New York Governor Andrew Cuomo is basking in the popularity of his meticulous Covid-19 news briefings and simultaneously predicting a pandemic-driven $61 billion state deficit over four years. Astonishingly, the Governor electronically rebates an existing tiny stock transfer sales tax back to Wall Street. This stock transfer sales tax, bringing in an estimated 13 to 16 billion dollars a year, would reduce forthcoming budget cuts in health, education, transportation, and other safety nets.
No Governor in the country has the luxury of simply keeping very significant tax revenues that are already collected to avoid cutting necessities of life. Yet Governor Cuomo has supported these rebates for the past ten years, as have previous New York state Governors all the way back to 1981 when this early 20th-century tax stopped being retained in the state’s treasury. As much as a staggering $250 billion dollars has been immediately returned to the stockbrokers over that time period.
Bear in mind, a fraction of one percent of this tiny sales tax is paid by the investors buying stocks, bonds, and engaging in massive volumes of derivative speculation. Since the great bulk of trading is conducted by upper-income people and large companies, this sales tax, unlike the regressive 8 percent sales tax ordinary New Yorkers pay when they buy from stores, is progressive in its impact.
So why hasn’t the media taken this eminently timely and newsworthy story to the people? I’ve been explaining this surrender to Wall Street for years. Most recently, given its timeliness, calling up reporters and columnists of major press outlets, but to no avail; with the exception of the Buffalo News. This indifference is inexplicable. After all, Governor Cuomo regularly talks about drastic budget cuts.
Well, a new factor may change this equation. Blair Horner, a longtime, prominent director of the New York Public Interest Research Group (NYPIRG), an influential university college student-funded civic advocacy group is now on the case.
On May 28, 2020, Mr. Horner held a virtual news conference in Albany, presented a letter signed by over fifty labor, consumer, women’s, educational, minority, health, taxpayer, elderly, and justice organizations – all calling on the Governor to keep the many billions of dollars from the stock transfer tax. The number of New York groups supporting this proposal will only grow. Attentively advanced by the seasoned Horner and his team, a detailed news release was distributed and several speakers, including me, briefly spoke. At question time, only a Newsday reporter asked about Wall Street’s reaction.
A half-hour later, no reporter asked Governor Cuomo during his long daily briefings about keeping the collected revenues. The next day there was no media coverage of this event and the benefits the revenue could have for communities whose members will be bearing the brunt of avoidable service cuts and job losses.
Everyday New York state rebates about $40 million to an upper-economic class, already further enriched by Trump’s 2017 tax bonanza. Nor have these privileged plutocrats shared, via a wealth tax, a fraction of the sacrifice of New York’s 2.2 million front-line Covid-19 workers. Shameful!
Bills mandating the retention of this stock sales tax are already in the state legislature. A prime sponsor, Assemblyman Phil Steck believes that there will be overwhelming left/right support in the polls.
However, the legislature’s leaders await the signal from a thus far reluctant Governor Cuomo. But not, I suspect for long.
With Wall Street’s Robert Rubin and Michael Bloomberg coming out for a financial transaction tax (thanks probably to the Bernie Sanders movement), can the son of Mario Cuomo be much far behind?
See the Coalition release, letter to Governor Cuomo, and the New York State Assembly and Senate bills to stop the rebate of the stock transfer tax at https://nader.org/ny-stock-
Without trampling through all the historical details, we can designate the entire history of [Americans]—the glorious past so eulogized by our fathers—as the history of shame, for in that history there is more betrayal, apostasy, perfidious intrigue, ignominious defeat, well-deserved failure, base vengeance, merciless retaliation and brutality that no hypocrisy can mask…So let’s forget about the past and old glories, namely let’s leave it be, let’s no longer bring up those shames of the past and the jumbled mendacities considered worthy of praise, it’s more than enough for us just to remain on the surface of that swamp if at all possible, the swamp denoting the state of moral values today…Whoever is [American] continually postpones his present, exchanging it for a future that will never arrive.
— Baron Wenkheim’s Homecoming, Laszlo Krasznahorkai
What subcategory of human being takes a knee on a handcuffed man, mashed face down on the pavement and, ultimately, forces him to die? Such was the action of a psychopathic white Minneapolis, Minnesota, police-paramilitary officer named Derek Chauvin, that resulted in the death of a black man, George Floyd.
Right there, on the street, recorded live by a bystander. Chauvin continued his personal application of the death penalty even as he knew he was being filmed. Idiot or no? Did he think he’d be exonerated by his superiors? Now the world can watch a uniformed member of the Minnesota State paramilitary apparatus snuff the life out of a human being. For what? An allegedly forged $20 bill?
And the result?
A long overdue protest movement in major cities across the United States that is posing a challenge to the State-Wall Street monopoly on violence that disproportionately eliminates blacks, Latino’s and poor whites. And let’s not forget those citizens in foreign countries wiped off the map by perpetual US bombing and drone attacks. (State-Wall Street: referring to corporations, lobbyists, finance houses, politicians, mainstream media, upper echelon military, etc.)
Power to the State-Wall Street, Not the People
It’s not the death of a black, white, Latino, Syrian or Iraqi, that is of concern to the State-Wall Street; rather it is the fear of the violent challenge posed by the protestors here at home (or insurgents abroad, China, Russia) to the State-Wall Street monopoly on violence.
The fear of the State-Wall Street crowd is so intense that the governor of Minnesota, Tim Walz, called the Secretary of Defense Mark Esper to talk about strategy and tactics to subdue the protestors. Is that such a good idea given that the Taliban is pushing the US military out of Afghanistan?
The Pentagon is finally going to go to open war against its own—again— people first starting with the National Guard deployment in Minneapolis and followed by active duty military police. Most Americans will not care as they have been pummeled with constant propaganda about the military being a divine institution. What’s next? Another Jackson State?
The protests underway have at their foundation the totalitarian economic conditions which the State-Wall Street benignly incarcerate the larger population leaving them with the sham outlet of elections that simply replaces one prison warden with another. Vote for what? Another fascist like President Donald J. Trump or governors around the country who have their eyes on senate or house seats?
