The Obama White House continues to push for a settlement that would let bankers avoid being punished - or even investigated - for a wave of mortgage-related crimes that includes perjury, tax evasion, and several types of fraud.[1]

Despite the President's new-found populism - rhetorically, anyway - officials in his Administration continue to push an unfair deal designed to conceal the financial Crime of the Century.

The Financial Times reported on new details of the proposed settlement, whose stated purpose is to punish banks and reduce the amount of money owed by underwater homeowners. But it's increasingly clear that the deal wouldn't help homeowners very much and wouldn't punish bankers at all.

Banks could lower those loan balances by reducing the amount owed on mortgages owned by investors and not by the bank itself. That's what Bank of America is accused of doing as part of an $8 billion settlement it reached in 2008. This deal would set the stage for a repeat performance.

This proposed deal is still unfair, unjust, and very unbalanced. And it has the Administration's fingerprints all over it.

Unfair

Banks deceived investors into buying bundled mortgages (mortgage-backed securities) that they knew were worth far less than they were paying. Now, as part of this settlement deal, they could shaft those investors again. Many of the investors are from the 99 percent, not the one percent. As the head of the Association of Mortgage Investors told the Financial Times, "It would be a pyrrhic victory to settle the mortgage crisis with the money of public institutions, pension funds and seniors."

The proposed deal would force banks to meet a certain dollar limit for reducing mortgage principal. But it's designed to let them use other people's money - mortgage investors' money - to reach that limit. They would have to reduce principals by a larger amount if they were using someone else's money.

Taking $1.00 off their own books might get them $1.00 closer to their goal, while using investors' money money only "earn" them fifty cents. Is that really supposed to encourage them to do the right thing?

Ask yourself: What if you were given a choice between spending a thousand dollars of your own money to pay a fine - or two thousand dollars of someone else's? (And remember: You're a banker, so don't let conscience influence your decision.) What would you do?

The money should come out of the banks' balance sheets, not those of mortgage investors that in many cases they've already defrauded. Even that isn't entirely fair: Many pension funds and other institutional investors hold bank stock, too, as do unwary private investors. They've also been defrauded by bank executives. But someone has to pay the price for trusting these bankers and tolerating their continued presence in the executive suite.

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"I feel stupid," someone said the other day. "I consider myself well-informed, but I have no idea what the term 'austerity economics' really means."

Actually it's not that complicated, and most of the lesson plan can be found in today's headlines.

We'll explain austerity to you in six steps, and we promise it it won't take more than 900 words. Since adults read an average of 250-300 words per minute - and we know all of you are above average - our little course shouldn't take more than three minutes.

It's certainly worth knowing. Despite its many failures, "austerity economics" keeps remaking - and unmaking - the global economy. The only disagreement at this weekend's Republican debate was over which candidate would push austerity more aggressively. And austerity dominated the political agenda last year - "Deficit Commission," anyone? - until Occupy came along.

Merriam-Webster named "austerity" the "Word of the Year" for 2010. But like the monster from a 1950's science-fiction movie, it just keeps on growing. This week alone the name was invoked in government houses from Athens to Lagos.

What is this creature called "austerity," and why does it still hold so much power? If you've got three minutes, let's get started.

1. What is it?

The Longman Dictionary of Contemporary English defines "austerity" as "when a government has a deliberate policy of trying to reduce the amount of money it spends."

Wikipedia calls it "a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided," adding that it's "sometimes coupled with increases in taxes to pay back creditors to reduce debt."

Got that? Austerity backers want government to spend less on benefits and public services, and to pay back its creditors more quickly. Higher taxes aren't part of the plan and they're strictly optional.

2. What's austerity supposed to accomplish?

Austerity advocates don't just see lower deficits and reduced debt as tools to promote long-term economic health. They consider them ends in themselves - sometimes even as moral values.

Many austerity advocates see government spending as inherently evil. That goes for all government spending, including police, teachers, nurses, and firefighters.

