By Paul Street. First published on ZNet, July 25, 2013
Stripping SNAP, Sucking Up Subsidies
Beneath the latest headline story about Egypt, Syria, the Zimmerman verdict, or the newborn English “royal baby” the United States financial plutocracy and the savage economic inequality on which it rests just grind along in full “mainstream” media view. Three weeks ago, the U.S. House stripped food stamps from the nation’s farm bill, threatening to deny a basic support to the nearly 50 million Americans who can’t afford adequate food. “We’ll get to [food stamps] later,” House Speaker John Boehner told reporters, failing to add that the House will try to cut the average daily food subsidy from its current paltry level of $4.39.
In the meantime, the House rushed to give $197 billion over 10 years to Big Corporate Agriculture. The lion’s share of this taxpayer bonanza would go, the New York Times’ editors noted, “to subsidies and crop insurance and commodities, demanded by the corn, rice and sugar barons who fill campaign coffers.” So what if the food stamp program is a critical part of the social safety net in a nation where real unemployment doubled in the wake of an economic crisis caused by the financial elite? And so what if it “has long been one of the most effective and efficient anti-poverty programs ever devised” (NYT editors)? Representative Steven Fincher (R-TN) justified the elimination of the program (now knows as the Supplemental Nutrition Assistance Program, or SNAP) by citing the Bible: “Those unwilling to work shall not eat.” Predictably enough, Fincher has himself received millions in farm subsidies.[1]
Detroit as a “Test Kitchen” for the Stripping of Public Worker Pensions
It is reasonably expected by knowledgeable observers that the recently announced sudden and historic bankruptcy filing by the City of Detroit will lead to a significant reduction in the pension and medical benefits received by already-retired city workers. As the Wall Street Journal (WSJ) calmly explains:
“States aren’t allowed to file for bankruptcy protection. But in a few cities—including Central Falls, R.I., and Prichard, Ala., that like Detroit have filed under Chapter 9 of U.S. Bankruptcy Code—bankruptcy has led to big cuts to retired city workers…‘These cases are exposing the fact that many municipal workers are unprotected and suffering big losses of income that they thought were pretty much guaranteed,’ said Robert Flanders, a judge, who was appointed by Rhode Island to help oversee and guide Central Falls through bankruptcy….Retirees in Central Falls agreed to 50% cuts in pension benefits, in many cases, after the small city filed for bankruptcy in 2011. By contrast, the city’s bondholders were paid in full.”
“Bankruptcy lawyers and pension experts say these cases—and Detroit’s filing Thursday—prove it can be less painful for public-sector unions and city officials to agree on how to curb high pension costs before reaching bankruptcy court…. ‘The lesson of Detroit is that it is better to take care of this issue before bankruptcy,’ said James Spiotto, a lawyer at Chapman & Cutler LLP. ‘Even if you think you have the right to get paid, you are taking a big risk in bankruptcy.’”
It is understood to be “unlikely that the federal government will intervene in the Detroit bankruptcy to bail out city workers or any other creditors.” [2].
In addition to opening the door for an assault on pension benefits, Detroit’s Chapter 9 bankruptcy filing will permit an appointed judge to void existing union contracts and impose other cuts on city expenses.
So what if Detroit city retirees put in years of service on the promise of a decent retirement and can ill afford any such reductions in their senior years? So what if the Michigan Constitution formally protects public pensions in the state (proclaiming that “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof and shall not be diminished or impaired thereby”)? So what if the wealthy investors likely to be prioritized for payment-in-full [3] are all part of a financial elite that pulled the plug on domestic U.S. manufacturing and thereby caused the decline of Detroit? And so what if the cost of a federal Detroit city bailout ($18 billion) would be a drop in the multi-trillion dollar bailout bucket (some estimates go as high as $29 trillion) transferred by the Bush 43 and Obama 44 administrations to the very same arch-parasitic Wall Street financial institutions that did so much to drive the U.S. and global economy over the cliff in 2007 and 2008?
