Feed the Rich, starve the Poor

Feed the Rich, Starve the Poor

By Terry Morrone

The House of Representatives recently cut the food stamp program by 39 billion dollars over the next 10 years. That’s 3.9 billion per year. In the same week, the Federal Reserve announced that it would continue quantitative easing as before, that is, the “Fed” would create 85 billion a month out of thin air, using 45 billion to buy treasury bonds and 40 billion to buy mortgage backed securities. Quantitative easing has recently been reduced to 65 billion a month, but it’s still a lot of money. It seems that the Fed now owns most of the mortgage backed securities.

The food stamp program cost the taxpayer 72 billion in 2012, up from 30 billion a year before the financial crisis. Forty-eight million people receive an average of 1565 dollars each per year. At a time when food prices are rising rapidly, the republicans want to cut food stamps.

Food stamps are an example of welfare for the poor, but Walmart employees are paid so little that they qualify for food stamps. Because of food stamps, Walmart can pay their employees less, so food stamps are partially welfare for the rich.

The Fed has bought trillions of dollars of mortgage backed securities. Most of these securities were created during the run up to the financial crisis. According to the FBI, 75 percent of them are fraudulent. The companies issuing them, such as Countrywide and Ameriquest , sold them as fast as they could to brokerage firms and banks such as Lehman Brothers and Goldman Sachs. For brevity let’s call the brokerage firms and banks simply banks. They cared little if the people getting the mortgages could afford to pay for them or not. They encouraged them to borrow more than they could afford, so they could get larger selling prices and fees. In many cases the people getting the mortgages were not told that the mortgages were sub-prime and that interest payments would increase after a few years. In many cases the people getting the mortgages were poor and from minority communities. Often clauses were added to the mortgages illegally.

The banks cared little for the quality of the mortgages because they quickly bundled them into securities and sold them all over the world in collusion with the rating agencies who rated them AAA.

When it became apparent that the revenue stream from these mortgage backed securities would be much less than expected, their market value plunged. Many banks were caught holding them. The bankers that got caught were not necessarily stupid, but succumbed to arrogance and ego. They began to believe their own propaganda, and were caught in “group think” and held on to some of the better quality mortgage securities. It also takes time to bundle the mortgages into securities and when the crash came they had many mortgages on their books that they hadn’t had a chance to sell. Some of the banks and insurance companies (AIG for example) sold insurance on the mortgage backed securities.  It was a form of gambling. That is, if the value of the securities dropped they would have to pay billions to the holders of the insurance (the smart guys).  If the banks sold the mortgages securities at market value they would have had to show a big loss on their books, so they held on to them.

While the bankers were poor business men, they excelled at bribing politicians and placing friends into high places. So they were bailed out. The amount of the bailout is about 20 trillion dollars and is still growing. The Fed bought many of these mortgages at high prices and paid off the “gambling” debts of AIG and others. This digression was just to make the point that at least part on the 40 billion a month in welfare for the banks (till it was reduced) far exceeds the food stamp payments, not to mention the 16 trillion of welfare in the financial crisis. The generous bail out came mostly from money created by the Fed which allowed the banks to give generous bonuses to their executives. According to an article by Jack Rasmus in the February issue of Z magazine 2 to 3 trillion was provided to non bank companies in the form of tax cuts, subsidies and government spending and the fiscal cliff deal of Jan, 1 2013 allowed another 4 trillion of the Bush tax cuts tax for the wealthy to continue to 2023.

At any rate when bankers make mistakes and commit fraud, they get big bonuses and get bailed out. When poor people get tricked into buying homes they cannot afford, they end up out in the street.

Banks and corporations receive a lot more in welfare than the bailout. I’m going to quote from the 2004 book, “Take the Rich Off Welfare” by Mark Zepezauer.

Tax Avoidance by Transnationals -- 137.2 billion a year

International Corporations manipulate their books so that most of the money they earn happens to be in countries, such as the Cayman Islands, where there is a very low or zero corporate income tax.