Sure, some of them will admit there can be necessary evils or useful evils - usually weapons procurement or law enforcement. But spending is always evil.

Other people aren't philosophically opposed to government spending, but have been convinced that it has become unaffordable today.

3. What's the theory behind austerity economics?

To answer that, it's important to understand that the economics profession has been systematically taken over by well-funded conservative academics. They've created elaborate theoretical constructs to prove that government spending is economically destructive.

These include theories like 'Barro-Ricardo equivalence,' which says people won't spend money when they know their government's incurring debts they'll have to pay someday. Conservative economists like Robert Barro insist this is true even in times of widespread unemployement, like now, and argue against stimulus spending to create jobs.

Oddly, they find this theory more compelling than the idea that people aren't spending money because they don't have jobs.

Then there's supply-side economics, which argues that the best way to grow the economy is by cutting taxes. That means smaller government. Supply-siders also rely on the "Laffer curve," which says people will stop investing, producing, and creating jobs if taxes are too high.

Austerity advocates also argue that international markets will lose confidence in governments if they don't curb spending and will charge them higher interest. So they even push cuts in Social Security, which doesn't even add to the deficit, because macroeconomists consider it 'government spending.'

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Former President Havel addresses a European cultural congress on the economics of culture

On a warm evening in 1991, a colleague and I found an out-of-the-way café in the old part of Prague. Two men with blank expressions stood outside. The interior was dim and close, with room for only eight or nine tables. The place was almost empty. Just a sleepy waitress, a bartender polishing glasses, and a single patron who sat alone drinking wine and chain-smoking cigarettes.

The President of Czechoslovakia wasn't reviewing official papers. He was reading a book, a startlingly un-Presidential act to our American eyes. My companion, a neoconservative State Department official, already admired him for defying and defeating a Communist state. He'd impressed me by bringing a writer's sensibility and an affinity for true underground culture to his role as head of state.

Václav Havel even tried to appoint Frank Zappa as his Minister of Culture. "We're not rock musicians," Zappa told a reporter back in the sixties. "We're electronic social workers." The State Department wouldn't let Zappa assume the post, but Havel had made his point to the Czech public by offering this apparatchik's position to the composer of songs like "What's the Ugliest Part of Your Body?" ("Some say your nose, some say your toes, but I think it's your mind.")

We never spoke to Havel that night. It didn't seem polite to offer anything more than the curt nod of acknowledgement any café patron gives another at that hour. But Havel spoke to us, to all of us. And on the occasion of his death, the real lessons of his life's work are in danger of being lost.

Today we're told that the Occupy movement is too idealistic, too naïve. Naïve? Try Havel's words if you want naïve: "May truth and love triumph over lies and hatred."

Think of that as the Velvet Revolution's "one demand."

Portrait of the President as a Young Freak

As millions of people know, the underground playwright Havel first made his political mark in Charter 77. That group was formed to defend the Plastic People of the Universe, a banned and imprisoned rock band working in the Zappa mold of musical dissonance and cultural dissidence.

The Occupy movement is not on the cultural fringe, despite what its detractors say. But Havel's movement began as a Yippie-like creature of the underworld. Charter 77 rarely had more than a thousand members. It was a strange blend of political idealism and the hippie subculture where people proudly labeled themselves "freaks" to the conventional world. Despite its later alignment with economically conservative forces, it was more Allen Ginsburg than Alan Greenspan.

And it was created to defend the Plastic People of the Universe, whose grating music makes Occupy's drum circles seem like a children's choir serenading the bored residents of a home for aging veterans.

Words

Liberté, Egalité, Fraternité - what wonderful words! And how terrifying their meaning can be! Freedom in the shirt unbuttoned before execution. Equality in the constant speed of the guillotine's fall on different necks. Fraternity in some dubious paradise ...