Why would someone like Floyd, allegedly, try to pass off a $20 note? You can’t separate that act from the grueling austerity measures and unemployment in the USA that leaves the young and poor, and lower classes of all stripes with no economic future and struggling to make ends meet each day, even to put food on the table.Yeah, sure, the COVID-19 Pandemic has been really tough on most Americans. But where are the trillions of federal dollars in the form of food aid, unemployment benefits, jobs programs for the Floyd’s and others in this country?
The State-Wall Street act as if over 100,000 Americans deaths from COVID-19 (largely poor, elderly, black) don’t matter at all. Nothing to see here, move along, the dear leaders say. Put the American flags at half mast, the president says. Here’s $1200 for each household, the US Congress says. Bow your heads in remembrance of the 100K religious leaders say. With this kind of American psychopathic leadership mentality that seems now to have infected nearly all American political and economic leaders, what’s one more George Floyd to them?
And it was chaotic ineptitude by the Trump administration, and his predecessors, that led to so many deaths. Even the nonpartisan Lancet weighed in on the matter with an unsigned editorial:
Funding to the CDC for a long time has been subject to conservative politics that have increasingly eroded the agency’s ability to mount effective, evidence-based public health responses. In the 1980s, the Reagan administration resisted providing the sufficient budget that the CDC needed to fight the HIV/AIDS crisis. The George W Bush administration put restrictions on global and domestic HIV prevention and reproductive health programming.
The Trump administration further chipped away at the CDC’s capacity to combat infectious diseases. CDC staff in China were cut back with the last remaining CDC officer recalled home from China CDC in July 2019, leaving an intelligence vacuum when COVID-19 began to emerge.
If You Can Kill 1 or 100K Americans, Why not Kill the Environment and Wildlife?
Everywhere across the spectrum that you look you can see the State-Wall Street turning the clock back to the early 1960s. Nowhere is this more evident than in the repeal of environmental and wildlife protections.
The Trump administration is relaxing a rule on the hunting and killing of bear cubs and wolves in their dens. According to Newsweek this report:
The National Park Service described the new rule as an effort to reinstate federal alignment with the state’s hunting regulations, according to an NPS news release. The rule, which is expected to go into effect in late June, would reverse course on hunting restrictions introduced in 2015 by President Barack Obama’s administration.
NPS spokesperson Peter Christian told the Anchorage Daily News that hunters would be allowed under the new rule to use artificial lighting to entice black bears out of their dens, employ bait to attract black and brown bears, hunt wolves and coyotes during their denning season, and catch caribou while they are swimming.
The New York Times has a running list of Trump’s assault on the environment. It notes that:
The bulk of the rollbacks identified by the Times have been carried out by the Environmental Protection Agency, which repealed and replaced the Obama-era emissions rules for power plants and vehicles; weakened protections for more than half the nation’s wetlands; and withdrew the legal justification for restricting mercury emissions from power plants. At the same time, the Interior Department has worked to open up more land for oil and gas leasing by cutting back protected areas and limiting wildlife protections.
And, Oh, The Joy of Watching People Suffer and Die
Isn’t it enough for Americans to have hunted down Osama Bin Laden and killed him (a video somewhere); captured Saddam Hussein only to watch him hang in a stairwell; or have Muammar Gaddafi killed and stabbed in the anus with a bayonet?
Isn’t it enough for Americans to have lived with nearly 10 to 20 years of war in Afghanistan, Iraq and Syria and hear/see the daily reports of civilian casualties killed by US and Coalition forces and the millions of displaced persons caused by US wars, combat action?
Insolvent Wall Street banks have been quietly bailed out again. Banks made risk-free by the government should be public utilities.
When the Dodd Frank Act was passed in 2010, President Obama triumphantly declared, “No more bailouts!” But what the Act actually said was that the next time the banks failed, they would be subject to “bail ins” – the funds of their creditors, including their large depositors, would be tapped to cover their bad loans.
Then bail-ins were tried in Europe. The results were disastrous.
Many economists in the US and Europe argued that the next time the banks failed, they should be nationalized – taken over by the government as public utilities. But that opportunity was lost when, in September 2019 and again in March 2020, Wall Street banks were quietly bailed out from a liquidity crisis in the repo market that could otherwise have bankrupted them. There was no bail-in of private funds, no heated congressional debate, and no public vote. It was all done unilaterally by unelected bureaucrats at the Federal Reserve.
“The justification of private profit,” said President Franklin Roosevelt in a 1938 address, “is private risk.” Banking has now been made virtually risk-free, backed by the full faith and credit of the United States and its people. The American people are therefore entitled to share in the benefits and the profits. Banking needs to be made a public utility.
The Risky Business of Borrowing Short to Lend Long
Individual banks can go bankrupt from too many bad loans, but the crises that can trigger system-wide collapse are “liquidity crises.” Banks “borrow short to lend long.” They borrow from their depositors to make long-term loans or investments while promising the depositors that they can come for their money “on demand.” To pull off this sleight of hand, when the depositors and the borrowers want the money at the same time, the banks have to borrow from somewhere else. If they can’t find lenders on short notice, or if the price of borrowing suddenly becomes prohibitive, the result is a “liquidity crisis.”
Before 1933, when the government stepped in with FDIC deposit insurance, bank panics and bank runs were common. When people suspected a bank was in trouble, they would all rush to withdraw their funds at once, exposing the fact that the banks did not have the money they purported to have. During the Great Depression, more than one-third of all private US banks were closed due to bank runs.
But President Franklin D. Roosevelt, who took office in 1933, was skeptical about insuring bank deposits. He warned, “We do not wish to make the United States Government liable for the mistakes and errors of individual banks, and put a premium on unsound banking in the future.” The government had a viable public alternative, a US postal banking system established in 1911. Postal banks became especially popular during the Depression, because they were backed by the US government. But Roosevelt was pressured into signing the 1933 Banking Act, creating the Federal Deposit Insurance Corporation that insured private banks with public funds.
Congress, however, was unwilling to insure more than $5,000 per depositor (about $100,000 today), a sum raised temporarily in 2008 and permanently in 2010 to $250,000. That meant large institutional investors (pension funds, mutual funds, hedge funds, sovereign wealth funds) had nowhere to park the millions of dollars they held between investments. They wanted a place to put their funds that was secure, provided them with some interest, and was liquid like a traditional deposit account, allowing quick withdrawal. They wanted the same “ironclad moneyback guarantee” provided by FDIC deposit insurance, with the ability to get their money back on demand.
