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Nobody can keep track of all the big bank fraud cases #TBTF #OWS

If you’re anything like me, this week’s announcement that 5 banks – JP Morgan, Citigroup, Barclays, RBS, and UBS – have pleaded guilty to manipulating foreign exchange markets is both confusing and more than vaguely familiar.

It was a classic price fixing cartel, and it went along these lines: these big banks had all the business, being so big, and the traders got on a chat room and agreed to manipulate prices to make more money. The myth of the free market was suspended, and eventually they got caught, in large part because of leaving stupid messages like “If you aint cheating, you aint trying”.

But hold on, I could have sworn that these same banks, or a similar list of them, got in trouble for this already. Or was that LIBOR interest rate manipulation? Or was that for mortgage fraud? Or was that for robosigning?

Shit. I mean, here I am, someone who is actively taking an interest in financial reform, and I actually can’t remember all the fines, settlements, and fake guilty pleas to criminal charges.

I say “fake” because – yet again – nobody has gone to jail, and the banks found guilty have immediately been given waivers by the SEC to continue business as usual. According to this New York Times article, the Justice Department even delayed announcing the charges by a week so those waivers could be granted in time so that business wouldn’t even be disrupted. For fuck’s sake.

But again, same thing as all the other “big bank events” that we’ve grown tired of in the last few years. What it comes down to is fines, but then again, the continued quantitative easing has essentially been a gift of cash to those same banks, so I wouldn’t even count the fines as meaningful.

In fact I’d call this whole thing theater. And really repetitive, boring theater at that, where we all nod off because every scene is the same and they’ve turned up the heat too high.

The saddest part is that, given how very little we’ve improved about the integrity of the markets – I’d argue that we’ve actually gone backwards on incentives not to commit fraud, since now everything has been formalized as pathetic – we are bound to continue to see big banks committing fraud and then not getting any actual punishment. And we will all be so bored we won’t even keep track, because nobody can.

Categories: #OWS, finance

Occupy Summer School #OWS

I’m super excited to announce that the Alt Banking group is creating a summer school program, which we’re calling Occupy Summer School. The project has a webpage with more details, but briefly:

  • It will last three weeks, taking place in a downtown Brooklyn high school.
  • The first week we will bring in cool and inspiring organizers and activists who will hopefully connect with the kids
  • The second week we will delve into topics and the kids will decide what they care about and, by the end of the week, what they will protest and how,
  • The third week the students will plan the protest, including training on safe protesting techniques, they will stage it and write it up, and hopefully help the issue get media attention.
  • So far we have ideas for the first week, including a few of our really interesting and thoughtful members going to facilitate conversations around what’s going on in Baltimore, and how to stage a creative protest, involving our very own Marni Halasa:marni
  • We are starting to line up speakers for the second week, but we are waiting on a focus group to come back to us from the students to see what topics they get really excited about. We want them to more or less lead the way.

What an exciting project! I can’t wait for it to start.

Categories: #OWS

The Police State is already here.

The thing that people like Snowden are worried about with respect to mass surveillance has already happened. It’s being carried out by police departments, though, not the NSA, and its targets are black men, not the general population.

Take a look at this incredible Guardian article written by Rose Hackman. Her title is, Is the online surveillance of black teenagers the new stop-and-frisk? but honestly that’s a pretty tame comparison if you think about the kinds of permanent electronic information that the police are collecting about black boys in Harlem as young as 10 years old.

Some facts about the program:

  • 28,000 residents are being surveilled
  • 300 “crews,” a designation that rises to “gangs” when there are arrests,
  • Officers trawl Facebook, Instagram, Twitter, YouTube, and other social media for incriminating posts
  • They pose as young women to gain access to “private” accounts
  • Parents are not notified
  • People never get off these surveillance lists
  • In practice, half of court cases actually use social media data to put people away
  • NYPD cameras are located all over Harlem as well

We need to limit the kind of information police can collect, and put limits on how discriminatory their collection practices are. As the article points out, white fraternity brothers two blocks away at Columbia University are not on the lists, even though there was a big drug bust in 2010.

For anyone who wonders what a truly scary police surveillance state looks like, they need look no further than what’s already happening for certain Harlem residents.

Driving While Black in the Bronx

This is the story of Q, a black man living in the Bronx, who kindly allowed me to interview him about his recent experience. The audio recording of my interview with him is available below as well.

Q was stopped in the Bronx driving a new car, the fourth time that week, by two rookie officers on foot. The officers told Q to “give me your fucking license,” and Q refused to produce his license, objecting to the tone of the officer’s request. When Q asked him why he was stopped, the officer told him that it was because of his tinted back windows, in spite of there being many other cars on the same block, and even next to him, with similarly tinted windows. Q decided to start recording the interaction on his phone after one of the cops used the n-word.

