse than at any time in our country’s history since 1928. Today, the top 1 percent owns about 37 percent of the total wealth in this country. The bottom 60 percent owns only 1.7 percent of our nation’s wealth.

At a time median family income is $5,000 less than it was in 1999, the net worth of the top 400 billionaires in this country has doubled over the past decade. The top 1 percent now owns more wealth than the bottom 90 percent of Americans and one family, the Walton family of Wal-Mart, owns more wealth than the bottom 40 percent of Americans.

In terms of income, the top 1 percent earns more than the bottom 50 percent. Since the Great Recession of 2008, 95 percent of all income gains in the U.S. have gone to the top 1 percent. While the rich have become even richer, more Americans are living in poverty than at any time in our nation’s history. Today, half of Americans have less than $10,000 in savings. We have the highest rate of childhood poverty—22 percent—than any major country on earth.

More than a century ago, President Theodore Roosevelt recognized the danger of massive wealth and income inequality and what it meant to the economic and political well-being of the country. In addition to busting up the big trusts of his time, he fought for the creation of a progressive estate tax to reduce the enormous concentration of wealth that existed during the Gilded Age.

“The absence of effective state, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” the Republican president said. “The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is passed by men of relatively small means. Therefore, I believe in ... a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.”

Roosevelt spoke those words on Aug. 31, 1910. They are even more relevant today.

A progressive estate tax on multi-millionaires and billionaires is the fairest way to reduce wealth inequality, lower our $17 trillion national debt and raise the resources we need for investments in infrastructure, education and other neglected national priorities.

I will shortly introduce legislation that will:

• Call for a progressive estate tax rate structure so that the super wealthy pay their fair share of taxes. The tax rate for the value of an estate above $3.5 million and below $10 million would be 40 percent. The tax rate on the value of estates above $10 million and below $50 million would be 50 percent, and the tax rate on the value of estates above $50 million would be 55 percent.

• Include a billionaire’s surtax of 10 percent. This surtax on the value of estates worth more than $1 billion would currently apply to fewer than 500 of the wealthiest families in America worth more than $2 trillion.

• Close estate tax loopholes that have allowed the wealthy to avoid billions in estate taxes. Some of the wealthiest Americans in this country have exploited loopholes in the tax code to avoid paying an estimated $100 billion in estate taxes since 2000. My bill would close those loopholes.

• Exempt the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009. Under this legislation, 99.75 percent of Americans would not pay a penny in estate taxes.

This legislation would exempt more than 99.7 percent of Americans from paying any estate tax while ensuring that the wealthiest Americans in our country pay their fair share.

I agree with former Labor Secretary Robert Reich who wrote, in support of this legislation, that America “is creating an aristocracy of wealth populated by heirs who don’t have to work for a living yet have great influence over how the nation’s productive assets are deployed.” He is right in calling the proposal that I’ve laid out “a welcome step toward reversing this trend.” Let’s fight together to see that it is implemented.

Whether We Engage or Do Nothing ... This Changes Everything

Published on

Tuesday, September 16, 2014

by Common Dreams

When it comes to climate change, the trick is recognizing that the best cure for the terror caused by an unlivable future is the real prospect that we could build something much better than many of us have previously dared hope

 

by Naomi Klein

 

The following is an excerpt taken from the introduction of Naomi Klein's newly published book, This Changes Everything: Capitalism vs. the Climate, and appears at Common Dreams with permission from the book's publisher Simon & Shuster.  All rights reserved.

 

“Most projections of climate change presume that future changes—greenhouse gas emissions, temperature increases and effects such as sea level rise—will happen incrementally. A given amount of emission will lead to a given amount of temperature increase that will lead to a given amount of smooth incremental sea level rise. However, the geological record for the climate reflects instances where a relatively small change in one element of climate led to abrupt changes in the system as a whole. In other words, pushing global temperatures past certain thresholds could trigger abrupt, unpredictable and potentially irreversible changes that have massively disruptive and large-scale impacts. At that point, even if we do not add any additional CO2 to the atmosphere, potentially unstoppable processes are set in motion. We can think of this as sudden climate brake and steering failure where the problem and its consequences are no longer something we can control.” —Report by the American Association for the Advancement of Science, the world’s largest general scientific society, 2014

“I love that smell of the emissions.” —Sarah Palin, 2011

I denied climate change for longer than I care to admit. I knew it was happening, sure. Not like Donald Trump and the Tea Partiers going on about how the continued existence of winter proves it’s all a hoax. But I stayed pretty hazy on the details and only skimmed most of the news stories, especially the really scary ones. I told myself the science was too complicated and that the environmentalists were dealing with it. And I continued to behave as if there was nothing wrong with the shiny card in my wallet attesting to my “elite” frequent flyer status.

A great many of us engage in this kind of climate change denial. We look for a split second and then we look away. Or we look but then turn it into a joke (“more signs of the Apocalypse!”). Which is another way of looking away.

Or we look but tell ourselves comforting stories about how humans are clever and will come up with a technological miracle that will safely suck the carbon out of the skies or magically turn down the heat of the sun. Which, I was to discover while researching this book, is yet another way of looking away.

"Climate change is... hard to keep it in your head for very long. We engage in this odd form of on-again-off-again ecological amnesia for perfectly rational reasons. We deny because we fear that letting in the full reality of this crisis will change everything. And we are right."

Or we look but try to be hyper-rational about it (“dollar for dollar it’s more efficient to focus on economic development than climate change, since wealth is the best protection from weather extremes”)—as if having a few more dollars will make much difference when your city is underwater. Which is a way of looking away if you happen to be a policy wonk. Or we look but tell ourselves we are too busy to care about something so distant and abstract—even though we saw the water in the subways in New York City, and the people on their rooftops in New Orleans, and know that no one is safe, the most vulnerable least of all. And though perfectly understandable, this too is a way of looking away.

Or we look but tell ourselves that all we can do is focus on ourselves. Meditate and shop at farmers’ markets and stop driving—but forget trying to actually change the systems that are making the crisis inevitable because that’s too much “bad energy” and it will never work. And at first it may appear as if we are looking, because many of these lifestyle changes are indeed part of the solution, but we still have one eye tightly shut.

Or maybe we do look—really look—but then, inevitably, we seem to forget. Remember and then forget again. Climate change is like that; it’s hard to keep it in your head for very long. We engage in this odd form of on-again-off-again ecological amnesia for perfectly rational reasons. We deny because we fear that letting in the full reality of this crisis will change everything. And we are right.

