Bill Black: Compromise on tax hikes on rich and allowing payroll taxes to rise sets the ground for a "grand betrayal" yet to come.
William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics. Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement. Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
Paul Jay, Senior Editor, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to this week's edition of Bill Black's financial and fraud report.
Bill is associate professor of economics and law at the University of Missouri–Kansas City. He's a white-collar criminologist, a former financial regulator, and author of the book The Best Way to Rob a Bank Is to Own One. Thanks for joining us,
Bill Black, Assoc. Prof. Economics and Law, UMKC: Thank you.
Jay: Well, let's talk about the annual end-of-year piece of theater and drama that the Senate and the House put together with President Obama. Do you consider this fiscal cliff deal, as it's being called, a necessary compromise? A grand betrayal, as you were warning against? Something else?
Black: Definitely (C), none of the above. They attempted to do the moderate betrayal. President Obama sent over a list of proposed concessions to Senate majority leader Reid, and fortunately for America, Senator Reid threw it in his fireplace and burned it up.So at this point the deal isn't much of a deal. They have kicked the can down the road for two months, where the Republicans can use the leverage of the debt limit, plus this two-month extension.So President Obama has yet again managed to show that he's very good at negotiating against himself, but the Republicans have also shown that they have taken over the old joke about the Democrats forming circular firing squads and aiming at each other—and apparently hitting a fair amount.
Jay: Did you get a sense that President Obama was willing to, quote-unquote, give in more, give more what the Republicans wanted? It was the Senate—and then perhaps the House, but the Senate that wouldn't go along with it, or not?
Black: Yeah, no, it's Senate Democrats that killed it. Actually, the efforts of everybody to stop the great betrayal—you know, again, it's too early to declare victory, because we're going to be facing this again very soon, but to this point, the Senate has prevented that betrayal. And that's something that—the Obama administration and the Republicans wanted to cut social programs, wanted to cut the safety net. So it's an odd coalition that prevented that, of the Senate liberal Democrats and the House Tea Party Republicans.
Jay: So just go over some of the specifics of what has been agreed to and what are the consequences.
Black: Well, the good news is that they have extended long-term unemployment benefits for a year, not just for two months. And that was essential. That was 2 million people that would have lost their benefits. And, of course, it would be the group that has been unemployed for two years or more and have virtually no resources left. So that's the best single thing that happened.The worst thing that didn't happen was that they did not extend the reduction in the payroll tax. And that tax is our most progressive, and it also means that we get the biggest bang for our buck in terms of improving the economy when we didn't collect it, and it would have countered some of the other drag effects of increasing taxes. So that was a very bad thing. And it was a bipartisan thing. Neither party wanted to do the sensible thing on payroll taxes. So that's one of our frustrations is we couldn't get that done.As to the so-called fiscal cliff, the sequestrations—that means the automatic huge budget cuts that would have been austerity and would have thrown the United States back into recession—those are put off, but only for two months. And the clock on the debt ceiling is coming up, and the Tea Party Republicans are making clear—and Boehner, House Speaker Boehner, has made clear that he's going to try to extort concessions using the leverage—pointing what Donald Trump calls his nuclear weapon at the U.S. economy and say, unless you cut social spending and the safety net, I'll blow up the U.S. economy.That, of course, shouldn't be a credible threat, and Obama is at least saying the right things, that he'll make no concessions about that, but given his track record, you know, it's going to take all of us to keep him true to his word of not making concessions.
Jay: Now, the thing that's getting the most attention is the changing of the level of the tax increase on the wealthy from $250,000, which President Obama said he wanted—they've gone—I guess it's with $400,000 on a single, I think $450,000 on a couple.
Black: A household.
Jay: A household. But it seems to me the more significant is what you just mentioned, the not extending the payroll reduction in taxes, that this—where the attention is all on what's happening with the wealthy.
Black: Yeah. Again, this has been clever politically by President Obama, and it's just a classic example of watch my left hand, watch my left hand, when the action is really taking place in the right hand. So they've gotten a small increase in taxes for the wealthiest 1.5 percent of Americans, but they've given up the substantial reduction in taxes for working-class Americans. And net, that's not a good deal for an economy that's struggling to recover from the Great Recession.
Jay: Now, is there a sense here that there's some shift in the politics of Washington, they were actually able to make a deal? Does Obama come out of this looking any stronger? Or, in other words, two months from now, what do you think we're looking at?
Black: There is a sense that certainly Grover Norquist has been shown to be no longer the foe that you cannot beat, so that they have agreed to do a bit of a tax increase for the wealthiest Americans. And what you have to remember is that roughly three-quarters of the Republicans in the House voted against this deal.