Goldman Sachs and JPMorgan Chase et al. have been officially designated “too big to fail” – unlike a major U.S. city like Detroit, once called “the Arsenal of Democracy” because of its manufacturing sector’s centrality to the defeat of German and Japanese fascism during World War II. Elite financial capital holds the whip hand over politicians and policymakers through the deployment of its astonishing wealth in the control of politics and policy through election funding, lobbying, public relations, advertising, job offers, legislation manufacture (e.g. ALEC, the American Legislative Exchange Council, which drafts right wing pro-business policy rules and laws for Michigan’s arch-corporatist Teapublican Governor Rick Snyder) and much more. The WSJ instructs us that “the spate of recent municipal bankruptcies are showing that public pensions may lack the basic safety nets that private-sector benefits enjoy. Pensions granted by companies are typically backstopped by the Pension Benefit Guaranty Corp. and regulated by federal law. Public pensions are not.”[4]
It gets worse. Labor Notes’ Jane slaughter reports that:
“proponents of making city workers bite the bullet note that bankruptcy judges have wide latitude to break contracts…. A recent law in Rhode Island specifies that in a city bankruptcy, bondholders must be paid first, before pensioners…Asked if the Michigan legislature could pass a similar law, [Michael] Mulholland [Vice President of Detroit’s largest AFSCME local] laughed. ‘If they proposed a law that Detroiters should all be shot,’ he said, ‘some of them would get up at midnight to sign that one.’….The Republican-dominated legislature has long been hostile to majority-black Detroit. In November 2012, the state’s voters passed a referendum that threw out a previous ‘emergency manager’ law, which had been used almost exclusively to take over majority-black cities and school districts. A few weeks later the legislature simply passed the law again.”[5]
Countless other crisis-ravaged U.S. municipalities are looking to Detroit as a model for how to slash their budgets. Karol K. Denniston, a bankruptcy lawyer in Stockton, California, tells the New York Times that “If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy, that will make it an attractive option for cities. Detroit is going to be a huge test kitchen.” [6]
Masters Go Free
In another story, the Times reports that JPMorgan Chase executive Blythe Masters is off the criminal chare hook for making false and misleading statements under oath to federal regulators in connection with her company’s creation of elaborate price-manipulation schemes that turned inefficient, “money-losing power plants into powerful profit centers” for investors. The aptly named Masters is notorious for her role in the development of “exotic financial instruments” (credit derivatives and other highly profitable rent-taking devices for the financial elite) that helped blow up the economy in 2007 and 2008. She is the beneficiary of a deal whereby JPMorgan Chase will settle with the Federal Energy Regulatory Committee for $500 million – a payment that “will hardly dent the bottom line” at the firm, which “reported a record $6.5 billion profit last week.” [7]
Restored by taxpayers even as millions of Americans go without adequate food and health care, the nation’s six largest bloodsucking banks (Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America, Wells Fargo, and Citigroup) are well positioned to absorb the costs of such fines. They are “flooded in profits,” according to Times reporter Peter Eavis. By Eavis’ account last week:
“The nation’s six largest banks reported $23 billion in profits in the second quarter…., The six largest banks now dominate the industry, accounting for more than half the sector’s assets. Since the crisis, this has helped them make profit from mortgages and credit card loans, as well as Wall Street activities, like trading securities and underwriting deals. Their second-quarter profits were up 40 percent compared with those in the period a year earlier. Over the last 12 months, their combined profits were more than $70 billion. Over that period, Morgan Stanley, Goldman Sachs and JPMorgan’s investment bank, all big presences on Wall Street, paid compensation of $41 billion…Regulations planned or put in place in the crisis may also have helped banks by making them more resilient to shocks. The banks have less risky assets on their balance sheets, which helped them get through the recent rout in the bond market without big losses.”[8]