We know that if we continue on our current path of allowing emissions to rise year after year, climate change will change everything about our world. Major cities will very likely drown, ancient cultures will be swallowed by the seas, and there is a very high chance that our children will spend a great deal of their lives fleeing and recovering from vicious storms and extreme droughts. And we don’t have to do anything to bring about this future. All we have to do is nothing. Just continue to do what we are doing now, whether it’s counting on a techno-fix or tending to our gardens or telling ourselves we’re unfortunately too busy to deal with it.

All we have to do is not react as if this is a full-blown crisis. All we have to do is keep on denying how frightened we actually are. And then, bit by bit, we will have arrived at the place we most fear, the thing from which we have been averting our eyes. No additional effort required.

There are ways of preventing this grim future, or at least making it a lot less dire. But the catch is that these also involve changing everything. For us high consumers, it involves changing how we live, how our economies function, even the stories we tell about our place on earth. The good news is that many of these changes are distinctly un-catastrophic. Many are downright exciting. But I didn’t discover this for a long while.

"All we have to do is not react as if this is a full-blown crisis. All we have to do is keep on denying how frightened we actually are. And then, bit by bit, we will have arrived at the place we most fear, the thing from which we have been averting our eyes. No additional effort required."

I remember the precise moment when I stopped averting my eyes to the reality of climate change, or at least when I first allowed my eyes to rest there for a good while. It was in Geneva, in April 2009, and I was meeting with Bolivia’s ambassador to the World Trade Organization (WTO), who was then a surprisingly young woman named Angélica Navarro Llanos. Bolivia being a poor country with a small international budget, Navarro Llanos had recently taken on the climate portfolio in addition to her trade responsibilities. Over lunch in an empty Chinese restaurant, she explained to me (using chopsticks as props to make a graph of the global emission trajectory) that she saw climate change both as a terrible threat to her people—but also an opportunity.

A threat for the obvious reasons: Bolivia is extraordinarily dependent on glaciers for its drinking and irrigation water and those white-capped mountains that tower over its capital were turning gray and brown at an alarming rate. The opportunity, Navarro Llanos said, was that since countries like hers had done almost nothing to send emissions soaring, they were in a position to declare themselves “climate creditors,” owed money and technology support from the large emitters to defray the hefty costs of coping with more climate-related disasters, as well as to help them develop on a green energy path.

She had recently given a speech at a United Nations climate conference in which she laid out the case for these kinds of wealth transfers, and she gave me a copy. “Millions of people,” it read, “in small islands, least developed countries, landlocked countries as well as vulnerable communities in Brazil, India and China, and all around the world—are suffering from the effects of a problem to which they did not contribute. . . . If we are to curb emissions in the next decade, we need a massive mobilization larger than any in history. We need a Marshall Plan for the Earth. This plan must mobilize financing and technology transfer on scales never seen before. It must get technology onto the ground in every country to ensure we reduce emissions while raising people’s quality of life. We have only a decade.”

Of course a Marshall Plan for the Earth would be very costly—hundreds of billions if not trillions of dollars (Navarro Llanos was reluctant to name a figure). And one might have thought that the cost alone would make it a nonstarter—after all, this was 2009 and the global financial crisis was in full swing. Yet the grinding logic of austerity—passing on the bankers’ bills to the people in the form of public sector layoffs, school closures, and the like—had not yet been normalized. So rather than making Navarro Llanos’s ideas seem less plausible, the crisis had the opposite effect.

We had all just watched as trillions of dollars were marshaled in a moment when our elites decided to declare a crisis. If the banks were allowed to fail, we were told, the rest of the economy would collapse. It was a matter of collective survival, so the money had to be found. In the process, some rather large fictions at the heart of our economic system were exposed (Need more money? Print some!). A few years earlier, governments took a similar approach to public finances after the September 11 terrorist attacks. In many Western countries, when it came to constructing the security/surveillance state at home and waging war abroad, budgets never seemed to be an issue.

Climate change has never received the crisis treatment from our leaders, despite the fact that it carries the risk of destroying lives on a vastly greater scale than collapsed banks or collapsed buildings. The cuts to our greenhouse gas emissions that scientists tell us are necessary in order to greatly reduce the risk of catastrophe are treated as nothing more than gentle suggestions, actions that can be put off pretty much indefinitely. Clearly, what gets declared a crisis is an expression of power and priorities as much as hard facts.

But we need not be spectators in all this: politicians aren’t the only ones with the power to declare a crisis. Mass movements of regular people can declare one too.

 

Excerpted from This Changes Everything: Capitalism vs the Climate by Naomi Klein.  Copyright © 2014 by Naomi Klein.  Reprinted by permission of Simon & Schuster, Inc. All Rights Reserved

Naomi Klein      

Naomi Klein is an award-winning journalist, author, and syndicated columnist. Her new book, This Changes Everything: Capitalism vs the Climate (Simon & Schuster, 2014), has just been published. Her previous books include the international best-sellers,  The Shock Doctrine: The Rise of Disaster Capitalism and No Logo: Taking Aim at the Brand Bullies.   To read all her writing visit www.naomiklein.org. Follow her on Twitter: @NaomiAKlein.

 

 

Extreme Weather Watch: August 2014 - Southwest US May Face Megadrought

by John Lawrence from the San Diego Free Press

Three new studies do not bode well for the future of the American southwest. California is in the midst of the worst drought in recorded history. However, this may be just the beginning. There have been megadroughts before. And scientists are now 99.99% certain that climactic changes responsible for this extreme weather condition are caused by human activity which spews greenhouse gasses into the atmosphere.

And as the drought continues in California, record amounts of groundwater are being pumped by corporations which are bottling and selling it in other states. Due to crippling drought in California, there’s been a crackdown on watering lawns and washing cars. Yet Nestle has continued its bottling operations, adding to the national debate over corporate right and common good.

Farmers in the Central Valley are also pumping record amounts to make up for the lack of water from above ground sources. Recently a bill was passed which Governor Jerry Brown is expected to pass regulating groundwater for the first time.

California's groundwater provides approximately 30 to 46 percent of the State's total water supply, depending on wet or dry years, and serves as a critical buffer against drought and climate change.  Some communities in California are 100 percent reliant upon groundwater for urban and agricultural use. So much water is being pumped from the ground in parched California that the land is sinking, according to scientists.

From Science Daily:

Due to global warming, scientists say, the chances of the southwestern United States experiencing a decade long drought is at least 50 percent, and the chances of a “megadrought” – one that lasts over 30 years – ranges from 20 to 50 percent over the next century.

The study by Cornell University, University of Arizona and U.S. Geological Survey researchers will be published in a forthcoming issue of the American Meteorological Society’s Journal of Climate.

“For the southwestern U.S., I’m not optimistic about avoiding real megadroughts,” said Toby Ault, Cornell assistant professor of earth and atmospheric sciences and lead author of the paper. “As we add greenhouse gases into the atmosphere – and we haven’t put the brakes on stopping this – we are weighting the dice for megadrought conditions.”