It was largely in response to that need that the private repo market evolved. Repo trades, although technically “sales and repurchases” of collateral, are in effect secured short-term loans, usually repayable the next day or in two weeks. Repo replaces the security of deposit insurance with the security of highly liquid collateral, typically Treasury debt or mortgage-backed securities. Although the repo market evolved chiefly to satisfy the needs of the large institutional investors that were its chief lenders, it also served the interests of the banks, since it allowed them to get around the capital requirements imposed by regulators on the conventional banking system. Borrowing from the repo market became so popular that by 2008, it provided half the credit in the country. By 2020, this massive market had a turnover of $1 trillion a day.
Before 2008, banks also borrowed from each other in the fed funds market, allowing the Fed to manipulate interest rates by controlling the fed funds rate. But after 2008, banks were afraid to lend to each other for fear the borrowing banks might be insolvent and might not pay the loans back. Instead the lenders turned to the repo market, where loans were supposedly secured with collateral. The problem was that the collateral could be “rehypothecated,” or used for several loans at once; and by September 2019, the borrower side of the repo market had been taken over by hedge funds, which were notorious for risky rehypothecation. Many large institutional lenders therefore pulled out, driving the cost of borrowing at one point from 2% to 10%.
Rather than letting the banks fail and forcing a bail-in of private creditors’ funds, the Fed quietly stepped in and saved the banks by becoming the “repo lender of last resort.” But the liquidity crunch did not abate, and by March the Fed was making $1 trillion per day available in overnight loans. The central bank was backstopping the whole repo market, including the hedge funds, an untenable situation.
In March 2020, under cover of a national crisis, the Fed therefore flung the doors open to its discount window, where only banks could borrow. Previously, banks were reluctant to apply there because the interest was at a penalty rate and carried a stigma, signaling that the bank must be in distress. But that concern was eliminated when the Fed announced in a March 15 press release that the interest rate had been dropped to 0.25% (virtually zero). The reserve requirement was also eliminated, the capital requirement was relaxed, and all banks in good standing were offered loans of up to 90 days, “renewable on a daily basis.” The loans could be continually rolled over. And while the alleged intent was “to help meet demands for credit from households and businesses at this time,” no strings were attached to this interest-free money. There was no obligation to lend to small businesses, reduce credit card rates, or write down underwater mortgages.
The Fed’s scheme worked, and demand for repo loans plummeted. Even J.P. Morgan Chase, the largest bank in the country, has acknowledged borrowing at the Fed’s discount window for super cheap loans. But the windfall to Wall Street has not been shared with the public. In Canada, some of the biggest banks slashed their credit card interest rates in half, from 21 percent to 11 percent, to help relieve borrowers during the COVID-19 crisis. But US banks have felt no such compunction. US credit card rates dropped in April only by half a percentage point, to 20.15%. The giant Wall Street banks continue to favor their largest clients, doling out CARES Act benefits to them first, emptying the trough before many smaller businesses could drink there.
In 1969, Prime Minister Indira Gandhi nationalized 14 of India’s largest banks, not because they were bankrupt (the usual justification today) but to ensure that credit would be allocated according to planned priorities, including getting banks into rural areas and making cheap financing available to Indian farmers. Congress could do the same today, but the odds are it won’t. As Sen. Dick Durbin said in 2009, “the banks … are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
Time for the States to Step In
State and local governments could make cheap credit available to their communities, but today they too are second class citizens when it comes to borrowing. Unlike the banks, which can borrow virtually interest-free with no strings attached, states can sell their bonds to the Fed only at market rates of 3% or 4% or more plus a penalty. Why are elected local governments, which are required to serve the public, penalized for shortfalls in their budgets caused by a mandatory shutdown, when private banks that serve private stockholders are not?
States can borrow from the federal unemployment trust fund, as California just did for $348 million, but these loans too must be paid back with interest, and they must be used to cover soaring claims for state unemployment benefits. States remain desperately short of funds to repair holes in their budgets from lost revenues and increased costs due to the shutdown.
States are excellent credit risks – far better than banks would be without the life-support of the federal government. States have a tax base, they aren’t going anywhere, they are legally required to pay their bills, and they are forbidden to file for bankruptcy. Banks are considered better credit risks than states only because their deposits are insured by the federal government and they are gifted with routine bailouts from the Fed, without which they would have collapsed decades ago.
State and local governments with a mandate to serve the public interest deserve to be treated as well as private Wall Street banks that have repeatedly been found guilty of frauds on the public. How can states get parity with the banks? If Congress won’t address that need, states can borrow interest-free at the Fed’s discount window by forming their own publicly-owned banks. For more on that possibility, see my earlier article here.
As Buckminster Fuller said, “You never change things by fighting the existing reality. To change something, create a new model that makes the old model obsolete.” Post-COVID-19, the world will need to explore new models; and publicly-owned banks should be high on the list.
The coronavirus pandemic is worlds apart from the financial meltdown of 2008-09. Even so the government’s response was identical in one telltale way. Congress once again gave a special dose of tender loving care to taxpayers who need it the least.
The 2008 bailout suspended annual required minimum distribution (RMDs) from retirement accounts. Surprise, surprise, the same tax break showed up in the $2.2 trillion stimulus signed by President Trump.
Waiving RMDs is welcome news for the well-heeled. They have plenty of income outside their IRAs and 401(k)s. They’re fine with passing up a distribution, and seriously happy to avoid the taxes that come with it.
(A quick history: The first retirement accounts didn’t need any waiver to avoid taxes. In addition to untaxed contributions and tax-free capital gains, there were no mandatory distributions either. The party ended when lawmakers finally laid down a time limit. A 1986 tax reform mandated minimum distributions starting at age 70 1/2. It’s been reset at 72 effective this year.)
The new waiver lets retirees off the hook for 2020. The hook is still in, though, for the millions who actually rely on their accounts and can’t get along without withdrawals.
They’ll be forced to do what the affluent have been spared from doing. They’ll have to liquidate holdings at prices battered by the fastest stock market crash in U.S. history (including three record drops in the Dow over just eight days). Wall Street has rallied since its late-March low but remains well in the red for the year.