After a while seven cop cars came to the scene, and eventually a more polite policeman asked Q to produce his license, which he did. They brought him in, claiming they had a warrant for him. Q knew he didn’t actually have a warrant, but when he asked, they said it was a warrant for littering. It sounded like an excuse to arrest him because Q was arguing. He recorded them saying, “We should just lock this black guy up.”

They brought him to the precinct and Q asked him for a phone call. He needed to unlock his phone to get the phone number, and when he did, the policeman took his phone and ran out of the room. Q later found out his recordings had been deleted.

After a while he was assigned a legal aid lawyer, to go before a judge. Q asked the legal aid why he was locked up. She said there was no warrant on his record and that he’d been locked up for disorderly conduct. This was the third charge he’d heard about.

He had given up his car keys, his cell phone, his money, his watch and his house keys, all in different packages. When he went back to pick up his property while his white friend waited in the car, the people inside the office claimed they couldn’t find anything except his cell phone. They told him to come back at 9pm when the arresting officer would come in. Then Q’s white friend came in, and after Q explained the situation to him in front of the people working there, they suddenly found all of his possessions. Q thinks they assumed his friend was a lawyer because he was white and well dressed.

They took the starter plug out of his car as well, and he got his cell phone back with no videos. The ordeal lasted 12 hours altogether.

“The sad thing about it,” Q said, “is that it happens every single day. If you’re wearing a suit and tie it’s different, but when you’re wearing something fitted and some jeans, you’re treated as a criminal. It’s sad that people have to go through this on a daily basis, for what?”

Here’s the raw audio file of my interview with Q:

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Review: The New Prophets of Capital

Last night I finished reading Nicole Aschoff’s new book, The New Prophets of Capital, which was published as part of the Jacobin series of books. Here’s a description from their website of their book series:

The Jacobin series features short interrogations of politics, economics, and culture from a socialist perspective, as an avenue to radical political practice. The books offer critical analysis and engagement with the history and ideas of the Left in an accessible format.

And by the way, if you don’t know what Jacobin magazine is, you should take a look. I recently signed up to receive the paper versions of all of their magazines and books, which was my version of a donation to a good and very thoughtful cause.

Aschoff’s book explores the storytelling nature of modern capitalism and neoliberalism, and focuses on the underlying assumptions, as seen through four larger-than-life figures: Sheryl Sandberg, Whole Foods founder John Mackey, Oprah, and Bill (and Melinda) Gates.

She does a good job of explaining, in plain, non-academic English, what’s wrong with these people’s messages. If you’re wondering what exactly bothers you about the Lean In movement, for example, take a look at the chapter on Sandberg, the book is worth it just for that.

The book is short, only 6 chapters. The first chapter gives reasoning for the book, describing how storytelling matters when we think about how culture works, and then the heart of the book follows with a chapter on each person listed above – the “prophets” – with their particular flavor. There’s also a concluding chapter, which is the least convincing, as it was extremely condensed and left too much reasoning unexplained.

The unifying theme throughout the four chapters devoted to the prophets is how these four people manage to be both public critics and private protectors of the current economic system, with an emphasis on protection.

So when Sandberg tells us to lean in, she’s telling us to conform to the way things are, not to threaten it in any way. When Oprah tells us that we have it in ourselves to live fantabulous lives, she’s giving us personal responsibility to be happy and fulfilled, and structural inequality is not acknowledged or recognized. When John Mackey or Bill Gates sees a problem, they set up a “free market solution” to that problem, even though, by definition, poor people don’t have money to pay for what they need.

While none of the book’s material was entirely new to me, it was interesting to see the connections deliberately made between the prevalent high-level business mindset and the individual choices we make for ourselves based on how we imagine the world works. If I really believed the Sandberg line, I’d still be working at a hedge fund, doing my best to please my colleagues and ignore my kids. If I had bought into Oprah’s context-free attitude, I’d blame people for their poverty and think it amounts to bad decision making.

The book isn’t entirely consistent. It maintains both that Bill Gates believes entirely in a free market and that he undemocratically influences education reform in this country with his money. Maybe those are consistent claims but it’s not obvious to me (although I agree with the undemocratic nature of his mega-philanthropy).

It’s a good book. I’d like a bunch of people to read it so we can have a discussion group. I also get the impression that Aschoff could write one of these a year, and I plan to follow her work.

Categories: #OWS, economics, musing

Affordable Housing Needs a Reset #OWS

I’m super proud of the latest Huffington Post piece that Alt Banking put out entitled Affordable Housing Needs a Reset. Here’s an excerpt:

We’ve been hearing a lot lately from New York Mayor de Blasio on his affordable housing plan. He says he will “build or preserve” 200,000 housing units, but the plan would only build 8,000 units a year. Unless it is radically changed, the mayor’s plan will squander public assets, enrich real estate developers, but do very little for the record number of people living in the shelter system or at risk of landing there.