As of mid-August, most of California sits in a D4 “exceptional drought,” which is in the most severe category. Oregon, Arizona, New Mexico, Oklahoma and Texas also loiter between moderate and exceptional drought. Ault says climatologists don’t know whether the severe western and southwestern drought will continue, but he said, “With ongoing climate change, this is a glimpse of things to come. It’s a preview of our future.”

Ault said that the West and Southwest must look for mitigation strategies to cope with looming long-drought scenarios. “This will be worse than anything seen during the last 2,000 years and would pose unprecedented challenges to water resources in the region,” he said.

In computer models, while California, Arizona and New Mexico will likely face drought, the researchers show the chances for drought in parts of Washington, Montana and Idaho may decrease.

Beyond the United States, southern Africa, Australia and the Amazon basin are also vulnerable to the possibility of a megadrought. With increases in temperatures, drought severity will likely worsen, “implying that our results should be viewed as conservative,” the study reports.

“These results help us take the long view of future drought risk in the Southwest – and the picture is not pretty. We hope this opens up new discussions about how to best use and conserve the precious water that we have,” said Julia Cole, UA professor of geosciences and of atmospheric sciences.

The study, “Assessing the Risk of Persistent Drought Using Climate Model Simulations and Paleoclimate Data,” was also co-authored by Julia E. Cole, David M. Meko and Jonathan T. Overpeck of University of Arizona; and Gregory T. Pederson of the U.S. Geological Survey.

From the University of Arizona:

A new study has revealed a previously unknown multi-decade drought period in the second century A.D. The findings give evidence that extended periods of aridity have occurred at intervals throughout our past. Almost 900 years ago, in the mid-12th century, the southwestern U.S. was in the middle of a multi-decade megadrought. It was the most recent extended period of severe drought known for this region. But it was not the first. The second century A.D. saw an extended dry period of more than 100 years characterized by a multi-decade drought lasting nearly 50 years, according to the study.

And from Daily Kos:

A new study has calculated that the chances that  humans are causing global warming is 99.999%.

New study finds 99.999 percent certainty humans are causing global warming

By Philip Kokic, Mark Howden, and Steven Crimp

There is less than 1 chance in 100,000 that global average temperature over the past 60 years would have been as high without human-caused greenhouse gas emissions, our new research shows.

Published in the journal Climate Risk Management today, our research is the first to quantify the probability of historical changes in global temperatures and examines the links to greenhouse gas emissions using rigorous statistical techniques.

Our new CSIRO work provides an objective assessment linking global temperature increases to human activity, which points to a close to certain probability exceeding 99.999%.

Also check out ThinkProgress: Global Warming Boosts Chances of Civilization-Threatening Megadroughts Here And Abroad

Preparing To Asset-strip Local Government? The Fed’s Bizarre New Rules

Posted on September 8, 2014 by Ellen Brown from Web of Debt blog

In an inscrutable move that has alarmed state treasurers, the Federal Reserve, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, just changed the liquidity requirements for the nation’s largest banks. Municipal bonds, long considered safe liquid investments, have been eliminated from the list of high-quality liquid collateral. assets (HQLA). That means banks that are the largest holders of munis are liable to start dumping them in favor of the Treasuries and corporate bonds that do satisfy the requirement.

Muni bonds fund the nation’s critical infrastructure, and they are subject to the whims of the market: as demand goes down, interest rates must be raised to attract buyers. State and local governments could find themselves in the position of cash-strapped Eurozone states, subject to crippling interest rates. The starkest example is Greece, where rates went as high as 30% when investors feared the government’s insolvency. Sky-high interest rates, in turn, are the fast track to insolvency. Greece wound up stripped of its assets, which were privatized at fire sale prices in a futile attempt to keep up with the bills.

The first major hit to US municipal bonds occurred with the downgrade of two major monoline insurers in January 2008. The fault was with the insurers, but the taxpayers footed the bill.  The downgrade signaled a simultaneous downgrade of bonds from over 100,000 municipalities and institutions, totaling more than $500 billion. The Fed’s latest rule change could be the final nail in the municipal bond coffin, another misguided move by regulators that not only does not hit its mark but results in serious collateral damage to local governments – maybe serious enough to finally propel them into bankruptcy.

Why this unprecedented move by US regulators? It is not because municipal bonds are too risky, since corporate bonds with lower credit ratings are accepted under the new rules. Nor is it that the stricter standard is required by the Basel Committee on Banking Supervision (BCBS), the BIS-based global regulator agreed to by the G20 leaders in 2009. The Basel III Accords set by the BCBS are actually more lenient than the US rules and do not include these HQLA requirements. So what’s going on?

From the Inscrutable, Unaccountable Fed

The rule change was detailed by Pam Martens and Russ Martens in a September 4th article titled “The Fed Just Imposed Financial Austerity on the States.” They write that on September 3rd:

The Federal regulators adopted a new rule that requires the country’s largest banks – those with $250 billion or more in total assets – to hold an increased level of newly defined “high quality liquid assets” (HQLA) in order to meet a potential run on the bank during a credit crisis. In addition to U.S. Treasury securities and other instruments backed by the full faith and credit of the U.S. government (agency debt), the regulators have included some dubious instruments while shunning others with a higher safety profile.

Bizarrely, the Fed and its regulatory siblings included investment grade corporate bonds, the majority of which do not trade on an exchange, and more stunningly, stocks in the Russell 1000, as meeting the definition of high quality liquid assets, while excluding all municipal bonds – even general obligation municipal bonds from states with a far higher credit standing and safety profile than BBB-rated corporate bonds.

This, rightfully, has state treasurers in an uproar. The five largest Wall Street banks control the majority of deposits in the country. By disqualifying municipal bonds from the category of liquid assets, the biggest banks are likely to trim back their holdings in munis which could raise the cost or limit the ability for states, counties, cities and school districts to issue muni bonds to build schools, roads, bridges and other infrastructure needs. This is a particularly strange position for a Fed that is worried about subpar economic growth.

Not Sufficiently Liquid?

In a September 3rd press release, Federal Reserve Governor Daniel K. Tarullo stated that while “most state and municipal bonds are not sufficiently liquid to serve the purposes of HQLA in stressed periods . . . the liquidity of some state and municipal bonds is comparable to that of the very liquid corporate bonds that can qualify as HQLA.” [Cite] Criteria were being developed, he said, for considering these assets. But “it is important to get this final rule adopted now, so that the largest banks can begin to prepare for its implementation on January 1.” In the meantime, muni bonds are in limbo, and it appears that most will still not be accepted as HQLA.