More Manipulation of Populism
The banks’ chiefs are nonetheless concerned about noise from federal regulators and Congresspersons about tougher regulations and even about “ending ‘too-big-to-fail,’” which Treasury Secretary Jacob Lew claims (absurdly) to be “the policy of Dodd-Frank and the policy of the administration.” In reality, however, there is no serious effort to break up the nation’s leading banks and investment houses (much less to nationalize them) on the part of any branch of the Wall Street-captive federal government. Beneath the progressive-sounding bluster of some officials and politicians lay the fake-progressive, populace-bamboozling game imposed on politicians by their requirement to periodically garner working class votes while regularly serving the “unelected dictatorship of money” (Edward Herman and David Peterson’s excellent term) that pays for their campaigns and much more. As Eavis notes:
“some analysts remain skeptical that the Fed and the Treasury would really lend their weight to the sort of aggressive measures some lawmakers are contemplating. The recent comments may be an attempt to gain some political benefit from looking tough on the banks. And the remarks may be aimed at reducing any momentum that the more draconian pieces of bank legislation are gaining in the Senate….’I wonder how much of this is a serious policy change and how much is positioning by the administration to take on a more populist mode going into 2014,’ Nolan McCarty, a professor of politics and public affairs at Princeton University.” [9]
Give professor McCarty an A for glimpsing what the late and formerly Left Christopher Hitchens once rightly identified as “the essence of American politics…the manipulation of populism by elitism.” [10]
P.S. I am aware that I have written this essay while what is billed as a major speech in the populist and progressive mode is being delivered an hour and a half west of me by deeply conservative neoliberal President Obama, the man who – as Chris Hedges notes in a recent remarkable interview on the Real News Network – “destroyed Occupy…in a coordinated federal campaign, because the people who were most threatened by Occupy were the [corporate] Democrats, which is why they tried to co-opt the [populist and egalitarian] language and they sent out Van Jones [to say]…occupy the ballot booth and all this kind of stuff.” [11] Just having finished with another piece on the president’s weak and deceptive, fake-progressive rhetoric in relation to the George Zimmerman verdict [12], I will have to delay commenting on the Hitchensian, populism-manipulating content of Obama’s latest “great speech” until early next week. For some larger historical context, please see my July 4th piece “Gettysburg Reflections”: http://www.zcommunications.org/gettysburg-reflections-by-paul-street
Paul Street (www.paulsteet.org) is the author of many books. His next, They Rule: The 1% v. Democracy will be released by Paradigm Publishers next January.
1. New York Times editors, New York Times, July 12, 2013; Paul Krugman, “Hunger Games, U.S.A,” New York Times, July 14, 2013.
2. Michael Corkery and Matthew Dolan, “Detroit’s Bankruptcy Sparks Pension Braw;,” Wall Street Journal, July 19, 2013, A1, A4
3.The WSJ’s Corkery tells me in an e-mail that it is too early to tell but I consider this a 75 percent probability.
4 Corkery and Dolan, “Detroit’s Bankruptcy.”
5. Jane Slaughter, “The Scourging of Detroit,” Counterpunch (July 23, 2013), http://www.counterpunch.org/2013/07/23/the-scourging-of-detroit/
6. Monica Davey and Mary Williams Walsh, “Billions in Debt, Detroit Tumbles Into Insolvency,” New York Times, July 19, 2013, A3.
7. Ben Protess and Jessica Silver-Greenberg, “A New Tactic by JPMorgan: Conciliation,” New York Times, July 16, 2013, A1, A3; Jessica Silver-Greenberg, JP Morgan Executive May Escape Penalty,” New York Times, July 18, 2013, http://dealbook.nytimes.com/2013/07/18/jpmorgan-executive-may-escape-penalty/?ref=
8. Peter Eavis, “Big Banks, Flooded in Profits, Fear Flurry of New Safeguards,” New York Times, July 18, 2013, A1, B8.
9. Eavis, “Big Banks, Flooded in Profits.”
10. Christopher Hitchens, No One Left to Lie To: The Values of the Worst Family (New York: Verso, 2000), 17-18.
11.Chris Hedges, “America is a Tinderbox,” Real News Network (July 19, 2013), http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=10461
12. Paul Street, “The Obama Project and the Politics of Race,” Black Agenda Report (July 24, 2013), http://www.blackagendareport.com/content/obama-project-and-politics-race