Lower Taxes on Capital Gains – 89.8 billion a year

Income is made to look like it’s a capital gain.

Accelerated Depreciation – 85 billion a year

Real Estate owners are allowed to deduct depreciation from their income. Land values are minimized by the government and the same property if sold can be depreciated over and over again.

Military Waste and Fraud – 224 billion a year

It’s probably much more now because the defense budgets have grown since the book was written.

Here’s a hand out to the banks that came after Zepezauer’s book was written: The discount window is a service whereby the Fed used to make overnight loans to banks. Now the big brokerage houses have gotten themselves classified as banks and they can borrow money at .25 % interest. The repayment period has been extended to 6 months. Almost anyone can make money by borrowing money at .25% and investing it at higher rate. Some banks take the very safe way and buy treasury securities that pay more than .25%. Others borrow and lend the money to hedge funds that take over and loot companies, selling assets, borrowing , paying huge dividends, stealing the pension fund, declaring bankruptcy, and laying off the employees. Some of the hedge funds use the money to buy homes that have been forclosed on.

Others use the money to drive up the price of food and gasoline through market manipulation. Very little of the money gets invested companies that create new jobs. Other banks invest the money abroad at higher interest rates and buy up foreign companies. Recall that Elizabeth Warren suggested that students be allowed to borrow money at .25 percent interest, the same as banks.

During the Savings and Loan scandal of the 1980’s Reagan’s justice department put close to 1000 bankers in jail. The law breaking during the recent financial crisis was much worse than in the 1980’s, but not a single banker has gone to jail. Instead they have gotten hundreds of billions of dollars of bonuses.

Corporations in general, can break the law and at most pay a fine small compared to the cost of complying with the law. The Obama administration can cut back on food stamps, unemployment and medical benefits and spending on infrastructure and education, but they grant bankers, defense contractors, drug companies, real estate owners, tax cheats and others a license to steal.

And then we had the government shutdown. The republicans rightly say that we’re getting into too much debt, so let’s make the poor pay by cutting back on “Obama Care.” How about cutting back on the defense budget, or raise taxes on the rich,  or close the tax loop holes that allow corporations and rich individuals to move their income off shore? Not that I like Obama Care. It was written to benefit the insurance companies. It contains no effective cost controls. It allows he drug companies to charge outrageous prices. A single payer system would have been much better. That what the majority of Americans wanted, but those in power don’t care. All they want is more power and wealth and the hell with the planet. Their response to growing unemployment and discontent is to build more prisons and to prepare to quell a popular uprising using both American and foreign troops.  

The Obama administration and congress are winning a class war against the poor and middle class. They are the servants of the rich. Looking for a job? I hear butlers and servants are in short supply. Slave labor exists in prisons. The prison industrial complex demands that more people be put in jail so they can make more profit. The justice system complies by jailing people, including children, for minor offences.

The government fudges the employment and inflation statistics so the people won’t know how terrible the economy really is.

 It’s time to stop voting democratic or republican. I favor the Green party. It’s time to stop getting caught up in wedge issues, like gay marriage, abortion or immigration. It’s time to stop paying attention to the major media. They’re under corporate and government control. The best place to get information is on the internet. It’s time to stop watching political commercials. They’re designed to manipulate and distort.  When Obama and many other politicians say anything, any resemblance to the truth is purely coincidental. It’s time to become an activist and use the little democracy we have left to bring about change. For more information, come to the Long Island Progressive Coalition Forums at the Huntington Public Library. They’re usually held on the fourth Thursday of each month.

References

http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-bankroll-corporations.html?pagewanted=all&_r=0

Jack Rasmus, “Bernanke’s Bank An assessment”

 http://www.kyklosproductions.com/posts/index.php?p=219

Mark Zepezauer “Take the Rich Off Welfare,” South End Press 2004.