The regulators consider stocks to be more liquid than muni bonds because they are readily traded on the stock market. But as the Martens’ note, stock markets can be quite inaccessible in a crisis. Quoting from the Fed’s own archives on the crash of 1987:

Market makers in the over-the-counter market were not obligated to maintain an orderly market and many withdrew from trading. Delays in processing trades resulted in investors receiving prices very different from what they expected. Many brokers did not answer their phones, leaving investors unable to reach them. Erratic price movements and quotes resulted in frequent lock-ups in the electronic trading system used in the over-the-counter market.

In any case, switching the banks’ holdings from muni bonds to corporate bonds or Treasuries is liable to have little effect in a crash. The stricter rules are supposed to be a defense against bank runs; but in a major derivatives bust and bail-in, the available collateral will go first to the derivatives claimants, through a massive concession to financial institutions in the Bankruptcy Reform Act of 2005. (See my earlier article here.) The FDIC and the depositors are both liable to be out of luck, no matter what form the collateral takes.

The Martens’ conclude:

That the Fed and its regulatory cohorts have to resort to this implausible plan – which crimps the ability of states and localities to raise essential funds to operate – in a strained effort to pretend that they’ve found a means of avoiding another massive bailout of Wall Street in a crisis, is just further proof that the only way to seriously deal with too-big-to-fail banks is to restore the Glass-Steagall Act and break up these complex creatures before they strike again.

Gordon Gekko Goes Muni?

The rule change may not have much effect in a crash, but where it will have a major effect is on the cost of credit, which will increase for municipal governments and decrease for corporate and financial institutions. The result will be to further shift power and financial resources from the public sector to the private sector.

Why would regulators dangerously jeopardize state and local government budgets in this way? Skeptical observers speculate that the intent is to Detroit-ize municipal governments, so that assets can be stripped as is being done in that imperiled city. The international bankers got away with asset-stripping Greece. Why not make the US itself a wholly-owned subsidiary of private banking interests?

If that seems far-fetched, consider what is happening with Argentina, which has been forced into bankruptcy by a US court to satisfy the exaggerated claims of certain hold-out vulture funds. IMF regulators have discussed establishing an international bankruptcy court that could strip a country such as Argentina of its assets, including prime sections of real estate, to pay off the nation’s creditors.

In the US, there is already a trend to force state and municipal governments into austerity measures, if not outright bankruptcy, in order to eliminate labor unions, pension obligations and social services. Bankruptcies can be involuntary, forced by the creditors who caused them. Detroit is the US model. Michigan’s Constitution protects pensions, so the emergency manager appointed by the governor could not unilaterally cut those funds. But in a municipal bankruptcy, a judge would decide the fate of city workers’ pensions, making it an attractive option for banking interests. The oligarchs have long had their eyes on the massive sums represented by the pension funds.

Public Banks to the Rescue?

Whatever the explanation for the Fed’s game-changing move, the vulnerability of state and local governments to unpredictable and unaccountable federal regulators is another strong argument in favor of forming publicly-owned banks. Why be under the thumb of an erratic privately-owned central bank manipulated by Wall Street megabanks now caught in multiple frauds?

Like Eurozone countries, US states cannot print their own currencies. But unlike Eurozone countries, they can borrow from their own public banks, which can create money as credit on their books just as private banks do.

At least, they could if they had their own banks. Only one state – North Dakota – has currently taken advantage of that option. North Dakota is also the only state to have escaped the 2008 credit crisis, sporting a budget surplus every year since then. It has the lowest unemployment rate in the country, the lowest default rate on credit card debt, and one of the lowest foreclosure rates.

True, North Dakota also has oil. But the 2008 crisis happened before oil and gas had made a significant impact on state revenues; and the state was posting a budget surplus all during that period. Other oil and gas states are not doing so well.

Globally, 40% of banks are publicly owned; and they are largely in the BRIC countries – Brazil, Russia, India and China. These countries also escaped the credit crisis largely unscathed.

If state and municipal governments want to protect themselves from the fate of Greece and Detroit, they would do well to follow North Dakota’s lead and form their own publicly-owned banks. And time is of the essence, if they hope to beat the rush before the first US Cyprus-style bail-in consumes the collateral that local governments are counting on to protect their multi-billions in deposits.

_________

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her 200+ blog articles are at EllenBrown.com.

Even the Council on Foreign Relations Is Saying It: Time to Rain Money on Main Street

Posted on September 1, 2014 by Ellen Brown

You can always count on Americans to do the right thing, after they’ve tried everything else.                      —Winston Churchill

When an article appears in Foreign Affairs, the mouthpiece of the policy-setting Council on Foreign Relations, recommending that the Federal Reserve do a money drop directly on the 99%, you know the central bank must be down to its last bullet.

The September/October issue of Foreign Affairs features an article by Mark Blyth and Eric Lonergan titled “Print Less But Transfer More: Why Central Banks Should Give Money Directly To The People.” It’s the sort of thing normally heard only from money reformers and Social Credit enthusiasts far from the mainstream. What’s going on?

The Fed, it seems, has finally run out of other ammo. It has to taper its quantitative easing program, which is eating up the Treasuries and mortgage-backed securities needed as collateral for the repo market that is the engine of the bankers’ shell game. The Fed’s Zero Interest Rate Policy (ZIRP) has also done serious collateral damage. The banks that get the money just put it in interest-bearing Federal Reserve accounts or buy foreign debt or speculate with it; and the profits go back to the 1%, who park it offshore to avoid taxes. Worse, any increase in the money supply from increased borrowing increases the overall debt burden and compounding finance costs, which are already a major constraint on economic growth.

Meanwhile, the economy continues to teeter on the edge of deflation. The Fed needs to pump up the money supply and stimulate demand in some other way. All else having failed, it is reduced to trying what money reformers have been advocating for decades — get money into the pockets of the people who actually spend it on goods and services.

A Helicopter Drop on Main Street

Blyth and Lonergan write:

[L]ow inflation . . . occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. . . . At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality. [Emphasis added.]

A money drop directly on consumers is not a new idea for the Fed. Ben Bernanke recommended it in his notorious 2002 helicopter speech to the Japanese who were caught in a similar deflation trap. But the Japanese ignored the advice. According to Blyth and Lonergan:

Bernanke argued that the Bank of Japan needed to act more aggressively and suggested it consider an unconventional approach: give Japanese households cash directly. Consumers could use the new windfalls to spend their way out of the recession, driving up demand and raising prices.

. . . The conservative economist Milton Friedman also saw the appeal of direct money transfers, which he likened to dropping cash out of a helicopter. Japan never tried using them, however, and the country’s economy has never fully recovered. Between 1993 and 2003, Japan’s annual growth rates averaged less than one percent.

Today most of the global economy is drowning in debt, and central banks have played all their other cards.  Blyth and Lonergan write:

It’s well past time, then, for U.S. policymakers — as well as their counterparts in other developed countries — to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them.