The stimulus bill did slightly better for younger workers. Account withdrawals prior to age 59 ½ normally incur a 10 percent penalty; taxpayers financially harmed by the pandemic won’t have to pay that penalty. Income taxes can be spread out over three years, but the full amounts remain due. There’s also an option to repay the distribution back into a retirement plan.
Withdrawing savings ahead of time, however, carries a penalty all its own. David Certner, the legislative counsel and policy director for the AARP, put it this way:
It’s never a good idea. It’s particularly not a good idea when the market is down. But for people who are in really bad shape, this may be their one emergency alternative.
Now for a look at the waiver from a fiscal perspective: the government will be losing billions at the worst possible time.
The stock market racked up giant gains last year. RMDs are based on account balances as of December 31, so the taxes on distributions were certain to hit new highs. Revenues have steadily trended up as millions of boomers reach minimum distribution age. Coupled with the market’s 2019 performance, bumper RMD taxes should be flowing into the Treasury.
Now most of those dollars will likely be staying in the pockets of taxpayers whose pockets are already full. At the same time, Congress will be shoveling money out the door in the biggest national bailout ever.
Waiving RMDs is tax policy tilted toward the upper incomes. The timing makes it financially foolhardy as well. The waiver might last only a year, just as the first one did. Even so, a government already starving for revenue may never make up what it’s now passing up.
Some have argued that now isn’t the time to worry about who gets what, or for what reasons, or anything else. All that can come later; the only thing government should concern itself with at the moment is doing everything possible to help as many people as possible.
Point taken. We’re all in this together. It’s an extraordinary time demanding extraordinary measures. Nothing else matters.
All the same, suspending RMDs has little to do with going all out for America. It has everything to do with going all in for those at the top.
Same old, same old. Here’s to a post-pandemic with fewer tax favors for the haves.
- This article originally appeared at www.nydailynews.com
Congress seems to be at war with the states. Only $150 billion of its nearly $3 trillion coronavirus relief package – a mere 5% – has been allocated to the 50 states; and they are not allowed to use it where they need it most, to plug the holes in their budgets caused by the mandatory shutdown. On April 22, Senate Majority Leader Mitch McConnell said he was opposed to additional federal aid to the states, and that his preference was to allow states to go bankrupt.
No such threat looms over the banks, which have made out extremely well in this crisis. The Federal Reserve has dropped interest rates to 0.25%, eliminated reserve requirements, and relaxed capital requirements. Banks can now borrow effectively for free, without restrictions on the money’s use. Following the playbook of the 2008-09 bailout, they can make the funds available to their Wall Street cronies to buy up distressed Main Street assets at fire sale prices, while continuing to lend to credit cardholders at 21%.
If there is a silver lining to all this, it is that the Fed’s relaxed liquidity rules have made it easier for state and local governments to set up their own publicly-owned banks, something they should do post haste to take advantage of the Fed’s very generous new accommodations for banks. These public banks can then lend to local businesses, municipal agencies, and local citizens at substantially reduced rates while replenishing the local government’s coffers, recharging the Main Street economy and the government’s revenue base.
The Covert War on the States
Payments going to state and local governments from the Coronavirus Relief Fund under the CARES Act may be used only for coronavirus-related expenses. They may not be used to cover expenses that were accounted for in their most recently approved budgets as of March 2020. The problem is that nearly everything local governments do is funded through their most recently approved budgets, and that funding will come up painfully short for all of the states due to increased costs and lost revenues forced by the coronavirus shutdown. Unlike the federal government, which can add a trillion dollars to the federal debt every year without fear of retribution, states and cities are required to balance their budgets. The Fed has opened a Municipal Liquidity Facility that may buy their municipal bonds, but this is still short-term debt, which must be repaid when due. Selling bonds will not fend off bankruptcy for states and cities that must balance their books.
States are not legally allowed to declare bankruptcy, but Sen. McConnell contended that “there’s no good reason for it not to be available.” He said, “we’ll certainly insist that anything we borrow to send down to the states is not spent on solving problems that they created for themselves over the years with their pension programs.” And that is evidently the real motive behind the bankruptcy push. McConnell wants states put through a bankruptcy reorganization to get rid of all those pesky pension agreements and the unions that negotiated them. But these are the safety nets against old age for which teachers, nurses, police and firefighters have worked for 30 or 40 years. It’s their money.
It has long been a goal of conservatives to privatize public pensions, forcing seniors into the riskier stock market. Lured in by market booms, their savings can then be raided by the periodic busts of the “business cycle,” while the more savvy insiders collect the spoils. Today political opportunists are using a crushing emergency that is devastating local economies to downsize the public sector and privatize everything.
Free Money for Banks: The Fed’s Very Liberal New Rules
Unlike the states, the banks were not facing bankruptcy from the economic shutdown; but their stocks were sinking fast. The Fed’s accommodations were said to be to encourage banks to “help meet demand for credit from households and businesses.” But while the banks’ own borrowing rates were dropped on March 15 from an already-low 1.5% to 0.25%, average credit card rates dropped in the following month only by 0.5% to 20.71%, still unconscionably high for out-of-work wage earners.
Although the Fed’s accommodations were allegedly to serve Main Street during the shutdown, Wall Street had a serious liquidity problem long before the pandemic hit. Troubles surfaced in September 2019, when repo market rates suddenly shot up to 10%. Before 2008, banks borrowed from each other in the fed funds market; but after 2008 they were afraid to lend to each other for fear the borrowing banks might be insolvent and might not pay the loans back. Instead the lenders turned to the repo market, where loans were supposedly secured with collateral. The problem was that the collateral could be “rehypothecated” or used for several loans at once; and by September 2019, the borrower side of the repo market had been taken over by hedge funds, which were notorious for risky rehypothecation. The lenders therefore again pulled out, forcing the Fed to step in to save the banks that are its true constituents. But that meant the Fed was backstopping the whole repo market, including the hedge funds, an untenable situation. So it flung the doors wide open to its discount window, where only banks could borrow.