Let’s first talk about how the term “affordable housing” is defined and whether it jives with our concept of the kinds of places New Yorkers can actually afford to live in. The mayor’s plan defines an apartment renting for $41,500 a year as affordable because a family of four with $138,435 in income can afford it ― even though that is more than twice the actual New York City median 4-person household income of $63,000. That is, most New Yorkers cannot afford an “affordable apartment” by the mayor’s standards.

The mayor’s plan tracks the pattern New York City has religiously followed for quite some time of trying to “incentivize” private development. The city effectively pays a fortune to private developers to build this kind of stuff. Here is a frightening statistic from the Association for Neighborhood and Housing Development: in 2013, New York City gave private developers a pass on $1.2 billion in taxes in order to stimulate the building of 153,000 units of housing ― just 12,000 of which met the messed-up definition of affordability. Hard to believe we couldn’t have done a lot better by simply collecting those taxes.

Read the rest of the essay here.

Categories: #OWS, economics, news

Mortgage tax deductions and gentrification

Yesterday we had a tax expert come talk to us at the Alternative Banking group. We mostly focused on the mortgage tax deduction, whereby people don’t have to pay taxes on their mortgage. It’s the single biggest tax deduction in America for individuals.

At first blush, this doesn’t seem all that interesting, even if it’s strange. Whether people are benefitting directly from this, or through their rent being lower because their landlord benefits, it’s a fact of life for Americans. Whoopdedoo.

Generally speaking other countries don’t have a mortgage tax deduction, so we can judge whether it leads to overall more homeownership, which was presumably what it was intended for, and the data seems to suggest the answer there is no.

We can also imagine removing the mortgage tax deduction, and we quickly realize that such a move would seriously impair lots of people’s financial planning, so we’d have to do it very slowly if at all.

But before we imagine removing it, is it even a problem?

Well, yes, actually. Let’s think about it a little bit more, and for the sake of this discussion we will model the tax system very simply as progressive: the more income you collect yearly, the more taxes you pay. Also, there is a $1.1 million (or so) cap on the mortgage tax deduction, so it doesn’t apply to uber wealthy borrowers with huge houses. But for the rest of us it does apply.

OK now let’s think a little harder about what happens in the housing market when the government offers a tax deduction. Namely, the prices go up to compensate. It’s kind of like a rebate: this house is $100K with no deduction, but with a $20K deduction I can charge $120K for it.

But it’s a little more complicated than that, since people’s different income levels correspond to different deductions. So a lower middle class neighborhood’s houses will be inflated by less than an upper middle class neighborhood’s houses.

At first blush, this seems ok too: so richer people’s houses are inflated slightly more. It means it’s slightly harder for them to get in on the home ownership game, but it also means that, come time to sell, their house is worth more. For them, a $400K house is inflated not by 20% but by 35%, or whatever their tax bracket is.

So far so good? Now let’s add one more layer of complexity, namely that, actually, neighborhoods are not statically “upper middle class” or “lower middle class.” As a group neighborhoods, and their associated classes, represent a dynamical system, where certain kinds of neighborhoods expand or contract. Colloquially we refer to this as gentrification or going to hell, depending on which direction it is. Let’s explore the effect of the mortgage tax deduction on how that dynamical system operates.

Imagine a house which is exactly on the border between a middle class neighborhood and an upper-middle class neighborhood. If we imagine that it’s a middle class home, the price of it has only been inflated by a middle-class income tax bracket, so 20% for the sake of argument. But if we instead imagine it is in the upper-middle class neighborhood, it should really be inflated by 35%.

In other words, it’s under-priced from the perspective of the richer neighborhood. They will have an easier time affording it. The overall effect is that it is easier for someone from the richer neighborhood to snatch up that house, thereby extending their neighborhood a bit. Gentrification modeled.

Put it another way, the same house at the same price is more expensive for a poorer person because the mortgage tax deduction doesn’t affect everyone equally.

Another related point: if I’m a home builder, I will want to build homes with a maximal mark-up, a maximal inflation level. That will be for the richest people who haven’t actually exceeded the $1.1 million cap.

Conclusion: the mortgage tax deduction has an overall negative effect, encouraging gentrification, unfair competition, and too many homes for the wealthy. We should phase it out slowly, and also slowly lower the cap. At the very very least we should not let the cap rise, which will mean it effectively goes down over time as inflation does its thing.

If this has been tested or observed with data, please send me references.

Categories: #OWS, economics, modeling
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