The Hyperinflation Bugaboo

The main reason governments have not tried this approach, say the authors, is the widespread belief that it will trigger hyperinflation. But will it? In a Forbes article titled “Money Growth Does Not Cause Inflation!”, John Harvey argues that the rule as taught in economics class is based on some invalid assumptions. The formula is:

MV = Py

When the velocity of money (V) and the quantity of goods sold (y) are constant, adding money (M) must drive up prices (P). But, says Harvey, V and y are not constant. The more money people have to spend (M), the more money that will change hands (V), and the more goods and services that will get sold (y). Only when V and y reach their limits – only when demand is saturated and productivity is at full capacity – will consumer prices be driven up. And they are nowhere near their limits yet.

The US output gap – the difference between actual output (y) and potential output – is currently estimated at about $1 trillion annually. That means the money supply could be increased by at least $1 trillion without driving up prices.

As for V, the relevant figure for the lower 80% (the target population of Blyth and Lonergan) is the velocity of M1 –– coins, dollar bills, and checkbook money. Fully 76% of Americans now live paycheck to paycheck. When they get money, they spend it. They don’t trade in the forms of investment called “near money” and “near, near money” that make up the bulk of M2 and M3.

The velocity of M1 in 2012 was 7 (down from a high of 10 in 2007). That means M1 changed hands seven times during 2012 – from housewife to grocer to farmer, etc. Since each recipient owes taxes on this money, increasing M1 by one dollar increases the tax base by seven dollars.

Total tax revenue as a percentage of GDP in 2012 was 24.3%. Extrapolating from those figures, one dollar spent seven times over on goods and services could increase tax revenue to the government by 7 x 24.3% = $1.7. The government could actually get more back in taxes than it paid out! Even with some leakage in those figures, the entire dividend paid out by the Fed might be taxed back to the government, so that the money supply would not increase at all.

Assume a $1 trillion dividend issued in the form of debit cards that could be used only for goods and services. A back-of-the-envelope estimate is that if $1 trillion were shared by all US adults making under $35,000 annually, they could each get about $600 per month.  If the total dividend were $2 trillion, they could get $1,200 per month. And in either case it could, at least in theory, all come back in taxes to the government without any net increase in the money supply.

There are also other ways to get money back into the Treasury so that there is no net increase in the money supply. They include closing tax loopholes, taxing the $21 trillion or more hidden in offshore tax havens, raising tax rates on the rich to levels like those seen in the boom years after World War II, and setting up a system of public banks that would return the interest on loans to the government. If bank credit were made a public utility, nearly $1 trillion could be returned annually to the Treasury just in bank profits and savings on interest on the federal debt.  Interest collected by U.S. banks in 2011 was $507 billion (down from $725 billion in 2007), and total interest paid on the federal debt was $454 billion.

Thus there are many ways to return the money issued in a national dividend to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply.

Why It’s the Job of the Fed

Why not just stimulate employment through the congressional funding of infrastructure projects, as politicians usually advocate? Blyth and Lonergan write:

The problem with these proposals is that infrastructure spending takes too long to revive an ailing economy. . . . Governments should . . . continue to invest in infrastructure and research, but when facing insufficient demand, they should tackle the spending problem quickly and directly.

Still, getting money into the pockets of the people sounds more like fiscal policy (the business of Congress) than monetary policy (the business of the Fed). But monetary policy means managing the money supply, and that is the point of a dividend. The antidote to deflation – a shrinking supply of money – is to add more. The Fed tried adding money to bank balance sheets through its quantitative easing program, but the result was simply to drive up the profits of the 1%. The alternative that hasn’t yet been tried is to bypass the profit-siphoning 1% and get the money directly to the consumers who create consumer demand.

There is another reason for handing the job to the Fed. Congress has been eviscerated by a political system that keeps legislators in open battle, deadlocked in inaction. The Fed, however, is “independent.” At least, it is independent of government. It marches to the drum of Wall Street, but it does not need to ask permission from voters or legislators before it acts. It is basically a dictatorship. The Fed did not ask permission before it advanced $85 billion to buy an 80% equity stake in an insurance company (AIG), or issued over $24 trillion in very-low-interest credit to bail out the banks, or issued trillions of dollars in those glorified “open market operations” called quantitative easing. As noted in an opinion piece in the Atlantic titled “How Dare the Fed Buy AIG”:

It’s probable that they don’t actually have the legal right to do anything like this.  Their authority is this:  who’s going to stop them?  No one wants to take on responsibility for this mess themselves.

There is a third reason for handing the job to the Fed. It is actually in the interest of the banks – the Fed’s real constituency – to issue a national dividend to the laboring masses. Interest and fees cannot be squeezed from people who are bankrupt. Creditor and debtor are in a symbiotic relationship. Like parasites and cancers, compound interest grows exponentially, doubling and doubling again until the host is consumed; and we are now at the end stage of that cycle. To keep the host alive, the creditors must restock their food source. Dropping money on Main Street is thus not only the Fed’s last bullet but is a critical play for keeping the game going.

________________

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her 200+ blog articles are at EllenBrown.com.

Back to College, the Only Gateway to the Middle Class

by Robert Reich

Monday, September 1, 2014                

This week, millions of young people head to college and universities, aiming for a four-year liberal arts degree. They assume that degree is the only gateway to the American middle class.

It shouldn’t be.

For one thing, a four-year liberal arts degree is hugely expensive. Too many young people graduate laden with debts that take years if not decades to pay off.

And too many of them can’t find good jobs when they graduate, in any event. So they have to settle for jobs that don’t require four years of college. They end up overqualified for the work they do, and underwhelmed by it.

Others drop out of college because they’re either unprepared or unsuited for a four-year liberal arts curriculum. When they leave, they feel like failures. 

We need to open other gateways to the middle class. 

Consider, for example, technician jobs. They don’t require a four-year degree. But they do require mastery over a domain of technical knowledge, which can usually be obtained in two years.

Technician jobs are growing in importance. As digital equipment replaces the jobs of routine workers and lower-level professionals, technicians are needed to install, monitor, repair, test, and upgrade all the equipment.

Hospital technicians are needed to monitor ever more complex equipment that now fills medical centers; office technicians, to fix the hardware and software responsible for much of the work that used to be done by secretaries and clerks.

Automobile technicians are in demand to repair the software that now powers our cars; manufacturing technicians, to upgrade the numerically controlled machines and 3-D printers that have replaced assembly lines; laboratory technicians, to install and test complex equipment for measuring results; telecommunications technicians, to install, upgrade, and repair the digital systems linking us to one another.

Technology is changing so fast that knowledge about specifics can quickly become obsolete. That’s why so much of what technicians learn is on the job.