The discount window is the Fed’s direct lending facility meant to help commercial banks manage short-term liquidity needs. In the past, banks have been reluctant to borrow there because its higher interest rate implied that the bank was on shaky ground and that no one else would lend to it. But the Fed has now eliminated that barrier. It said in a press release on March 15:
The Federal Reserve encourages depository institutions to turn to the discount window to help meet demands for credit from households and businesses at this time. In support of this goal, the Board today announced that it will lower the primary credit rate by 150 basis points to 0.25% …. To further enhance the role of the discount window as a tool for banks in addressing potential funding pressures, the Board also today announced that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis.
Banks can get virtually free loans from the discount window that can be rolled over from day to day as necessary. The press release said that the Fed had also eliminated the reserve requirement – the requirement that banks retain reserves equal to 10% of their deposits – and that it is “encouraging banks to use their capital and liquidity buffers as they lend to households and businesses who are affected by the coronavirus.” It seems that banks no longer need to worry about having deposits sufficient to back their loans. They can just borrow the needed liquidity at 0.25%, “renewable on a daily basis.” They don’t need to worry about “liquidity mismatches,” where they have borrowed short to lend long and the depositors have suddenly come for their money, leaving them without the funds to cover their loans. The Fed now has their backs, providing “primary credit” at its discount window to all banks in good standing on very easy terms. The Fed’s website states:
Generally, there are no restrictions on borrowers’ use of primary credit….Notably, eligible depository institutions may obtain primary credit without exhausting or even seeking funds from alternative sources. Minimal administration of and restrictions on the use of primary credit makes it a reliable funding source.
What State and Local Governments Can Do: Form Their Own Banks
On the positive side, these new easy terms make it much easier for local governments to own and operate their own banks, on the stellar model of the century-old Bank of North Dakota. To fast-track the process, a state could buy a bank that was for sale locally, which would already have FDIC insurance and a master account with the central bank (something needed to conduct business with other banks and the Fed). The state could then move its existing revenues and those it gets from the CARES Act Relief Fund into the bank as deposits. Since there is no longer a deposit requirement, it need not worry if these revenues get withdrawn and spent. Any shortfall can be covered by borrowing at 0.25% from the Fed’s discount window. The bank would need to make prudent loans to keep its books in balance, but if its capital base gets depleted from a few non-performing loans, that too apparently need not be a problem, since the Fed is “encouraging banks to use their capital and liquidity buffers.” The buffers were there for an emergency, said the Fed, and this is that emergency.
To cover startup costs and capitalization, the state might be able to use a portion of its CARES Relief Fund allotment. Its budget before March would not have included a public bank, which could serve as a critical source of funding for local businesses crushed by the shutdown and passed over by the bailout. Among the examples given of allowable uses for the relief funds are such things as “expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures.” Providing below-market loans to small businesses would fall in that general category.
By using some of its CARES Act funds to capitalize a bank, the local government can leverage the money by 10 to 1. One hundred million dollars in equity can capitalize $1 billion in loans. With the state bank’s own borrowing costs effectively at 0%, its operating costs will be very low. It can make below-market loans to creditworthy local borrowers while still turning a profit, which can be used either to build up the bank’s capital base for more loans or to supplement the state’s revenues. The bank can also lend to its own government agencies that are short of funds due to the mandatory shutdown. The salubrious effect will be to jumpstart the local economy by putting new money into it. People can be put back to work, local infrastructure can be restored and expanded, and the local tax base can be replenished.
The coronavirus pandemic has demonstrated not only that the US needs to free itself from dependence on foreign markets by rebuilding its manufacturing base but that state and local governments need to free themselves from dependence on the federal government. Some state economies are larger than those of entire countries. Gov. Gavin Newsom, whose state ranks as the world’s fifth largest economy, has called California a “nation-state.” A sovereign nation-state needs its own bank.
“This will be our Pearl Harbor moment, our 9/11 moment.” That was U.S. Surgeon General Jerome Adams on April 5, touring the Sunday morning shows to warn of the worst week yet for pandemic death in the United States.
During these interviews, the Surgeon General also managed to show off his mask-making skills, an unwitting allusion to the fact that — contrary to the spectacular events of 1941 and 2001 (not to mention his own previous “guidance” against the efficacy of face masks) — we are far more likely on the brink of a 1918 moment. Not that the Surgeon General’s mission was to raise awareness of pandemics past. Instead, Adams’ appearances were wholly in keeping with the Trump regime’s pivot to an ominous war footing media strategy following the March 11 “National Emergency” declaration — after, of course, previously downplaying the COVID’s threat to the country’s health. Mixed messaging is trending pretty hard these days…
The comparison to the 1918 influenza catastrophe is both more topically relevant, given the kind of emergency, as well as more historically significant. According to consensus estimates, 675,000 Americans died during the 1918-19 pandemic. Despite a recent scaremongering model predicting as many as 1.2 to 2 million deaths from the current coronaviral outbreak, it appears that the sheer number of fatalities will be far less this time. It should also be noted that the U.S. population has tripled during the last hundred years. In other words, despite the botched initial response to this novel coronavirus, the United States is considerably ahead of the “Curve” in relation to the 1918 flu. Even the briefly touted worst case scenario for the current coronaviral flu falls far short of U.S. Army Surgeon General Victor Vaughn’s 1918 concern that “If the epidemic continues its mathematical rate of acceleration, civilization could easily disappear from the face of the earth.” This time around, not even the most morbid of forecasts have suggested anything like an extinction event. The Apocalypse will have to hold its horses — at least for now…
So, there’s some good news in this historical comparison of the two pandemics; we’re all still going to die, but more than likely not because of this novel pathogen, the COVID-19. Nevertheless, there’s another factor to consider in this virological context. One hundred years ago, the United States was manifestly on the rise, whereas today, America is evidently in decline. To use a boxing metaphor: the 1918 influenza “haymaker,” staggering though it was, did little to impede the relentless onslaught of the “American Century,” while a flurry of jabs — initially dismissed as mere feints — from the COVID-19 has the American Leviathan on the ropes, and the canvas is calling. How is this possible?
To rephrase and re-focus Surgeon General Adams’ unwittingly uncanny linkage a click: America never left “our 9/11 moment.”