Havel addressed the liberal democratic West on words in the 1970s, noting that the suppression of speech can give language enormous power:

I ... live in a country where a writers' congress speech is capable of shaking the system ... a manifesto served as one of the pretexts for the invasion of our country one night by five foreign armies ... a system in which words are capable of shaking the entire structure of government, where words can prove mightier than ten military divisions.

When a system has become inflexible and is in danger of collapsing, what it fears most is words. Think about that the next time you see a phalanx of cops tear down a tent city on television.

Havel had been burned by language, too:

The same word can at one moment radiate great hope, at another it can emit lethal rays ... true at one moment and false the next, at one moment illuminating, at another, deceptive. On one occasion it can open up glorious horizons, on another, it can lay down the tracks to an entire archipelago of concentration camps.

And as we approach an election year that will be filled with the rhetoric of freedom, this observation still resonates:

The same word can at one time be the cornerstone of peace, while at another time machine-gun fire resounds in its every syllable.

Control

In 1975 Havel had the presumption to write directly to Czechoslovakian head of state Gustáv Husák with a few suggestions. There's more than a passing resemblance between the fear-driven Communist society Havel condemned in that letter and the financial anxiety many Americans endure today:

The technique of existential pressure is ... universal. There is no one in our country who is not, in a broad sense, existentially vulnerable. Everyone has something to lose and so everyone has reason to be afraid. The range of things one can lose is broad, extending from the manifold privileges of the ruling caste... down to the mere possibility of living in that limited degree of legal certainty available to other citizens.

Today, one out of two Americans lives in financial insecurity. Even many upper-middle-class citizens live from month to month, just one layoff notice away from medical bankruptcy or home foreclosure.

"Everyone has something to lose," observed Havel.

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This is a remarkable video, on so many levels. I crochet, always on the lookout for new ideas. These women are part of a community based organization called the Kibera Integrated Empowerment Group, seventy women, ninety percent of them HIV positive, who live in one of the sub-Sahara’s most crowded slums. This clip was shot by Charles Stuart Gay, a remarkable man who runs Humanity Unites Brilliance, dedicated to promote opportunities for some of the world’s most disadvantaged people – and you don’t get much more disadvantaged than being an HIV positive woman living in an African slum – through education, micro-loans, and small business schemes to “create self-sustainability.” That’s a fancy way of saying “make a living.” He also works with Craft Link Kenya, a fair trade market organization working with designers and retailers around the world to provide distribution for the Kenyan artisans creating a wealth of handmade goods, strongly focused on combating poverty while at the same time promoting environmentally friendly enterprises.

They employ over one thousand women in the Kitui district who weave sisal products. Eight hundred rural Maasi woman in Sambura, Magadi and Kajianda who produce beaded goods tailored for a Western market. One thousand men in Nairobi carve exquisite wooden products, and four thousand people in Mombasa working to orders coming in from Europe and North America. But by far, for me, the most impressive group of people are these women in Kibera, crafting amazing handbags out of recycled plastic carrier bags. Because not only are they creating a product that is helping them make a living, they’re consciously environmentally active, aware of and dedicated to whatever they can do to help save our planet.

Yet it’s even more than that – these woman have so little, and yet this video was made so that they could show you how to make your own bag, if you prefer. They have nothing but their intellectual property in designing these bags, and what they can make selling them in the world market – yet their generosity of spirit is so humbling I was close to tears. That’s all they have – and they’re willing to share it with you, and me. So as embattled as we are while we’re fighting for the future of the 99%, let’s take a moment to remember that the vast majority of the world’s 99% doesn’t even live in Europe or North America.

Michael Lewis, of course, is the author of The Big Short, The Blind Side and more recently Boomerang: Travels in the New Third World.

Asked if Wall Street should be worried about the protests: "They should be worried, this is how reform happens."

He also remarked that Occupy Wall Street "has justice on their side."

Preach.