But to be an effective on-the-job learner, technicians need basic knowledge of software and engineering, along the domain where the technology is applied – hospitals, offices, automobiles, manufacturing, laboratories, telecommunications, and so forth.

Yet America isn’t educating the technicians we need. As our aspirations increasingly focus on four-year college degrees, we’ve allowed vocational and technical education to be downgraded and denigrated.

Still, we have a foundation to build on. Community colleges offering two-year degree programs today enroll more than half of all college and university undergraduates. Many students are in full-time jobs, taking courses at night and on weekends. Many are adults.

Community colleges are great bargains. They avoid the fancy amenities four-year liberal arts colleges need in order to lure the children of the middle class.

Even so, community colleges are being systematically starved of funds. On a per-student basis, state legislatures direct most higher-education funding to four-year colleges and universities because that’s what their middle-class constituents want for their kids.

American businesses, for their part, aren’t sufficiently involved in designing community college curricula and hiring their graduates, because their executives are usually the products of four-year liberal arts institutions and don’t know the value of community colleges. 

By contrast, Germany provides its students the alternative of a world-class technical education that’s kept the German economy at the forefront of precision manufacturing and applied technology.

The skills taught are based on industry standards, and courses are designed by businesses that need the graduates. So when young Germans get their degrees, jobs are waiting for them.

We shouldn’t replicate the German system in full. It usually requires students and their families to choose a technical track by age 14. “Late bloomers” can’t get back on an academic track.

But we can do far better than we’re doing now. One option: Combine the last year of high school with the first year of community college into a curriculum to train technicians for the new economy.

Affected industries would help design the courses and promise jobs to students who finish successfully. Late bloomers can go on to get their associate degrees and even transfer to four-year liberal arts universities.

This way we’d provide many young people who cannot or don’t want to pursue a four-year degree with the fundamentals they need to succeed, creating another gateway to the middle class.

Too often in modern America, we equate “equal opportunity” with an opportunity to get a four-year liberal arts degree. It should mean an opportunity to learn what’s necessary to get a good job. 

The Fishiness of Mayor Kevin's Tax Giveaway to Illumina Corporation

by John Lawrence from the San Diego Free Press

It Saved 300 Jobs. Really? Really?

San Diego's Mayor Kevin Faulconer recently signed a deal with Illumina Corporation that was supposedly designed to keep the corporation from jumping ship and landing in another state or jurisdiction. The City of San Diego agreed to rebate $1.5 million in sales and use taxes. In return Illumina promised to keep a number of jobs in San Diego for the term of the agreement. With revenue of just over $1 billion last year, Illumina sells machines that sequence the human genome. The company leases 6 buildings in San Diego totaling over 560,000 sq. ft. and currently has 1500 employees.

Illumina likes to brag about itself as being the "Apple of the genomics industry." It wrote to its shareholders in 2012:

“Illumina is like the Apple of the genomics business. Tools made by the San Diego company are revered by genomics researchers around the world just like millions of consumers love their iPhones and iPads. And Illumina holds its dominant position at an enviable moment in history, as we’re heading into a scientific golden age when human genomes will be sequenced for $1,000 or less.” – Xconomy reporter Luke Timmerman, March 6, 2012

MIT has called it the "World’s Smartest Company" ahead of Tesla Motors, Google and Samsung.

But the deal the City has entered into with Illumina is fishy on several levels. For starters in 2007 GenomeWeb News reported that Illumina signed a fifteen year lease for a new 84,000-square-foot facility currently under construction in San Diego that will enable it to expand its laboratory and office workforce. BioMed Realty Trust, a real estate investment company focused on the life sciences industries, said the new facility will expand an existing 110,000-square-foot facility that Illumina leases at the University Towne Center. Furthermore, Illumina said it had added a 15-year extension to the lease on the existing property. The new facility will allow for the creation of as many as 1,200 new jobs in the San Diego area, according to BioMed.

A fifteen year lease on new and existing buildings signed in 2007? The lease will be up in 2022. It doesn't sound like Illumina has plans to abandon San Diego any time soon. Meanwhile, the Mayor signs a ten year deal that would keep Illumina here till 2024. So for $1.5 million the City gets two more years of Illumina's commitment to San Diego. But wait there's more. The ten year deal is not really a ten year deal. Sound fishy? Read on.

 

And then there's the shady reports about Illumina being lured away by Memphis, Tennesee or Poway. Poway?? Good God, does the City of San Diego really have to spend $1.5 million to prevent a company from moving to Poway? For those of you who don't know, Poway is located next door to San Diego in San Diego County. It's part of the San Diego Greater Metropolitan area, for Pete's sake. And those mysterious rumors of a move to Memphis. Problem is sources in Memphis don't know anything about it.

 

CityBeat reported:

 

Media reports on the "historic" deal—as Council President Todd Gloria described it—suggested that the cities most aggressively seeking favor with Illumina's allure were Poway and Memphis.

This was news to some pretty smart folks in Poway and Memphis.

"That really surprises me, because we've never been in contact with the company," Poway Mayor Don Higginson told Spin. "I checked with our economic-development director, and he said we were never approached by them."

Mark Cafferty, president and CEO of the San Diego Regional Economic Development Corp.— a key organizational player in reaching the Illumina agreement — suggested that Memphis was the big player here in luring Illumina away. Au contraire, said Reid Dulberger, head of economic development for the Memphis area. He'd never heard of such a thing. Asked if the offer suggested by Mark Cafferty was in the ballpark, he replied, "There is no ballpark."

Similarly, representatives of the Memphis Chamber of Commerce and Mayor's office knew nothing about any courtship involving Illumina. It seems like this courtship of Illumina by outside jurisdictions was a fig newton of Mark Cafferty's imagination. After all a CEO of an Economic Development Corporation has to do something to earn his pay. Why not gin up a $1.5 million tax giveaway to some leading corporation which by the way Illumina doesn't really need. They are quite profitable thank you very much.

As the article, Mayor Kevin Faulconer's Illumina-ting Pitch stated: "Going forward, will city leaders throw a bone to every company that mentions Texas or some other far-off land of fiscal opportunity?"

300 Jobs Saved. 2400 Jobs Free To Go

 

Local news NBC 7 San Diego reported that "the deal" was announced on July 15, 2014: "Under the 10-year agreement, Illumina will keep 300 middle-class manufacturing jobs in San Diego and receive a tax break up to $1.5 million." First of all the "10-year agreement" implies that those 300 middle class jobs will stay in San Diego for 10 years. Not true. Under terms of the agreement the deal could end much sooner if certain conditions are met. But remember that figure "300 middle class jobs." As we shall show, that is a blatant untruth and misrepresentation of the facts.