Back in 2001, if not for the 9/11 event and its anthrax annex, the collapse of Enron would have been the Story of the Year. Enron had been the poster child of a financially driven “Boom!” economy. By the time the NYC Trade Towers and the Pentagon were struck, out of a clear blue sky, the almighty Stock Market had already been quietly slumping, and the sham of Enron was about to be unmasked for the fraud that it was (See: Alex Gibney’s “Enron: the Smartest Guys in the Room,” 2005). Enron’s free fall showed that fakery and swindling were really the order of the day on Wall St — not to mention Pennsylvania Avenue, and the rest of Washington, DC. While the “New American Century” had gotten off to an obviously disastrous start, the dubiously elected Bush 2 regime, which was practically inert on the day of those fateful attacks, proceeded to make things much worse in the wake of 9/11.
Slapped into reaction, America invaded Afghanistan and Iraq in quick succession. These pointless and unwinnable wars soon morphed into defense industry gravy trains costing trillions of dollars. Among other delusionalisms at the time, Americans were told that Iraqi oil would pay for that invasion; it never did. In fact, the price per gallon of gasoline actually doubled between 9/11 and the peak of Iraq-Attack-Two in 2006, amounting to an undeclared war-time gas tax on the average American. Many a clever economist has failed to note this radical, and ironic, price spike in a commodity so basic to the fossil fuel-driven United States. Was it, perchance, merely an unintended consequence of the war?
In other domestic news, 0% financing became the rage, encouraging a shook-up consumer-citizenry to splurge in a post-9/11 climate of “shock and awe.” For its part, Wall St was allowed to indulge in toxic financial instruments like “derivatives” and “credit default swaps” tied to an ever more precarious “subprime mortgage market.” All of this crazy credit and debt-based speculative activity finally melted down into the famous financial crash of 2008, the second coming of which we are experiencing now.
Against this grim backdrop, the previously obscure Barack Obama was voted into office. Obama had promised “Change,” but only managed to deliver more “paper,” as the Federal Reserve turned to the money printing presses to bail out the big failing banks. Wall St was saved! — but with no “change” for the little guys and gals. Ever the smooth functionary in his caretaker role, Obama signaled to Wall St that their “free for few” could continue, unfettered…
Today, the bailout business is booming again, but this time with a small twist: Main St is being thrown back a few crumbs by the fake, financialized economy, even as the big stakeholders take most of the cake, just like in 2008. Presumably, this helicoptering of crumbs will forestall some form of a citizens revolt, which may be inevitable, given that 22 million Americans — a truly staggering number — have lost their jobs in the first 4 weeks since Trump’s national emergency declaration, with millions more to soon follow. Under the cover of this novel coronavirus, the Debt-cult of post-9/11 America, led by the Fed, is reaping the whirlwind it has sown, with most Americans left holding an increasingly empty bag.
Wither the way out of this dire Scylla and Charybdis strait, caught between a pandemic and possible national bankruptcy? If history, and especially recent history, is any guide, things can get a whole lot worse…
In a way to begin again: Historically, War and Pestilence go hand-in-hand, or, horse-to-horse, to pursue an equestrian to apocalyptical metaphor. “Chariot! Taxi! Uber!” So it’s right there, at the beginning of the western literary tradition, in Homer’s Iliad, the opening lines, declaring the Wrath of Achilleus. Well, the well-benched Achaeans investing the citadel of “oriental” Troy (a.k.a. Ilium), had been there 9 circling years, with no positive return (Nostos?) on their investment to show for it; and, furthermore, were confounded by a plague wasting their idle ranks, which were hostilely ringed around Troy. Who knew “Whatever for?” this mad adventurous war was still for?
Today, the masked-mad-Max-man of the World, the Lone Ranger United States, is somewhat in the role of Achilleus, and sidelined by the COVID-19, however much this disease-aster was brought upon itself by its own self or selves, truths be told! Not that Donald J Trump’s anyone’s Agamemnon — except that Agamemnon’s far from the strongest leader in the western literary tradition; indeed, he’s a distinctly bipolar, moody figure, a fact which lightly re-invites the Trump analogy…
So, who is the “Achilleus” figure in the COVID-19 registrar? Probably the Death Star, also known as the Pentagon. Remember: the American Leviathan’s been thrust upon the ropes of ever thinning Finance, and Betsy Ross has been laid off, which means that the Flag’s a no masking position, so to speak, based on Betsy’s whereabouts, which are currently unknown, even to the Gates-Bezos-Jimmy Buffet-to-Zuckerberg crowd, even though their surrogates will social-media about it all day, including the likely hideouts of Betsy Ross during this global-national health crisis, and everything else besides…
In 1918, a plague of disproportionate lethality followed quickly upon a war that was never expected to yield the same — and yet it did, beyond everyone’s expectations, which were only considered to be “realistic” until the realistic actually happened. Historians rarely connect the influenza to the Great War that epigraphed it. Whatever else the current crop of Historians think, pandemic flu is a “Thing”; not necessarily John Carpenter’s, which is another “Thing,” whatever anyone thinks about that movie, or cinematic photo-play, as pre-COVID films may now in the future be known by. The “Thing” has changed, and it’s a Trickster virus. No one’s safe, but everyone’s OK. That’s the deal. People die every day, but no one really knows why. Every death is a question mark: or, is it just a death? Did the United States of America just invade Saudi Arabia, or is that simply another fake news story? After all, there was an “imminent threat,” some sources from Iran reported…
War is the Disease! This is the headline that we all must understand, sooner rather than later…
The Bloated Defense Department
The so-called Defense Department does not live up to its name; instead, the acronym and word Bloated describe this behemoth and its budget. We the people need defense, but the trillion tax dollars we spend a year do not provide it. Instead they pay for:
Some 800 US overseas military bases
The Nuclear Arsenal
Billions for Bombers and Battleships
These do nothing to make us secure. They have benefited few people in the US or the world, apart from bloated arms manufacturers and merchants, bloated military contractors, bloated generals, bloated politicians, and those in the high echelons of bloated corporate power.
The Defense We Need
We need a strong, universal free-of-charge public health system to help defend us against COVID-19 and other health problems; the bloated Department steals resources that could provide the true security for a healthy population.
We need defense against climate disruption and heating of the planet. The bloated Department aggravates these problems by emitting more greenhouse gases than any other institution in the world and more than many entire nations.
We needed defense against Wall Street predators when they stole home ownership from millions of people – especially people of color and other working class people – during the 2008 economic meltdown. The bloated Department offered no defense.