Maryland Blogger and International Brotherhood of Electrical Workers activist Cory McCray discusses the problems that led to Baltimore's inner city section seeing a rise in the poverty rate of 20 percent in one year:

Yes the federal government, banks, and Wall Street have contributed to the increased poverty rate in inner city neighborhoods, but Baltimore City should not be surprised because it’s lawmakers have also contributed to the problem of unemployment and underemployment which has an adverse effect of increasing poverty within Baltimore City. Here are three clear examples of how Baltimore City lawmakers are a part of the problem, while denying favorable solutions.

This is part of a larger problem we're seeing across the country during the tough economic times created by Republican policies. It isn't just the bad policies put forth by George W. Bush and Republicans in Congress (and often supported by too many Democrats), it's a matter of either incompetent or even more extreme partisan conservatives blocking good policies and passing bad policies at the state and local level that is making the economy and jobs situation even worse.

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Credit: Census Bureau

Mean Household Income 1978-2010

The evil Census Bureau released some economic data which tells us that the rich keep getting richer, the middle class remains stagnant and the poor are even poorer.

So while the poorest Americans actually make less than they did in 1978, and the middle class has seen its income stagnate, the richest Americans have done far better. And the data in the Census report actually obscures the extent to which the wealthy have gained while everyone else has been stuck in neutral, because it doesn't break out the richest one percent, whose incomes have really soared. Unsurprisingly, the Census Bureau's Gini Index of Income Inequality shows a steady increase in income inequality over the past four decades.
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It's no coincidence that all of this has taken place while the nation's political and media elite favor policy changes that further rig the system against the poor and middle class and behave as though the only tax policy that matters is tax policy that affects the rich. Just as it's no coincidence that elites in both politics and media have financial incentives to favor policies that help the rich at the expense of the rest of the country.

But we need more tax cuts and austerity measures across the board based on what evidence? When I saw The Debate episode in the final season of West Wing back in 2005, it got a lot of attention because it was airing live. Much of Alan Alda's entire economic policy centered around tax cuts, tax cuts and tax cuts. It made me chuckle, but looking back on it now, Lawrence O'Donnell just nailed it. (I couldn't find a longer version of this portion of the episode)

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Aw, isn't it the sweetest? Eric Cantor insists on standing by his man, Paul Ryan, telling Meet the Press host David Gregory that the Republicans must "embrace" Ryan's Roadmap for America.

DAVID GREGORY: How about-- and-- and the irony-- of Paul Ryan being introduced as the budget chairman-- and he's doing the response to the State of the Union. He is the one who's proposed draconian-- cuts to--

REP. ERIC CANTOR: Right.

DAVID GREGORY: --Social Security and to Medicare.

DAVID GREGORY: And Republicans don't stand behind him.

REP. ERIC CANTOR: That's not true. I just told you that-- we put a chapter in our book about it because the direction in which the road map goes is something we need-- we need to embrace.

Actually, it *is* true and as Jon Perr writes, Cantor can't hide his "Ryan eyes" :

During the 2010 midterm elections, John Boehner's "GOP Pledge to America" took those two popular programs off the table when it came to his now broken $100 billion budget cut promise. The much-hyped Republican Study Committee plan to slash $2.5 trillion in discretionary spending for Democratic priorities similarly includes what Boehner's Pledge deemed "common-sense exceptions for seniors." And throughout the fall campaign, the same Republican Party that tried to kill Medicare in the 1960's and gut it in the 1990's falsely accused Democrats wanting to cut benefits to 46 million American elderly.

Which is why Paul Ryan's Roadmap for America makes the Republican leadership queasy. Because while most no doubt agree in principle with Ryan's "slash and privatize" agenda, they are terrified of saying so on the record.