 

Illumina has 1500 employees in San Diego. So retaining 300 middle class jobs is a pittance at best compared to its total San Diego employment. And then remember those 1200 additional jobs that Illumina's expansion at University Towne Center, for which they signed a 15 year lease,  allowed for the creation of? That's 2700 jobs in San Diego at present and in the near future, but the Mayor gave away $1.5 million of taxpayers' money to retain a paltry 11% of those jobs. And as we shall show, it's even less than 11%. Esau sold his birthright for a mess of pottage, but Faulconer sold out the taxpayers for a mess of BS.

 

And then there's the tax rebate deal itself. When scrutinized in the harsh light of day, it has aspects which haven't been made apparent in reports the media has made to the general public. First of all it's not a $1.5 million deal. It's a $1.5 million deal with interest. Witness this exchange on KPBS:

 

MAUREEN CAVANAUGH:  That is up to $1.5 million, is that right?

ALMIS UDRYS:  That is correct, $1.5 million with interest as well, over the time while they are claiming the rebate, interest would be accrued as well. In the end it would be over $1.5 million.

So the "tax break up to $1.5 million." Not true either. Illumina will get $1.5 million plus 3% interest, and the payout will be in one lump sum which maximizes the interest.

By the way Almis Udrys also noted that this is the third incentive deal that the city has signed off on this year: "Two of them were craft breweries, Ale Smith and Ballast Point, earlier in the year..."

And then there's the matter of how the $1.5 million is rebated to Illumina. It is rebated out of taxes that Illumina expects to pay in the future above and beyond what they are paying now plus 30%. Illumina is expected to grow, have more sales, pay more sales tax and have even more employees than it has now. So they would go on paying the amount of taxes they paid last year (the benchmark year) plus 30%. Any sales tax above that would be rebated once the $1.5 million is reached. A fine detail is that the 30% only applies to sales tax; use tax rebates would be 100% above those paid in the benchmark year.

So last year Illumina paid about $1.3 million in taxes. Since the rebate amount must sit in city coffers until it totals $1.5 million to be paid out in one lump sum, it will accrue interest until Illumina decides to ask the city for a check. When the full $1.5 million has been received by Illumina (plus interest) or 10 years has elapsed, the deal will be terminated. That means that, if Illumina's sales skyrocket, those 300 jobs it promised to keep in San Diego could evaporate in just a few years not the 10 years the media has reported. And since Illumina is heading into a "scientific golden age" for human genome sequencing, they do expect their sales to skyrocket.

Illumina is adding 1200 jobs almost doubling its workforce. Therefore, it is a reasonable guesstimate that it expects to double its sales. Doubling its sales doubles its sales tax. So next year or the year thereafter Illumina could be paying $2.6 million in taxes which would put it at or near the $1.5 million rebate level. The point is that in just a couple years Illumina could have satisfied conditions for the rebate, taken the $1.5 million and left town except for the fact of those 15 year leases. Oh well, they could leave at least by 2022 so that the 10 year deal to save 300 jobs would be moot.

The rationale is that keeping Illumina here keeps the sales and use taxes coming at least at the present rate plus the employees that it keeps here pay sales tax and other taxes themselves and generate up to three ancillary jobs. Of course, Illumina could move about 90% of its employees to another state immediately. The deal with the city doesn't constrain them from doing that.

Moreover, Alan Gin noted in the same KPBS interview that this sort of tax giveaway "will then impact the level of services that can be provided, spent on infrastructure, and other things." That's $1.5 million plus that won't be spent on parks, libraries, schools, repairing potholes, replacing watermains and improving neighborhoods. Remember K-Faulc's mantra: “There is no such thing as a Democratic or Republican pothole.” Whoops, I guess those Democratic potholes won't get fixed after all.

The New York Times reported:

[The tax] giveaways are adding up to a gigantic bill for taxpayers.       

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

City Council's Approval a Mere Afterthought

So did Illumina shake down the city and threaten to move elsewhere if they didn't get their spif? Not at all. The tax giveaway was initiated by Kevin Faulconer's team itself with a little help from the folks at San Diego Regional Economic Development Corp. which gave the mayor's office the heads up. It seems that the city undertook to shake itself down.

On July 21 the City Council took up the Economic Development Incentive Agreement (EDIA) with Illumina, Inc., to provide a sales and use tax rebate. On the Council Docket was the following item description:

Authorize the Mayor to enter into an Economic Development Incentive Agreement with Illumina, Inc., to provide a sales and use tax rebate to encourage this company to retain its manufacturing operations and its taxable product sales operations with the City of San Diego.

From an email inquiry to the members of the City Council, I received this reply from Councilmember Lorie Zapf's office:

Yes, the City Council approved the Illumina deal. It came before Council twice; the first time was on July 21, 2014 and all members were present. The second time was also unanimous on August 7, with Councilmembers Kersey and Emerald absent.

However, according to the docket, it was noted that this item was pursuant to Section 99 of the City Charter (10 day published notice, approval by Ordinance and 6 votes required). There was no mention that the item was voted on at all on July 21. And remember the Mayor had already signed the agreement on July 15!

NOTE: If some of the subsequent links generate a "File or Directory Not Found" message, click here and then scroll down and click on

ITEM-200:     Approval of an Economic Development Incentive Agreement with Illumina, Inc. (University Community Area.  District 1.)

and the documents will be found on the right hand sidebar. The City should really fix this problem so that links to its documents always work.

The Request for Council Action dated July 24 stated the following in the Executive Summary of Item Background:

Illumina would be obligated to retain all of its manufacturing jobs within the City, at any site of its choice, during the term of the EDIA. The term of the EDIA would be the lesser of 10 years or the year that Illumina has generated new additional (above the benchmark) sales and use tax revenues of $1.5 million.

This is interesting for two reasons: (1) Illumina is not required to maintain jobs in the City for ten years as reported in the media but for "the lesser of 10 years or the year that Illumina has generated new additional ... sales and use tax revenues of $1.5 million" and (2) Illumina would not be required to maintain 300 jobs in the City but "all of its manufacturing jobs within the City."

Under the item Community Participation and Public Outreach Efforts it was noted: "None - Confidential municipality-taxpayer negotiations" So the inner workings of the City in this regard are meant to be shrouded in secrecy.

Jay Flatley, CEO of Illumina, signed the Economic Development Incentive Agreement with the City on July 7 long before the City Council "approved" it. The agreement specified the following:

Job Creation and Retention. During the Term of this Agreement, Company shall (i) create or retain all manufacturing jobs existing in the City of San Diego as of the Execution Date; and (ii) make commercially reasonable efforts to create Sales Force jobs, or retain at least the same number of Sales Force Jobs, located in the City of San Diego as of the Execution Date.