Women especially need defense against sexual harassment, assault and domestic violence. The bloated Department exacerbates these problems: military culture promotes sexism, Military Sexual Trauma is rampant; the military protects sexual perpetrators of women and men within its ranks .
Veterans who have survived the endless and earlier wars need to heal from physical, emotional and moral injury. The resources offered are inadequate and often inappropriate. The bloated Department’s promotion of war and hyper-masculinity tends to aggravate veterans’ trauma.
The bloated Department did not even defend against a military attack on its own headquarters on September 11, 2001. Nobody in the Pentagon lost their job over that “failure”.
Truth in Language
Toward the goal of ending war and militarism, let us have truth in language. Bloated is an accurate word and acronym for the Department that oversees the enormously wasteful and destructive military. As the COVID pandemic makes painfully clear, funds now squandered on the military are urgently needed to meet the real security needs of US people – for healthcare, housing, infrastructure, and food security.
Let us also stop using the term defense expenditures when referring to costs that do not defend human beings from real problems that we face. Military or war expenditures are accurate terms.
Changes in language in our writings, speeches, conversations and on social media can help change thinking and help lead to right action.
Back in November 2016, the Indian government decided to remove all 500- and 1000-rupee notes from circulation overnight without prior notice. This effectively removed 86% of cash in a country that was almost 90% cash reliant.
The notes became worthless and people were asked to hand them in to banks. They would only receive what they had deposited in dribs and drabs over time in the form of new notes. The official reason for this was that the action would curtail the shadow economy and reduce the use of illicit and counterfeit cash to fund illegal activity and terrorism.
Some who questioned the official narrative regarded this ‘demonetisation’ policy as a ploy to take money from the public and use it to inject much needed liquidity into the banking system that had been bled dry by the outflow of cheap money (and loan waivers) to large corporations which had been milking the well dry.
The purpose of this article is not to explore the merits or otherwise of this claim or the official government narrative. The point here is to highlight how the policy (also) formed part of an ongoing global ‘war on cash’. In the discussion that follows, it will be shown that Bill Gates is a major player in trying to get the world to go digital and ditch cash, especially relevant given his role in the COVID-19 issue.
When we look beyond the mainstream narrative to gain an understanding of the current crisis, it doesn’t take long before the name of Bill Gates and his foundation appear. And this is no coincidence seeing that he has placed himself firmly in the limelight on prime time TV shows offering his opinion on COVID-19 and what he thinks should be done. He has mentioned the need for maintaining some form of lockdown until a vaccine is discovered.
Much has been written on the Gates Foundation’s close associations with the big vaccine manufacturers and its questionable practices and record in rolling out vaccines in places like Africa and India. US attorney Robert F Kennedy Jr says that top Trump advisor Stephen Fauci has made the reckless choice to fast track vaccines, partially funded by Gates, without critical animal studies. Gates is so worried about the danger of adverse events that he says vaccines shouldn’t be distributed until governments agree to indemnity against lawsuits.
But this should come as little surprise. The Gates Foundation and its global vaccine agenda already has much to answer for. Instead of prioritising projects that are proven to curb infectious diseases and improve health — clean water, hygiene, nutrition and economic development — Kennedy notes that the Gates Foundation spends only about $650 million of its $5 billion budget on these areas.
It is fair to say that the Gates Foundation has an agenda: it believes that many of its aims can be delivered via the barrel of a syringe. It has been well documented in recent weeks about how the Gates Foundation has spread its tentacles into every facet of global health policy. For instance, it is a major funder of the World Health Organization and donates to other pivotal players in the COVID-19 saga, not least Imperial College London whose Neil Ferguson produced hugely flawed data upon which the UK government implemented a lockdown, which entailed sanctioning draconian state powers and stripping of people’s basic rights via the Coronavirus Emergency Act.
Although often alluded to, Gates’s push for cashless societies is given less attention in the current climate but is just as important. It is not only the major pharmaceutical corporations which the Gates Foundation is firmly in bed with (along with the big agri-food players), it is also embedded with Wall Street financial interests.
The global shift from cash towards digital transactions is being spearheaded by Bill Gates and US financial corporations who will profit from digital payments. At the same time, by controlling digital payments (and removing cash), you can control and monitor everything a country and its citizens do and pay for.
War on cash in India
In India, the informal workforce has been measured at around 85%. By 2014, fewer than 35% of Indians above the age of 15 had used a bank account and under 10% had ever used any kind of non-cash payment instrument.
Although some voices welcomed the 2016 demonetisation policy, as they believed it would push many Indians off cash and towards ‘financial inclusion’, it was, according to economist Norbert Haring, concocted in Washington, not for the benefit of Indians but in the interests of Western financial institutions who are pushing for a cashless world. For a lower income country such as India, which runs on cash, the outcomes were catastrophic for hundreds of millions of people, especially those who did not have a bank account (almost half the population) or did not have easy access to a bank.
According to Haring, the global ‘war on cash’ has the backing of some heavy hitters: the major US banks and likes of PayPal, Visa and the Gates Foundation. Writing in 2017, he argued that the cooperation of the Gates Foundation and the Reserve Bank of India (RBI) has been a very tight one. For example, Nachiket Mor, a banker, is director of the Gates Foundation India. He is also a board member of the RBI with responsibility for financial supervision.
Haring indicates that the demonetization policy was carried out on behalf of USAID, MasterCard, Visa and the people behind eBay and Citi, among others, with support from the Gates Foundation and the Ford Foundation. He adds that the start of direct cooperation of the Gates Foundation with the RBI on digital payments coincided with the work of the foundation in the President’s Global Development Council, which was to promote cooperation with foreign governments and the private sector with a view to securing US defence and commercial interests.
Bill Gates, Haring notes, gave an example of the link between worldwide digitalisation of payments (via the large US payment companies) and US security interests in a speech in 2015.
If financial flows go into a digital system that the US is not connected to, it becomes much harder to find those transactions that you want to be aware of or you want to block.
Demonetisation used the Indian population as a collective guinea pig to see how far the geostrategic interests of the US and those of Wall Street could be secured in a country of 1.3 billion people. The effects of people’s lives did not matter as long as the policy was pushed forward.