Jay: Which suggests what's coming next. I suppose part of the context of this is that corporate America, Wall Street, the stock market, they wanted a deal. They're not on quite the same page as the Tea Party sort of ideologues. And they like this deal, more or less. They market went way up today.
Black: What the market likes is that they did not adopt austerity. So the fundamental insanity at all times was that they put together, one, we must avoid the fiscal cliff because that's austerity and it'll throw us into recession, and two, therefore we must make far greater budget cuts, adopt far greater austerity.Now, obviously, that's insane logic. But you'll notice that the media, the mainstream media, doesn't call them on it. So if you look at the—if your viewers look at The Wall Street Journal, you'll see all these comments from people who forecast the economy. And while they're not all the same, the great bulk of them are we need stimulus to have a substantial recovery, so it's very good news that they didn't cut spending. And this is big business we're talking about. This is in fact big finance. These are the Merril Lynches and Citicorps of the world saying this, and PIMCO, the bond fund, the largest bond fund in the world.
Jay: So, just finally, two months from now, when, again, as you said, the nuclear weapon is going to be threatened, the debt ceiling issue, you've suggested before there's alternatives if President Obama really doesn't want to cut entitlements in exchange for raising the debt ceiling. So just quickly, again, tell us what you think he could do otherwise, although there's absolutely no indication he's going to do this.
Black: Right. So, again, the key is for us to put pressure on Obama to do the right thing. The first right thing—again, Obama's saying the right things, that he will make zero concessions. So let's hold him to that, because the thing about threatening a nuclear weapon against your own economy is you can't do it. Right? If you did it, you would destroy yourself as a party.
Jay: You could see that from the deal that was just made. When it came down to the wire, you know, the Republicans were not going to do something that would totally piss off all their corporate backers.
Black: That is correct. So that's the first thing. The second thing that you can do is the Fourteenth Amendment actually says, we shall pay our debts. So you simply say: pursuant to my constitutional responsibilities, I am directing Treasury and the Federal Reserve to pay all U.S. debts.The second way that you can do that type of thing is—it's a weird one, but it's a interesting loophole in the law that allows us to make a platinum coin of any amount. So we can make trillion-dollar platinum coins. It would have no effect on anything other than getting around this stupidity of the budget ceiling.Remember, the budget ceiling doesn't save any money. What it would say, if you ever used it, was, we are not going to pay our debts; we're going to default on our debts even though we have the complete ability to pay our debts, which—(A) that's immoral, and (B) it's insane, at least self-destructive.And the third thing you can do is you don't actually have to issue debt, because the real deal about money is that it's actually created by keystrokes on computers. And we use bonds for other purposes in, you know, pretty abstract macro economics, not because we actually have to get cash. And if you've ever wondered if this is true, ask IRS sometimes what happens if you send in cash to pay your tax bill. And here's—I'll tell you what happens: they burn it or shred it.
Jay: So two months from now—President Obama, first of all, he knew now that they wouldn't really create this level of crisis, quote-unquote go over the cliff. But certainly I think it's—he knows that the Republicans, at least the group that voted for this deal in combination with Democrats, can pass things in the House. So he has to know they're not going to really not raise the debt ceiling, 'cause they're not going to throw the economy into chaos, because the Republicans' own corporate funders don't want that to happen. Knowing all this, President Obama continues to participate in the theater.
Black: That's right. So if you have any spine, you win. But the discouraging thing in all of this is that, of course, Obama had the leverage to get them to extend the debt ceiling for years, and instead, all the reports are that Biden threw that away and agreed for no concession, to only do a two-month extension of the debt ceiling.
Jay: And this is because—I keep talking about the corporate backers of the Republican Party, but the corporate backers of the Democrats in the long run do want cuts in entitlement programs—quote-unquote "entitlement programs". That's not even a good word to use. I should be calling it the social safety net.
Black: Yeah. And worse than that, what their real dream is—and this is Pete Peterson from Wall Street, a billionaire Republican, who has said he's going to spend $1 billion, where his ultimate goal is to privatize Social Security so that Wall Street will obtain literally hundreds of billions of dollars in fees managing our retirement.
Jay: So moderate betrayal, grand betrayal could still be on the horizon.
Black: Oh, definitely. But for the American people putting pressure on Senate Democrats, and but for the self-destructive craziness of the Tea Party, it already would have happened in July 2011. So we've got to keep it going.
Jay: Alright. Thanks for joining us, Bill.
Black: Thank you.
Jay: And thank you for joining us on The Real News Network.