In February, House Minority Leader John Boehner distanced himself from Ryan's Roadmap, saying, "it's his." In July, Boehner grumbled, "There are parts of it that are well done," adding, "Other parts I have some doubts about, in terms of how good the policy is." And with good reason. With its draconian spending cuts, Medicare rationing, tax cuts for the rich and Social Security privatization, a GOP platform based on Ryan's Roadmap would about as popular as the Ebola virus. As the Washington Post put it:

Many Republican colleagues, who, even as they praise Ryan for his doggedness, privately consider the Roadmap a path to electoral disaster...

The discomfort some Republicans feel for Ryan's proposals goes beyond November. If Republicans were to take control of Congress next year, Ryan will rise to chairman of the Budget Committee. He could use the position to hold colleagues accountable for runaway budget deficits and make it more difficult for fellow Republicans -- and Democrats -- to stuff bills with expensive projects that add to the problem.

Why is it that Republicans love to say that "everything is on the table" but the only thing that actually ever gets mentioned is the two most successful programs for the average American and cutting for those who can least afford it? Let's be clear: Social Security is NOT an entitlement--it's a trust. Nor will it ever be insolvent if the income cap is removed. That's all it would take, but instead we have Republicans preaching austerity measures for senior citizens as if that would solve all our economic woes. Idiots.

Every fair-minded analysis makes clear that Ryan's roadmap is a right-wing fantasy, slashing taxes on the rich while raising taxes for everyone else. The plan calls for privatizing Social Security and gutting Medicare, and fails miserably in its intended goal -- cutting the deficit. As Paul Krugman explained, the Ryan plan "is a fraud that makes no useful contribution to the debate over America's fiscal future."

I really hope that the Republicans keep going along this track. The Republican voter is typically older and let's see how much support they can count on when they go after Social Security and Medicare.

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What makes me saddest of all things in the world is this: the vast majority of the time the right thing to do morally is the right thing to do in terms of broad self-interest, and yet we don’t believe that and we do the wrong thing, thinking we must, thinking that we’re making the “hard decisions”.

This spans the spectrum of issues. It doesn’t matter whether you’re talking about foreign affairs, where the money used on Iraq and Afghanistan could have rebuilt America and made it more prosperous. It doesn’t matter if you’re talking about health care, where everyone knew that the right thing to do was single payer or some other form of comprehensive healthcare, which would have reduced bankruptcies massively, saved 6% of GDP and massive numbers of lives. It doesn’t matter if you’re talking about the financial crisis, where criminally prosecuting those who engaged in fraud (the entire executive class of virtually ever major financial firm) and nationalizing the major banks, wiping out the shareholders and making the bondholders eat their losses was the right thing to do, and didn’t happen. It doesn’t matter if you’re talking about drug policy, where the “war on drugs” has accomplished nothing except destabilizing multiple countries and giving the US the largest prison population proportional to population in the entire world and where legalizing marijuana, soft opiates and coca leaves would save billions of dollars, reduce violence, help stabilize Mexico and would help tax receipts. It doesn’t matter if you’re talking about food, where we subsidize the most unhealthy foods possible and engage in practices which have reduced the nutritional content of food by 40% in the last half century. It doesn’t matter if you’re talking about environmental pollutants, which have contributed to a massive rise in chronic diseases so great it amounts to an epidemic.

And on, and on, and on.

Now the fact is that there is no free lunch. When you spend money on war, you can’t spend it on education or health or crumbling infrasture or civilian technology. When you allow oligopolies to control the marketplace and buy up politicians, the cost of that is a decreased standard of living. When you refuse to deal effective with externalized health pollution, whether from soda pop or carcinogens, you pay for that with the death of people you care for from heart disease, cancer and other illnesses.

The response is “we have to do this to protect ourselves/to make a profit”.

No, you don’t.

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Balloon Juice: This is analysis

Nitpicker: Teapartiers vs. George Washington

Tina Dupuy: Feminism in the wake of 'Ladies' Night'

Economist's View: "The Economics of Libertarianism"

The Washington Independent: S.C. Dems move ahead with challenge

Words of Power: Which tide will overcome?