And this was carried out with reference to the usual corporate jargon of ‘financial inclusion’. Cash already provides financial inclusion. What does not lead to financial inclusion or any type of inclusion is a neoliberal system that imposes gross inequalities, austerity, joblessness, neocolonialism and the destruction of indigenous practices and cultures under the guise of ‘development’, the deliberate impoverishment of farmers in India, the twisting and writing of national and international laws, the destruction of rural communities or an unjust global food regime.
It is clear that ‘financial inclusion’ really means eliminating the main competitor of digital payments and finance sector profits – cash. In capitalism, every aspect of human life is to be commodified in the quest for fresh markets and profit — in this case, securing payments from payments.
Norbert Haring quotes Dan Schulmann, CEO of PayPal, who has stated:
The major competitor we have is cash. Right now, 85 percent of the world’s transactions are done in cash. That is really what we are trying to attack right now.
He also quotes Strive Masiyiwa, chairman and founder of Econet, a large African mobile phone company with a payment platform:
Our major competitor is cash. Cash is what we seek to eliminate.
It seems ‘financial inclusion’ really means denying sections of society their preferred method of payment – cash – to benefit the bottom line of these corporations.
Did Gates and his associates succeed in pushing Indians off cash? By April 2018, the volume of digital payments had doubled. At the same time, however, at the end of May 2019, currency notes in circulation had increased by more than 22% over the pre-demonetisation level. The use of cash was expected to reach $2.45 trillion by 2021, up from $1.5 trillion in 2016, although demonetisation helped digital payments advance by three to four years.
The 2016 policy adopted a callous and ill-thought-out blanket approach. And it was not as though Indians were clamouring for digital — it was imposed on them.
Under cover of COVID-19 lockdowns, can we expect to see cash being pushed right to the margins when countries emerge from the current crisis (for instance, in an ongoing pandemic culture of fear and paranoia, it would be easy to convince people that notes and coins are potential transmitters of disease, or with mass unemployment we may have universal basic income schemes linked to digital payment systems)? It can already be seen with large stores asking customers to pay by card whenever possible.
Many commentators have discussed how the current crisis has been used to remove basic rights and how vaccines and surveillance will be intensified. What could follow may also see our purchases and behaviour being monitored even further via digital payments. For instance, Haring notes that in Kenya Gates saw little wrong in compelling mobile phone providers to give the authorities the opportunity to monitor all phone calls and mobile payments by telling phone companies to let contracted (private) companies hook up to all routers. The plan was to monitor transactions and use the data to target people with advertising to make even more transactions, thereby driving consumption.
It doesn’t take a great leap of faith to appreciate how in a fully digital system, ‘financial flows’ could be blocked, as Gates implied back in 2015. This already happens in the dollar-centred monetary system. But when there is no cash to fall back on and every single transaction in a society is computerised and can be monitored by the state and private corporations, will the term ‘financial inclusion’ then sound so benign?
The name of the latest enormous transfer of wealth to the one percent, the CARES (Coronavirus Aid, Relief, and Economic Security) Act, represents a public relations coup. Unsurprisingly, this great sounding title misrepresents the bill’s contents.
Pattern of transferring wealth upward
Unfortunately, this bill is essentially a repeat of the bailout of Wall Street during the Great Recession that further enriched the obscenely wealthy at the public’s expense. This current legislation again showers Wall Street and gigantic corporations with oodles of money while providing aid for Main Street that is far too little and far too late. This legislation will also increase our already shamefully large wealth chasm.
This creatively misnamed Act is the fourth time in the past twenty years that our government of, by and for the corporations has bestowed massive gifts on the wealthy. The gifts were in the form of huge tax breaks under the George W. Bush and Donald Trump administrations and gigantic bailouts under the Barack Obama and Trump administrations.
Naomi Klein’s 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism details how politicians use crises to transfer great amounts of wealth upward at the public’s expense. We saw an immediate example of this doctrine triggered by the 2008-09 Wall Street caused financial crisis that led to the Great Recession. The White House, Congress and the Federal Reserve quickly provided trillions of dollars to bail out Wall Street, but did little for Main Street. In addition, Wall Street executives were not held responsible for their crimes.
It wasn’t always this way. For example, during the Great Depression, the Franklin Delano Roosevelt administration passed many pieces of progressive legislation that greatly benefited the public and the common good.
Today, in response to an ongoing banking and corporate financial crisis, our corporate influenced government quickly took advantage of the horrific novel coronavirus outbreak to massively reward their major campaign contributors with a huge bailout.
Two sections of the CARES Act
Most of the corporate media reported that the CARES Act would inject $2.2 trillion dollars into the economy. In reality, about $450 billion of the $500 billion set aside for loans to large corporation and banks can be used to insure lending to these corporations from the Federal Reserve. The Federal Reserve can leverage this money into an additional $4 trillion or so for the recipients. The media usually ignore or downplay this $4 trillion.
Instead the corporate media highlights the money set aside for so-called small businesses and workers. For example, there is to be a one-time income-dependent transfer of at most $1200 to most Americans adults and $500 for dependent children under 17. This one-time payment to the public is a drop in the bucket compared to the needs. In addition, many of the public are still waiting for this relatively small amount.
Another more substantial assistance is the expansion of eligibility for unemployment insurance. Crucially, unemployment recipients will also get $600 per week for four months on top of the state’s unemployment benefits. However, compare this to some European nations that are underwriting 70% to 90% of workers’ pay if their companies keep them employed during the crisis.
Politicians must do much more to aid the suffering public. For example, one of many examples of the failure of the profit driven system is health care. We clearly need an expanded Medicare for All since tying health care to employment has failed miserably. We must also strengthen our public health system that has been weakened by severe under-funding. This pandemic and the Trump administration’s terrible response also show our security clearly isn’t tied to excessive military spending that is at the expense of domestic programs.
Unless politicians pass legislation to directly address public needs, the future will be extremely bleak. The US economy has already experienced an unprecedented job loss with over 26 million people filing for unemployment insurance in the last five weeks. This situation is likely to worsen as more small businesses fold during this pandemic despite the latest bill. When the pandemic is over, the number of unemployed and of homeless will likely be enormous. After all the bailouts of the obscenely wealthy, it’s past time for the government to provide for the public’s needs. Otherwise, how will a desperate public react?