The exact number of those manufacturing jobs is not mentioned nor is it specified what a "commercially reasonable effort" is. This would probably not hold water in a court of law.

On July 10, the following document was ready for Mayor Kevin's signature: "AN ORDINANCE OF THE COUNCIL OF THE CITY OF SAN DIEGO AUTHORIZING THE ECONOMIC DEVELOPMENT AGREEMENT WITH ILLUMINA, INC. AND APPROVING CERTAIN RELATED ACTIONS." approved by City Attorney Jan Goldsmith. This document contains a lot of legalese in the form of Whereas this and Whereas that followed by Therefore, Be It Ordained blah, blah, blah. However, one of the Whereases is particularly, well, illuminating:

"WHEREAS, Illumina is committing to create or retain over 100 middle-wage manufacturing job opportunities within San Diego, jobs which are likely to be filled by San Diego residents"

Wait a minute, the legal agreement specifies only 100 manufacturing jobs as opposed to the 300 manufacturing jobs widely reported by the media?! You mean to tell me that this $1.5 million rebate was created to retain 100 jobs in San Diego for what might turn out to be far less than the ten years reported in the media? And that's 100 jobs out of approximately 2700 jobs that Illumina expects shortly to have? Or approximately 1% of its jobs?

The City and its taxpayers have been hoodwinked.

On July 8 David Graham, Deputy Chief Operating Officer, Neighborhood Services, sent a Memorandum to City Council President Todd Gloria with a Direct Docketing Request which consisted of urging the City Council to go ahead and approve the Economic Development Incentive Agreement that Jay Flatley had already signed. It noted: "A proposal for an EDIA would normally be considered by the Council Committee on Economic Development and Intergovernmental Relations (ED&IR) prior to consideration by the full City Council." But Graham wanted it ramrodded through the City Council without further consideration because after all the details had already been worked out and it had already been signed by Flatley. It was awaiting Faulconer's signature as soon as the City Council complied.

The City Council did not give final approval to the Illumina deal until August 7 no doubt because of that Section 99 of the City Charter that required a 10 day waiting period. In any event the deal had already been done, and the City Council's "approval" was after the fact. Faulconer's deal with Illumina was a fait accompli.

Jumping the gun on the City Council's approval, on July 15 Mayor Kevin Faulconer put out a press release:

Mayor Faulconer Announces "World’s Smartest Company" Will Stay, Expand in San Diego

Agreement with Illumina Inc. will keep hundreds of high wage jobs in the city

San Diego, CA – Today Mayor Kevin L. Faulconer joined Illumina Inc. CEO Jay Flatley to announce an agreement that will keep the medical device company and its good-paying jobs in San Diego. Illumina was recently named "World’s Smartest Company" by the MIT Technology Review, ahead of Tesla Motors, Google and Samsung.

The City will provide a tax rebate in exchange for Illumina retaining approximately 300 middle-class manufacturing jobs in San Diego.

So did the City Council merely ratify a deal on August 7 that had already been consummated on July 15? And the retention of 300 middle-class manufacturing jobs? What about the 1500 other higher paying R&D and sales jobs that Illumina now provides and the 1200 new jobs it will add according to Biomed? Illumina has in no way committed itself to maintaining those jobs in San Diego. And as it turns out, the 300 manufacturing jobs had magically diminished to 100 manufacturing jobs when the ink was put to paper.

Nothing about this deal is what it seems. The $1.5 million rebate. It's actually $1.5 million plus 3% which the city will pay out in one lump sum. That 3% really adds up year after year. The 10 year time period? It's really the lesser of 10 years or whenever Illumina can claim the rebate. Illumina moving to Poway or Memphis? It turns out neither Poway nor Memphis had ever heard of that. Illumina seeking a tax advantage not to move out of San Diego? Illumina CEO Flatley didn't approach the City. The Mayor's office in the person of Almis Udrys, Kevin Faulconer's Director of Government Affairs, approached him. The City Council's approval of the deal? The City Council's "approval" came after the deal had already been signed by Faulconer and Flatley. Did anyone on the City Council do their homework or due diligence to check this deal out? The first clue, Sherlock, was that Illumina had signed 15 year leases on all or some of its properties. Doesn't seem that they were going anywhere any time soon.

The Illumina deal sets a disastrous precedent for other corporations to seek out their own tax deals. It is just the harbinger of things to come. With the San Diego Regional Economic Development Corporation giving the "heads up", and Almis Udrys as liason, Mayor Faulconer is only too able and willing to do tax giveaways to San Diego corporations. Hey, we're open for business. C'mon down! The City Council's approval will just be an afterthought. Someone from the Mayor's office, like David Graham, will send the Council a Memorandum telling them to hurry up and ratify the Mayor's deals.

That's money that won't be used for parks, libraries, schools and infrastructure repairs like replacing 100 year old water mains and filling potholes. The Republicans' goal is to defund government and give the money to corporations. As their spokeman, Grover Norquist, has said, "We want to make government so small that it can be drowned in the bathtub." That's the Republican mantra. Corporate welfare of the type given to Illumina Corporation is a handy means for defunding government and transferring the money to the private sector.

Peter D. Enrich, a professor at Northeastern University School of Law has written:

The proliferation of state and local tax incentives designed to attract or retain business investment ... has proven troublingly resistant to reform. Despite a growing recognition ... that the competition over business incentives is at best a zero-sum game... the size of the incentive packages offered for large corporate facilities reaches ever-new heights ... The only consistent winners are the large businesses that can pit one jurisdiction against another for reduced tax burdens, while other taxpayers and citizens pay the cost in constrained government services and higher taxes ... The states and localities face a classic collective action problem: when they each pursue their individual self-interest, they all end up worse off.

CEO Jay Flatley was not going to move Illumina Corporation out of San Diego. He needs to stay close to the world class research universities in San Diego and the relationships developed therewith. His executives and highly paid employees don't want to trade San Diego's climate, the best in the nation, for Rich Perry's Texas hell hole. His kids want to continue surfing at the beaches. They all love their houses in La Jolla and Rancho Santa Fe. The wives want to continue shopping at University Towne Center. To uproot all these executives and highly paid employees would be unthinkable. Why then, does Mayor Faulconer think he has to offer tax rebate incentives to get major corporations to stay here? And to bum rush the City Council who obviously had not done their homework and due diligence on this issue. The best policy is to have faith and believe in San Diego as a place that major corporations would want to locate and, once located, would want to stay. The urge to offer tax incentives to corporations must be resisted. A Democratic Mayor would have resisted.

The Illumina rebate is just the beginning, the advent of a new era in San Diego politics, the signal that more is yet to come. The Mayor is sending a message to business. C'mon y'all, line up for your free tax giveaways. Mayor Kevin is open for business!